H&R sees Primaris deal as once in a lifetime chance

Thu Jan 17, 2013 6:06pm EST
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(Reuters) - H&R Real Estate Investment Trust (HR_u.TO: Quote) has launched a $4.5 billion bid to buy Primaris Retail REIT PMZ_u.TO because it is a "once-in-a-lifetime" opportunity to capitalize on Target Corp's (TGT.N: Quote) imminent expansion into Canada.

The opening of the No. 2 U.S. discounter's first Canadian store this spring comes at a time when other retailers are also looking to expand north of the border. To do so, they will have to vie for prime real estate assets.

Primaris owns some 35 properties in cities across Canada, including the Dufferin Mall in Toronto, the Cornwall Centre in Regina, Saskatchewan and the Tecumseh Mall in Windsor.

Its tenants include Canadian household names such as Hudson's Bay, Canadian Tire CTC.TO and Reitmans (RET.TO: Quote). It also owns about 10 Zellers outlets, which are now being converted into Target stores.

The friendly cash-and-equity deal, announced late on Wednesday, values Primaris at about C$2.76 billion ($2.8 billion) and it marginally trumps a C$2.63 billion hostile bid made in December by a consortium led by Canada's KingSett Capital.

The consortium extended its all-cash offer on Thursday to February 4.

For H&R, this is a story about "getting better, getting stronger and buying at a time when there is a game-changer out there called Target," H&R Chief Executive Tom Hofstedter said on a conference call on Thursday.

"This really, really is an opportunity that is once in a lifetime at a time when the changing landscape for retail is going to make tremendous value for these assets."

But many investors on the call expressed dismay at the size of the break-up fee being offered to H&R if the deal fails, as it potentially scuttles any hope of a rival offer or a sweetened bid from the KingSett-led consortium.   Continued...