In a significant move within the real estate sector, Axia Real Assets LP has initiated a hostile takeover bid valued at $560 million for Plaza Retail Real Estate Investment Trust (REIT). This strategic manoeuvre marks another chapter in the trend of public REITs transitioning to private ownership. Axia’s bid comes after two years of unsuccessful negotiations for a friendly acquisition, highlighting the challenges faced by traditional retail spaces in today’s economic climate.
Details of the Offer
On Tuesday, Axia, headquartered in Toronto, publicly announced its non-binding offer of $5.28 per unit for Plaza, which boasts a portfolio of 190 retail centres across eight provinces in Canada. This proposal was submitted to the REIT’s board of trustees on June 8, coinciding with a unit closing price of $4.42 on the Toronto Stock Exchange. The bid represents a 21% premium compared to that price. Since the announcement, Plaza’s unit value has surged nearly 9%, reaching $5.11, just shy of the offered price.
According to Axia, they have garnered the backing of Morguard Corp., Plaza’s largest unit holder, which holds a 15.3% stake and is reportedly ready to vote in favour of the takeover. This support could play a crucial role in the bid’s potential success.
Financial Considerations
Plaza Retail is currently laden with approximately $670 million in debt, bringing the total valuation of the proposed takeover to about $1.23 billion. Axia has expressed concern that Plaza units are trading at a “perpetual discount” relative to their net asset value (NAV), primarily due to stagnant distributions which have not been adjusted since 2018. The firm has stated that without a clear growth strategy, Plaza remains vulnerable to rising debt costs and a lack of access to capital.
In response to the bid, Plaza has established a special committee of trustees to evaluate Axia’s offer and explore potential strategic alternatives. The REIT emphasised that no decisions have yet been made regarding the proposal and that there is no guarantee of a transaction resulting from the current discussions.
Market Context
The broader retail landscape is facing numerous challenges, including store closures from major tenants and the increasing dominance of online shopping. This environment has led many REITs, including Plaza, to trade below their estimated NAVs. Institutional investors have recently pursued multiple retail and office REITs, often at prices close to their NAVs, typically through friendly acquisitions or initiatives led by activist investors.
Notably, First Capital REIT recently accepted a $5.2 billion offer from Choice Properties REIT and KingSett Capital, showcasing the growing interest from larger entities in acquiring retail assets.
Strategic Advisers
To navigate this complex situation, Plaza has engaged TD Securities and the law firm Blake, Cassels & Graydon LLP for advisory support. Meanwhile, Axia has enlisted Colliers Capital Markets and National Bank of Canada Capital Markets as well as Stikeman Elliott LLP for legal counsel.
Founded in 2021, Axia has already invested $300 million in various real estate assets, signalling its ambition within the market.
Why it Matters
The bid by Axia Real Assets for Plaza Retail REIT reflects a growing trend of institutional investors targeting publicly traded REITs, particularly in a retail sector grappling with significant headwinds. As these acquisitions unfold, they could reshape the landscape of retail real estate in Canada, potentially leading to changes in investment strategies and operational approaches within the sector. This situation underscores the importance of adaptability in the face of evolving consumer behaviours and economic pressures, as well as the increasing appetite for consolidation among institutional players in real estate markets.
