02/01/2013 10:24 EST | Updated 04/03/2013 05:12 EDT

Primaris REIT paying $377M for portfolio of shopping centres in Alberta

TORONTO - Primaris Retail REIT (TSX:PMZ.UN) announced Friday that it is buying a portfolio of shopping centres in Edmonton and Medicine Hat, Alta., for $377 million.

The real estate investment trust says it will acquire nine properties owned by Sherwood Park Mall Ltd., Markalta Developments Ltd. and Sleeping Bay Building Corp.

Primaris is the target of a friendly takeover offer by H&R REIT (TSX:HR.UN) that followed a hostile, and ongoing, bid from a group led by KingSett Capital.

The assets in the deal announced Friday include two enclosed regional shopping centres, including an adjacent professional building, five unenclosed strip plazas, one single tenant retail building and 4.47 acres of development land.

Major properties are Medicine Hat Mall in Medicine Hat and Sherwood Park Mall, Edmonton.

Other Medicine Hat properties include Trans-Canada Plaza, Scotia Plaza, Carry Drive Plaza, Dunmore Plaza and Park Plaza. In Edmonton, Primaris is also acquiring Sherwood Park Plaza and the development land.

"We are very pleased to extend Primaris' reach in Western Canada," CEO John Morrison said in a release.

"Medicine Hat Mall and Sherwood Park Mall are both quality assets that are dominant in their trade areas. Primaris' acquisition of these assets compliments our existing Alberta presence in Calgary, Edmonton and Lethbridge, and broadens our visibility and reach in Western Canada."

Primaris said it expects to pay for the properties, including closing costs, through $339 million of vendor financing and a credit facility of $41 million.

The H&R takeover offer for Primaris, which topped the earlier hostile bid by KingSett, is in the form of cash and shares valued at $28 per unit when announced. However, the cash portion has been capped at $700 million and the equity portion — based on a 20-day average price of $23.99 per H&R unit — is subject to market fluctuations.

The KingSett group remains steadfast with its offer of $26 per unit in cash for the trust.

H&R's deal with Primaris also comes with a controversial break fee valued at $106.6 million, which includes the option to acquire the Dufferin Mall and certain other Yonge Street properties in Toronto owned by Primaris, priced at an aggregate $36.6-million discount to the appraised values.

On the Toronto Stock Exchange, Primaris units were up 23 cents at $27.03 in early trading Friday. H&R's units were up five cents at $23.70.

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