Real estate fund Axia Real Assets LP has launched a $560-million hostile bid for mall owner Plaza Retail Real Estate Investment Trust PLZ-UN-T, the latest in a series of takeovers aimed at taking publicly traded REITs private.
On Tuesday, Toronto-based Axia announced a non-binding offer of $5.28 per unit for Plaza, which owns 190 strip malls and retail centres in eight provinces. Axia said it decided to go public with its bid after spending two years unsuccessfully attempting to strike a friendly takeover with the Fredericton-based REIT’s board of trustees.
Axia said Plaza’s largest unit holder, real estate company Morguard Corp., is “strongly supportive” of the offer and prepared to vote its 15.3-per-cent stake in the REIT in favour of the takeover.
Axia said it made its offer to Plaza trustees on June 8, when units in the REIT closed at $4.42 on the Toronto Stock Exchange. At the time, the bid represented a 21-per-cent premium to the prize of Plaza units.
Since June 8, the price of Plaza units has risen steadily.
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On Tuesday, after Axia went public with its bid, the price of Plaza units jumped 9 per cent to $5.11, just below the takeover offer.
Plaza has approximately $670-million of debt, which makes the takeover bid worth a total of $1.23-billion.
The appeal of REITs is regular cash distributions to unit holders, who are typically retail investors. Companies that increase their distributions over time tend to enjoy premium valuations. Axia said Plaza units trade at a “perpetual discount” to their underlying net asset value, or NAV, because the REIT has kept its distributions at the same level since 2018.
Plaza has “no clear path to growth, as it is weighed down by continued rising debt costs and no access to accretive capital,” Axia said in a news release early Tuesday.
Plaza said in a news release Tuesday that it formed a special committee of trustees to consider Axia’s offer “and potential strategic alternatives, with a view to determining the course of action that is in the best interests of the REIT and all unitholders.”
“No decision has been made with respect to the proposal, and there can be no assurance that the proposal will result in any transaction,” Plaza said.
Plaza and many other REITs have units that trade below what the companies and analysts calculate as their NAV. For mall owners, the discount reflects headwinds such as store closings by major tenants such as Hudson’s Bay Co. and the growth of online shopping.
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Over the past two years, institutional investors have acquired numerous office, residential and retail REITs at prices near their NAV in friendly takeovers or deals initiated by activist investors.
In the retail sector, First Capital REIT unit holders recently agreed to a $5.2-billion takeover offer from Weston family-controlled Choice Properties REIT and KingSett Capital.
Plaza hired investment bank TD Securities and law firm Blake, Cassels & Graydon LLP to advise on its strategic process.
Axia’s advisers are Colliers Capital Markets and National Bank of Canada Capital Markets and lawyers at Stikeman Elliott LLP.
Axia was founded in 2021 and has invested $300-million in real estate assets.