TORONTO - H&R Real Estate Investment Trust (TSX:HR.UN) plans to acquire Primaris Retail REIT (TSX:(PMZ.UN) in a cash and stock deal that tops an earlier offer by consortium led by KingSett Capital.
Terms of the transaction, announced Wednesday night, would allow Primaris unitholders to choose either $28 in cash or 1.13 stapled unites of H&R for each unit held. Primaris has just under 98 million units.
The KingSett-led group had offered $26 per unit in a hostile bid set to expire Thursday that Primaris had rejected, saying it undervalued the company's assets.
Primaris owns 35 properties across Canada, including shopping centres in Alberta, Manitoba, Quebec and Ontario comprising some 14.7 million square feet.
The cash component of the H&R offer is subject to a limit of $700 million, which H&R says would amount to about 25 per cent of the total consideration.
In the event that Primaris unitholders elect more cash than is available, the cash consideration will be pro rated among those unitholders electing cash, the announcement said.
The cash price represents a 22 per cent premium over the $22.95 volume weighted average price of Primaris units for the 20 trading days up to Dec. 4, the day before KingSett Capital announced its hostile bid for Primaris.
The full proration price of $27.33 represents a 19.1 per cent premium over the same reference price. If the maximum cash is elected, Primaris unitholders will own approximately 30 per cent of the combined REIT.
The proposed transaction, expected to close by late March, is subject to approval by holders of two thirds of Primaris units and by a 50.1 per cent majority of H&R units.
Under the arrangement agreement, H&R is entitled to an effective $106.6 million break fee in certain circumstances, including the acceptance by Primaris of an unsolicited superior proposal from a third party.
The break fee is structured as a cash payment of $70 million and an option to acquire Dufferin Mall and certain Yonge Street properties in Toronto owned by Primaris, priced at an aggregate $36.6 million discount to the appraised values of the properties.
H&R has also been granted other typical deal protection provisions including a right to match any superior proposal that is received by Primaris on an unsolicited basis.
"This is a unique opportunity to acquire an irreplaceable and much sought-after enclosed shopping centre portfolio," H&R CEO Tom Hofstedter said in a release.
"It permits us to expand into a new and exciting asset class in Canada with an existing infrastructure having an experienced and dedicated professional team," Hofstedter said.
He added that H&R was also "excited to be able to participate in the U.S. retail expansion into Canada, with Target set to open in 10 Primaris shopping centres within the next few months."
"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."
H&R owns a North American portfolio of 42 office, 115 industrial and 138 retail properties comprising more than 45 million square feet and two development projects with a fair value of approximately $10 billion.
On the Toronto Stock Exchange, Primaris units closed down four cents at $26.51 on Wednesday, while H&R units closed down 11 cents at $23.79.