KingSett consortium offers to buy Primaris REIT for $4.4B, sell chunk to RioCan

TORONTO – A consortium led by KingSett Capital and including the Ontario Pension Board has launched a $4.4-billion takeover offer for Primaris Retail Real Estate Investment Trust (TSX:PMZ.UN), one of Canada’s largest shopping mall owners.

“This is a strong and compelling offer, providing unitholders with a premium price at a time of peak valuations in the sector,” said Jon Love, managing partner of KingSett Capital.

“The all-cash offer provides Primaris’ unitholders with an attractive opportunity to obtain immediate liquidity in the face of economic uncertainty and volatile markets. We firmly believe that this offer will be very appealing to unitholders.”

Primaris said Wednesday that an official offer had yet to be made, and urged unitholders to sit tight.

The trust said it will evaluate any proposal and would make a recommendation in the best interest of unitholders.

The proposed offer, if successful, would also see RioCan Real Estate Investment Trust (TSX:REI.UN) buy five regional malls and three other shopping centres currently owned by Primaris for $1.1 billion.

KingSett said its offer, which requires at least two-thirds of Primaris’s units to be tendered and for the trust’s unitholder rights plan to be cancelled, is worth $26 in cash per Primaris unit.

Primaris was the most active issue on the Toronto Stock Exchange on Wednesday with 11.1 million units changing hands as it gained $3.36 or more than 14 per cent to close at $26.40, suggesting at least some investors believed a richer offer may be possible.

BMO Capital Markets analysts Karine MacIndoe and Pauline Alimchandani suggested an offer of $28 per share may be possible.

“Real estate has had a nice run and we believe the price offered is reasonable, although we expect a higher price could still be negotiated to get the Primaris board on-side,” the analysts wrote in a note to clients.

MacIndoe and Alimchandani said Primaris has long been speculated as a potential takeover target and RioCan participation came as no surprise.

“We are, however, somewhat surprised by KingSett’s involvement after it had sold out its 12 per cent investment in Primaris in 2010 at a price below $20. We expect that renewed interest from KingSett’s various pension fund investors can be explained.”

KingSett said the consortium and its supporters include some of Canada’s most prominent institutional real estate investors and landlords.

“This transaction provides significant and immediate value to Primaris’ unitholders and is fully aligned with our strategy to increase our exposure to private market investments, such as real estate, private equity, and infrastructure, by partnering with leading institutions,” Ontario Pension Board chief executive Mark Fuller said.

The consortium noted it has already secured the cash for the deal and the offer was not subjected to any financing condition.

The RioCan offer, which is conditional on KingSett successfully acquiring Primaris, includes a deal for a 100 per cent interest in six Primaris properties and a 50 per cent stake in two others.

“The properties we have committed to purchase are fully aligned with our strategy,” said Edward Sonshine, RioCan’s chief executive.

“We look forward to completing this transaction with KingSett Capital and to building on our existing strong relationship with them.”

The consortium already own a seven per cent stake in Primaris or about 6.9 million units.

Primaris was launched in 2003 with a portfolio of six properties in five markets.

As of Sept. 30, Primaris owned 33 principal properties and several smaller properties in 26 markets with a total of 13.7 million square feet of leasable space.

Investors in KingSett, a private equity real estate investment fund, include Alberta Investment Management Corp. and Ivanhoe Cambridge.

The Ontario Pension Board manages the province’s public service pension and has more than $17 billion in assets.

Note to readers: This is a corrected story. An earlier version erroneously described KingSett as an arm of the Ontario Pension Board.