Plazacorp acquires KEYreit in friendly takeover

Just when Huntingdon Capital Corp. thought they had sweetened the pot enough for an unsolicited bid for KEYreit, Plazacorp Retail Properties seemingly came out of nowhere and won a friendly takeover of KEYreit for about $119 million.
In fact, Plazacorp tells Property Biz Canada that they have had their eye on KEYreit for a while.
“We had discussions with KEYreit some time ago and have been following their progress very carefully,” Michael Zakuta the President and Chief Executive Officer of Plazacorp (shown in picture) told Property Biz Canada in an email.
For Plazacorp, the expansion not only adds a REIT to their portfolio it significantly increases the size of the company and fits with their long-term strategic planning. The announcement came the same day that Plazacorp announced Revenue Canada has approved their conversion from a mutual fund corporation to a real estate investment trust structure on a tax-deferred basis.
Completion of this conversion will occur this year and will be subject to shareholder approval.
Making money for the shareholders
“KEYreit represents an opportunity to make money for our shareholders. We have a fully internalized management structure with very strong development and leasing capabilities. We like the geographical fit of the KEYreit portfolio,” said Zakuta, pictured above.
The head of Plazacorp also said the portfolio will continue to add value because they run a lean operation.
“We can immediately generate very important cost savings by eliminating G&A; external asset and property management fees. Overtime; we can apply our re-development expertise and experience and add-value to the portfolio.”
For KEYreit, the deal gives them a strong premium over the unsolicited offer from Huntingdon, something they seemed keen to mention. As if to rub it in, just below the headline announcing the deal, KEYreit officials repeated their statement that “KEYreit reiterates rejection of Huntingdon's inadequate amended offer.”
The KEYreit board unanimously recommended that unitholders accept the Plazacorp offer of $8 per unit for the 100% acquisition in what KEYreit said is a $320 million enterprise value.
“We are very pleased with the results of our value maximization process which we believe represents an excellent outcome,” Donald Biback, the Chairman of the Board of Trustees of KEYreit, said in a statement.
“In the view of the Special Committee and the Board, the Plazacorp offer provides unitholders with a very attractive offer and for those who choose to hold shares in Plazacorp, a promising ongoing investment.”
Plazacorp has its roots in Fredericton
Based in the Maritimes, Plazacorp, or PLZ as they refer to themselves on their website, has properties in 60 communities from Ontario to Quebec and in all the Atlantic provinces.
In total, the company, which has its head office in Fredericton, has 118 properties prior to the KEYreit deal. Included in their portfolio are 78 strip malls, 33 single use properties and seven enclosed malls.
Plazacorp Chairman Earl Brewer said the KEYreit and Plazacorp fit well together.
“We have both specialized in smaller footprint retail properties, primarily in eastern and central Canada, so this is a great fit for us,” Brewer told Reuters, adding that the two REITs also each have Shoppers Drug Mart as their largest tenant.
Plazacorp's purchase price of $8.00 per KEYreit unit represents a premium of 29% over the closing price of the KEYreit units on the TSX on January 28. That was the last trading day before Huntingdon Capital Corp. announced its was making an unsolicited bid of $7.00 for some of the KEYreit units. Huntingdon later amended that offer to $7.50 per unit, $0.50 less than Plazacorp's offer. The deal still needs regulatory approval, although that is not seen as a major issue.
Break fee for Plazacorp
If the deal doesn't go through, there is a break fee of $5 million provided for Plazacorp.
In the meantime, KEYreit has advised unitholders “not to tender to Huntingdon's Amended Offer and to withdraw units that have already been tendered.”
John Bitove, the Chief Executive Officer of KEYreit, and its largest shareholder has agreed to tender his units, which represent 16.5% of the outstanding units of the REIT. Bitove, as owner of JBM Properties Inc., the external asset and property manager of KEYreit, has also agreed to terminate the asset and property management agreements between KEYreit and JBM upon closing of the transaction.
The day after the announcement was made, Huntingdon tried to get back into the game again, announcing it would match the offer from Plazacorp.
This is the second takeover battle with Canadian REITS so far this year. Earlier, a battle for Primaris retail REIT was settled when H&R Real Estate Investment Trust and a consortium led by KingSett Capital agreed to jointly bid for the REIT which owns shopping centres.



Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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