KEYreit board rejects Huntingdon Capital's partial bid

TORONTO Fri Feb 15, 2013 2:08pm EST

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TORONTO (Reuters) - KEYreit (KRE_u.TO), a real estate investment trust that owns small retail properties across Canada, on Friday rejected an unsolicited partial takeover bid from Huntingdon Capital Corp (HNT.TO), saying the proposal was inadequate and coercive.

Richmond, British Columbia-based Huntingdon, which already owns 5.4 percent of KEY's issued and outstanding trust units, made its offer in January. It wants to acquire a further 6.6 million, or 45 percent, of KEY's units for C$7 each in cash.

"The partial offer fails to provide unitholders with an appropriate control premium for the units purchased, and provides no premium for units not purchased," Donald Biback, who heads KEY's board of trustees, said in a statement on Friday.

KEY's units have jumped more than 8 percent since the offer was announced, but as the offer is only a partial bid, the units continue to trade at C$6.70, well below the offer price.

This is the second takeover battle involving Canadian real estate investment trusts in a span of two months.

A two-way battle for Primaris Retail REIT PMZ_u.TO was recently resolved after H&R Real Estate Investment Trust (HR_u.TO) and a consortium led by KingSett Capital agreed to jointly bid for the shopping center owner and carve up its assets.

REAL ESTATE BOOM

Canadian REITs, or real estate investment trusts, have outperformed the broader stock market in the last 12 months, driven by strong demand for both commercial and retail space.

Canada's benchmark S&P TSX composite Index .GSPTSE has risen less than 3 percent in the last twelve months, while the S&P TSX Canadian REIT Index .GSPTTRE has risen 11.4 percent, as U.S. retailers vie for prime retail space as they continue to expand north, even as economic growth has heightened demand for office space in Canada.

This, in turn, sparked a flurry of equity offerings from REITs last summer and pushed Canada's largest grocer, Loblaw's (L.TO), to announce that it plans to spin off the vast majority of its property assets into a REIT.[ID:nL1E8N613S]

Toronto-based KEY owns over 225 retail properties in nine provinces across Canada, with tenants that include fast-food chains like KFC and Pizza Hut, and retailers like Shoppers Drug Mart SC.TO, Staples, Home Outfitters and others.

The vast majority of its properties are located in the provinces of Ontario and Quebec, which account for almost 80 percent of its annual rent receipts.

"CREEPING TAKEOVER"

KEY urged its unitholders to reject the Huntingdon proposal in its statement on Friday, saying board and management, who own about 17 percent of KEY's issued and outstanding units, will not be tendering their units to Huntingdon's proposal.

"All this is, is a creeping takeover to try and control the board," said KEY's Chief Executive John Bitove. "Huntingdon have not disclosed any plans on what they intend to do to continue to maximize value for our unitholders."

KEY said its financial advisor BMO Capital Markets said the consideration offered by Huntingdon Capital is inadequate, from a financial point of view, to unitholders other than the bidder and its affiliates.

The company earlier this month adopted a poison pill in a bid to stymie the Huntingdon offer and plans to hold a special meeting of its unitholders on March 26 to approve the defensive tactic adopted by its board.

(Reporting by Euan Rocha; Editing by Chizu Nomiyama, Nick Zieminski and Phil Berlowitz)

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