(Reuters) - H&R Real Estate Investment Trust (HR_u.TO) 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) 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). 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.
Primaris CEO John Morrison defended the size of the C$106.6 million break-up fee. He said the company accepted the H&R bid only after reviewing other offers during its review process.
The break-up fee is structured as a cash payment of C$70 million and an option to acquire Toronto's Dufferin Mall and certain Yonge Street properties owned by Primaris. H&R has also been granted a right to match any superior proposal received by Primaris.
Last year, Target, the second-largest U.S. discounter, agreed to take over the Canadian leases for some Zellers stores owned by Hudson's Bay Co (HBC.TO) in a deal worth some C$1.8 billion.
RioCan Real Estate Investment Trust, Canada's largest REIT, last year signed a C$1 billion joint venture to develop outlet malls in Canada with U.S.-based Tanger Factory Outlet Centers.
H&R units fell 2 percent to close at C$23.28 on the Toronto Stock Exchange, while those of Primaris rose 7 Canadian cents to close at C$26.58 on Thursday.
Reporting by Euan Rocha in Toronto and Shounak Dasgupta in Bangalore; Editing by Chizu Nomiyama and Leslie Gevirtz and Joyjeet Das