Mall operator targeted in $4.4B takeover bid

TORONTO — A proposed $4.4-billion hostile takeover bid for one of Canada’s largest shopping mall operators highlights a growing interest in the kind of properties that can host high-profile U.S. retailers such as Target and Nordstrom as they make their way north of the border.

A consortium lead by KingSett Capital has offered $26 per Primaris Retail Real Estate Investment Trust unit — a 12.8 per cent premium to the closing market price of $23.04 on Tuesday. Primaris’ properties are mostly mid-market malls in mid-sized Canadian cities.

“As U.S. tenants come in and Canadian tenants expand … retail assets like this are going to be redeveloped, repositioned and probably going to be worth more in the future. That’s probably what KingSett sees right now in this portfolio,” said Michael Missaghie, a portfolio manager at Sentry Investments.

More than 100 Target stores are set to begin opening in March across the country. “We expect there to be a very significant positive impact on the shopping centres that they open stores in. You’ll see higher consumer traffic, higher sales per square foot and that will drive higher rents from existing tenants who want to be nearby,” Alex Avery, an analyst at CIBC World Markets Inc., said.

In a deal related to the KingSett Capital bid, RioCan Real Estate Investment Trust has conditionally agreed to buy five regional malls and three other shopping centres currently owned by Primaris if the all-cash offer goes through. RioCan, Canada’s largest real estate investment trust, values that part of the Primaris portfolio at $1.1 billion.

RioCan now owns and manages the country’s largest portfolio of shopping centres and tenants include Canadian Tire, Walmart Canada, Cineplex, Metro and Loblaws. In July, RioCan announced a partnership with Allied Properties to redevelop their properties in major cities.

“The properties we have committed to purchase are fully aligned with our strategy,” RioCan CEO Edward Sonshine said in a statement. “This acquisition will further our strategy of owning important malls in major markets as a complement to our large new format portfolio, as indicated by our recent purchase of Georgian Mall in Barrie, Ont.”

There was no comment Tuesday from Primaris on either of the proposals announced by KingSett and RioCan.

The deal requires that at least two-thirds of shareholders tender shares, which one analyst called “a difficult thing to envision.”

“The 13 per cent premium really isn’t sufficient to get people to tender to this offer,” Avery said. “There’s a substantial retail investor shareholder base in Primaris and Canadian REITs in general and most of them are quite happy holding Primaris and collecting their 5.4 per cent distribution yield and (having) a great investment.”