-- H&R to become Canada's largest REIT by enterprise value
-- Combines two unique REITs consisting of high quality, low risk
properties, to form a fully diversified commercial portfolio emulating
the real estate investment model adopted by large Canadian pension plans
-- Provides Primaris unitholders a tax-deferred rollover for substantially
all of the unit portion of the consideration
-- Offers Primaris unitholders the ability to continue to participate in
the future growth and value creation of the combined REIT
-- Retains the valuable platform created by Primaris over the last 10 years
to acquire, develop, and manage premium enclosed shopping centres in
Canada
-- Has unanimous approval by the Boards of Trustees of both H&R and
Primaris
Investor conference call scheduled for January 17 at 8:00 am
Eastern - see below for details. A detailed presentation regarding
the transaction will be available at www.primarisreit.com and
www.hr-reit.com.
H&R Real Estate Investment Trust and H&R Finance Trust
(collectively "H&R") (TSX:HR.UN) and Primaris Retail Real
Estate Investment Trust ("Primaris") (TSX:PMZ.UN) are pleased to
announce that they, together with PRR Investments Inc., have
entered into an arrangement agreement whereby H&R will acquire
100 per cent of the issued and outstanding units of Primaris.
Unitholders of Primaris will be entitled to elect to receive
1.13 stapled units of H&R or $28.00 cash per unit, subject to a
maximum cash amount of $700 million.
The Boards of Trustees of Primaris and H&R have unanimously
agreed to both vote their units in favour of the transaction and to
recommend that unitholders vote in favour of the transaction.
Benefits to H&R:
-- A unique opportunity to acquire a professional retail platform, with an
irreplaceable Canadian enclosed shopping centre portfolio
-- This transaction will create the largest REIT in Canada by enterprise
value
-- Increased market capitalization will result in substantially enhanced
liquidity for unitholders
-- Broader portfolio diversification geographically, by asset class, and by
tenant base
-- A deleveraging of the balance sheet to 51.9 per cent Debt/FV (assuming
full take-up of the cash consideration)
-- Combines two businesses having similar philosophies with respect to
asset and tenant qualities and their disciplined approach to real estate
investing
-- With expected savings from synergies of up to $10 million over the next
two years, the transaction will be accretive to FFO
Benefits to Primaris:
-- The transaction offers superior value to the hostile bid currently in
the market
-- Provides Primaris unitholders the option to retain ownership in the
enclosed shopping centre asset class or to elect to receive immediate
cash payment, subject to proration
-- Offers Primaris unitholders the opportunity for a tax-deferred rollover
for substantially all of the unit portion of the consideration
-- Improves Primaris distributions by 20 per cent from the current
annualized rate of $1.27 to $1.53 pro forma ($1.35 H&R distributions x
1.13 exchange ratio) for those Primaris unitholders who elect to receive
unit consideration
-- Preserves the substantial value of the asset and employee platform
developed over the last 10 years
-- H&R is a credible and reputable real estate investor with the financial
capability and operational expertise to complete the transaction and
successfully integrate the businesses
"This is a unique opportunity to acquire an irreplaceable and
much sought-after enclosed shopping centre portfolio. 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," said Tom Hofstedter, CEO of H&R. "This
acquisition will solidify H&R's position as Canada's leading
diversified real estate investment trust and is complementary to
our existing low risk, high quality and conservative
philosophy."
"We are 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," Mr. Hofstedter added.
"This transaction is compelling from a number of perspectives,"
said John Morrison, CEO of Primaris. "It enhances H&R's
objective of providing unitholders with stable and growing cash
distributions from a diversified portfolio. It also provides
H&R with the unique opportunity to own a significant portfolio
of high quality regional shopping centres and management
platform."
"We have succeeded in our mandate to attract a financially
superior alternative to the hostile offer currently in the market,"
said Bill Biggar, Chair of the Independent Committee at Primaris.
"This transaction delivers greater value to our unitholders while
allowing them to remain invested in the enclosed shopping centre
asset class, and provides our employees with the opportunity to be
a part of the largest consolidated REIT in Canada, with excellent
growth prospects."
Transaction Details
Under the terms of the Agreement, H&R will acquire all of
the issued and outstanding units of Primaris for a combination of
cash and H&R stapled units. For each Primaris unit held,
Primaris unitholders may elect to receive either $28.00 in cash,
subject to a maximum amount of $700 million, or 1.13 stapled units
of H&R, substantially all of which would be received on a
tax-deferred basis. If the maximum cash is elected, it will
represent approximately 25 per cent of the total consideration. In
the event that Primaris unitholders elect more cash than is
available, the cash consideration will be prorated among those
unitholders electing cash, with the balance of the consideration
being settled in H&R stapled units on the basis of the 1.13
exchange ratio. Based on H&R's 20-day VWAP ended January 15,
2013 of $23.99, the value of each Primaris unit under the
transaction at full proration will be $27.33, consisting of $6.89
in cash, and 0.8518 H&R units (valued at $20.44). The
transaction has been structured so holders of Primaris units will
receive their H&R stapled units on a substantially tax-deferred
rollover (the receipt of H&R Finance Trust units, expected to
be less than 4% of the total unit consideration, will be
taxable).
The cash price of $28.00 for each Primaris unit represents a
22.0 per cent premium over the $22.95 volume weighted average price
of Primaris units for the 20 trading days up to and including
December 4, 2012, 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 will be structured as a plan of
arrangement. The transaction is subject to the approval of 66 2/3
per cent of Primaris units voted at a special meeting of Primaris
unitholders and a 50.1 per cent majority of H&R units voted at
a special meeting of H&R unitholders.
It is expected that each of H&R and Primaris will prepare
and mail meeting circulars to their respective investors within the
next few weeks and that the special unitholder meetings will be
held in March. The transaction is also subject to regulatory
approvals (including under the Competition Act (Canada)), court
approvals, required consents and other customary closing
conditions. Assuming the requisite approvals and consents are
received and other conditions are met or waived, the plan of
arrangement is expected to be completed by late March.
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 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.
Prior to closing, holders of Primaris convertible debentures
will be entitled to convert their debentures in accordance with
their terms and participate in the arrangement on the same basis as
other unitholders. In accordance with the terms of these
debentures, holders may also require that their convertible
debentures be purchased at a price equal to 101% of the principal
amount plus accrued and unpaid interest following closing.
Following closing, holders of the convertible debentures will be
entitled to receive stapled units of H&R upon conversion based
on the exchange ratio contemplated by the transaction.
The Board of Trustees of Primaris appointed an Independent
Committee in response to the hostile bid from the group led by
KingSett Capital. The Independent Committee, together with
management of Primaris and its financial and legal advisors, has
undertaken a rigorous process designed to achieve a result that is
financially superior to the hostile offer and delivers greater
value for Primaris unitholders. Through the process, parties from
across the globe were contacted, consisting of both potential
strategic investors within the real estate industry and financial
investors. Primaris signed confidentiality and standstill
agreements with a number of those parties who were granted access
to the confidential data room of Primaris in order to facilitate
offers reflecting the fair value of Primaris and several of those
parties submitted proposals. The terms of the arrangement agreement
with H&R require Primaris to terminate those discussions and
close its data room.
Canaccord Genuity, a financial advisor to the Independent
Committee, has provided the Board of Trustees of Primaris with an
opinion to the effect that, as of the date of the opinion and based
upon and subject to the limitations and qualifications therein, the
consideration to be received is fair, from a financial point of
view, to Primaris unitholders other than KingSett Capital. The
Independent Committee carefully considered a number of factors,
including the terms of the transaction, the assets and business of
H&R, the outcome of the process described above, including the
Independent Committee's belief that it is very unlikely that a
superior offer will emerge for all the outstanding units of
Primaris, and the opinion of Canaccord Genuity in recommending the
transaction to the Board of Trustees of Primaris. Based in part on
the recommendation of the Independent Committee and the other
factors noted herein, the Board of Trustees of Primaris determined
that the consideration to be received by Primaris unitholders is
fair, from a financial point of view, and it would be in the best
interests of Primaris to enter into the arrangement agreement. The
Board of Trustees of Primaris has unanimously agreed to recommend
that unitholders of Primaris vote in favour of the transaction.
Each of the Trustees and senior executive management of Primaris
have agreed to support the transaction by voting their units in
favour of the transaction.
Canaccord Genuity and Evercore Partners were engaged by the
Independent Committee as its financial advisors. McCarthy Tetrault
LLP was engaged as counsel to the Independent Committee and to
Primaris, and Cassels Brock & Blackwell LLP was retained as
counsel to Primaris.
The Board of Trustees of H&R has unanimously agreed to
recommend that unitholders of H&R vote in favour of the
transaction.
H&R has retained Blake, Cassels & Graydon LLP to act as
its legal counsel in this matter.
Conference call:
H&R and Primaris will host an investor conference call on
Thursday January 17, 2013 at 8am EST to discuss the transaction.
Senior management of both H&R and Primaris will speak to the
transaction and be available for questions.
Toronto: (647) 427-7450
North America (toll free): (888) 231-8191
Audio replays of the conference call will be available
immediately following its completion and will remain available
until March 15.
Phone: (855) 859-2056 Password: 90616174
The audio replay will also be available for download at
www.primarisreit.com and at www.hr-reit.com.
About H&R
H&R is an open-ended real estate investment trust, which
owns a North American portfolio of 42 office, 115 industrial and
138 retail properties comprising over 45 million square feet and 2
development projects, with a fair value of approximately $10
billion. The foundation of H&R's success since inception in
1996 has been a disciplined strategy that leads to consistent and
profitable growth. H&R leases its properties long term to
creditworthy tenants and strives to match those leases with
primarily long-term, fixed-rate financing.
H&R Finance Trust is an unincorporated investment trust,
which primarily invests in notes issued by a U.S. corporation which
is a subsidiary of H&R. The current note receivable is U.S.
$162.5 million. In 2008, H&R completed an internal
reorganization which resulted in each issued and outstanding
H&R unit trading together with a unit of H&R Finance Trust
as a "Stapled Unit" on the Toronto Stock Exchange.
About Primaris
Primaris is a TSX listed real estate investment trust that
specializes in owning and operating Canadian enclosed shopping
centres that are dominant in their local trade areas. Merchandising
for each property is dynamic in order to meet the unique needs of
its local customers and the community. Primaris maintains a high
occupancy rate at its shopping centres and has retail tenants that
offer new and exciting brands. Primaris owns 35 income-producing
properties comprising approximately 14.7 million square feet
located in Canada. As of December 31, 2012, Primaris had
100,346,768 units issued and outstanding (including exchangeable
units for which units have yet to be issued).
INFORMATION
Primaris unitholders who have already tendered their units to
the hostile KingSett bid can withdraw them. Unitholders should
contact their broker, who will withdraw the units on their behalf.
If you require assistance in withdrawing your Primaris units,
please contact Kingsdale Shareholder Services Inc. at
1-866-581-1571 toll-free in North America, or 416-867-2272 outside
North America (collect calls accepted), or by email at
contactus@kingsdaleshareholder.com.
FORWARD LOOKING INFORMATION
This press release contains forward looking statements that
reflect current expectations of each of Primaris and H&R about
their future results, performance, prospects and opportunities,
including with respect to the closing, costs and benefits of the
proposed transaction and all other statements that are not
historical facts. The timing and completion of the proposed
transaction is subject to customary closing conditions, termination
rights and other risks and uncertainties including, without
limitation, required regulatory, court, and unitholder approvals.
Accordingly, there can be no assurance that the proposed
transaction will occur, or that it will occur on the timetable or
on the terms and conditions contemplated in this news release. The
proposed transaction could be modified, restructured or terminated.
Readers are cautioned not to place undue reliance on forward
looking information. Each of Primaris and H&R has tried to
identify these forward looking statements by using words such as
"may", "will", "should" "expect", "anticipate", "believe",
"intend", "plan", "estimate", "potentially" and similar
expressions. By its nature, such forward looking information
necessarily involves known and unknown risks and uncertainties that
may cause actual results, performance, prospects and opportunities
in future periods of Primaris or H&R to differ materially from
those expressed or implied by such forward looking statements.
Contacts: H&R Tom Hofstedter President & Chief Executive
Officer (416) 635-7520 H&R Larry Froom Chief Financial Officer
(416) 635-7520 www.hr-reit.com Primaris John Morrison President
& Chief Executive Officer (416) 642-7860 Primaris Louis Forbes
Executive Vice President & Chief Financial Officer (416)
642-7810 www.primarisreit.com MEDIA CONTACT NATIONAL Public
Relations Peter Block (416) 848-1431 NATIONAL Public Relations
Jennifer Lee (416) 848-1383
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