The Canadian commercial real estate sector is crying out for a public market champion.
If First Capital Realty has serious aspirations to consolidate a sector with a number of small players, something more is required than Monday's feeble run at Allied Properties REIT.
First Capital bought Allied units in the market, bumped its stake in the trust to 11 per cent, and announced that it would be willing to talk about a full-scale takeover.
That pitch came with a thin 9 per cent premium. Allied trustees considered the all-stock offer and wasted no time in rejecting it. And without even a whimper, First Capital seems to be calling it a day.
“Absent a significantly higher offer with a sizeable cash component, we continue to believe the likelihood of a successful takeover is low,” said Pammi Bir, the REITs analyst at Scotia Capital. “Given [that First Capital] management believes it paid full value for Allied's units and limited accretion at levels above $17, the probability of a significantly better offer appears remote.”
First Capital now faces the prospect of either holding its Allied stake as an investment, a questionable use of capital, or beginning a creeping takeover on a target that's now very aware it's being stalked. This first run at Allied was clumsy, at best.
The largest Canadian real estate companies are arms of the major public sector pension plans. Brookfield Properties dominates high-end office towers. Among REITS, RioCan is the market leader, with a $3-billion market cap. First Capital ranks well back on size, with a $1.5-billion capitalization, and the offer for Allied valued that company at $448-million.
