H&R Real Estate Investment Trust said it trumped a hostile bid for Primaris Retail Real Estate Investment Trust with a friendly deal that would create the largest REIT in Canada based on enterprise value.
H&R offered about C$27.33 in cash and stock for Primaris, the Canadian shopping mall owner that was the target of an unsolicited C$26 cash offer last month from an investor group led by KingSett Capital Inc.
The offer is worth about C$2.68 billion ($2.72 billion) based on H&R’s share price, or about C$4.2 billion including debt, according to data compiled by Bloomberg. Primaris shareholders can choose to receive C$28 a share in cash, up to C$700 million, or 1.13 of a stapled unit of Toronto-based H&R, according to a statement yesterday.
“This will undoubtedly lead to increased traffic and sales within the Primaris portfolio and ultimately result in an increase in value to our combined unitholders,” said Tom Hofstedter, chief executive officer of H&R, in the statement.
The proposed takeover would be the largest ever for a Canadian REIT, according to Bloomberg data. Primaris owns 33 properties in 26 markets, including the Burlington Mall, Oakville Place and Place d’Orleans in Ontario, the company’s website shows.
The deal needs approval from two-thirds of Primaris shareholders and at least 50.1 percent from H&R holders, with the vote scheduled for a meeting in March.
Canaccord Genuity and Evercore Partners advised the independent committee set up by Primaris in the wake of a hostile bid by KingSett Capital. McCarthy Tetrault LLP was legal counsel to the committee and to Primaris.
Louise Kozier, spokesman for Kingsett Capital, declined to comment in an e-mail.
The takeover would yield savings of C$10 million over two years and deleverage H&R’s balance sheet, the company said. Primaris would boost shareholder payouts by 20 percent. H&R is entitled to a break fee of C$106.6 million if Primaris accepts a superior hostile bid.
Ken Avalos, an analyst at Raymond James, downgraded Primaris shares to underperform, the equivalent of a sell, from outperform.
“We don’t see a high probability of a higher offer from either KingSett or another player,” Avalos said in a note.
Toronto-based Primaris fell eight cents to C$26.43 at 9:42 a.m. in Toronto, while H&R, which operates office, retail and industrial properties in the Toronto area, fell 3.4 percent to C$22.94, the most since March 19.