In a bold move within the Canadian real estate sector, Axia Real Assets LP has initiated a $560 million hostile takeover bid for Plaza Retail Real Estate Investment Trust (REIT). This announcement marks a significant shift in the landscape of publicly traded REITs, as Axia aims to transition Plaza into private ownership following unsuccessful negotiations over the past two years.
Details of the Offer
On Tuesday, Axia, headquartered in Toronto, unveiled a non-binding offer of $5.28 per unit for Plaza, which manages a portfolio of 190 retail properties across eight provinces. The bid was made public after extensive and fruitless efforts to secure a friendly acquisition with Plaza’s board of trustees.
Axia’s strategy hinges on the backing of Morguard Corp., Plaza’s largest unit holder, which holds a substantial 15.3% stake in the REIT and has expressed its intent to support the takeover. The offer, made on June 8, was particularly enticing as it represented a 21% premium over Plaza’s then-closing unit price of $4.42 on the Toronto Stock Exchange. Since the announcement, Plaza’s unit price has seen a notable increase, rising 9% to $5.11, closely aligning with Axia’s offer.
Financial Context and Challenges
Plaza Retail REIT is currently grappling with approximately $670 million in debt, which elevates the total valuation of Axia’s takeover bid to around $1.23 billion. The attractiveness of REITs often lies in their ability to provide regular cash distributions to unit holders, predominantly retail investors. However, Axia argues that Plaza’s units are trading at a “perpetual discount” to their underlying net asset value (NAV). This is attributed to the REIT maintaining its distributions at the same level since 2018, coupled with ongoing challenges in accessing capital and rising debt costs.
In its recent communications, Plaza acknowledged the receipt of Axia’s proposal and has formed a special committee of trustees to evaluate the offer and explore potential strategic alternatives. The REIT emphasised that no decisions have been reached and that there is no guarantee the proposal will lead to a transaction.
Industry Trends and Implications
The backdrop of this hostile bid reflects broader trends within the real estate investment trust market, where many REITs are trading below their calculated NAVs. Factors contributing to this situation include the closure of major retail tenants like Hudson’s Bay Co. and the increasing dominance of e-commerce.
In recent years, there has been a noticeable uptick in institutional investments targeting office, residential, and retail REITs, often at valuations that approach their NAVs. For instance, First Capital REIT recently received a $5.2 billion takeover offer from Choice Properties REIT, controlled by the Weston family, exemplifying a growing appetite for such acquisitions.
As Plaza navigates this pivotal moment, it has enlisted the expertise of TD Securities and Blake, Cassels & Graydon LLP to guide its strategic process, while Axia is advised by Colliers Capital Markets, National Bank of Canada Capital Markets, and Stikeman Elliott LLP.
Why it Matters
The outcome of Axia’s bid for Plaza could significantly reshape the retail real estate landscape in Canada. Should the takeover succeed, it may signal a shift in how retail properties are valued and managed, particularly in a market increasingly challenged by digital transformation and changing consumer behaviours. The implications extend beyond just Plaza, potentially influencing investor sentiment and strategies across the broader REIT sector as market players reassess the viability and future of retail investments.
