KingSett Capital Inc., a Toronto- based real estate investor, plans to bid for Primaris Retail Real Estate Investment Trust (PMZ-U) in a deal valued at C$4.4 billion ($4.4 billion) to add shopping malls in Canada.
A group led by KingSett is offering C$26 per unit of Primaris Retail, KingSett said today in a statement. That’s 13 percent more than yesterday’s closing of C$23.04. Primaris units surged above the offer price, indicating investors expect a higher bid. Primaris, in a separate statement, said it hasn’t received the offer and urged shareholders to take no action.
The proposed takeover would be the largest ever for a Canadian REIT, according to data compiled by Bloomberg. Toronto- based Primaris owns a portfolio of 33 properties in 26 markets, including the Burlington Mall, Oakville Place and Place d’Orleans in Ontario, the company’s website shows.
“This is a strong and compelling offer, providing unitholders with a premium price at a time of peak valuations in the sector,” Jon Love, KingSett’s founder and managing partner, said in the statement.
Primaris said its board would “evaluate any proposal and recommend a course of action that is in the best interests of Primaris and its unitholders,” according to the statement.
Primaris rose 15 percent to C$26.40 at the close in Toronto, the most since November 2008. The units have gained 28 percent this year.
“The current bid is insufficient,” Alex Avery, an analyst with CIBC World Markets Inc. in Toronto, said in a telephone interview. It’s unlikely “to garner the support of the shareholder base.”
A 13 percent premium “isn’t all that exciting,” Avery said. For a lot of investors it makes more sense to hold on to the shares and collect dividend payments than sell because of the taxes they’d have to pay on a deal, Avery said.
KingSett’s Love said in an interview that he met with Morrison yesterday evening to notify him that the company would be making the offer. The proposed deal’s value is the sum of the company’s existing debt and value of the equity, Love said.
“I visited with John in person and delivered him a letter saying this morning we would be issuing a press release,” Love said. “We had a very courteous meeting. He said that they will commence a process.”
It took months to assemble the investor group, which includes the Ontario Pension Board, Love said.
The bid needs the support of two-thirds of Primaris shareholders, including KingSett and its partners, which already hold 7 percent of Primaris.
As part of the transaction, RioCan Real Estate Investment Trust (REI-U) would buy a C$1.1 billion portfolio of Primaris properties including five regional malls and three shopping centers.
The Canadian retail real estate market is “absolutely fantastic” with low vacancy rates, Avery said. Retailers that are looking to expand have limited choices because there isn’t much space available and it is difficult for developers to find sites across the country, he said.
Canadian REITs have been involved in 162 announced and completed deals this year valued at $27 billion, according to Bloomberg data. The Bloomberg Canadian REIT Index (BBCREIT) rose 2.3 percent today, the most since August 2011, and is up 13 percent in the past 12 months, compared with a 0.3 percent increase for the Standard & Poor’s/TSX Composite Index. (SPTSX)
The acquiring group is being advised by Toronto-Dominion Bank (TD)’s TD Securities and the law firms Osler, Hoskin & Harcourt LLP and Bennett Jones LLP. KingSett Capital has completed transactions worth C$12.5 billion in the past decade.
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