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John BitoveDeborah Baic/The Globe and Mail

The battle over Key REIT is escalating with the board officially rejecting a bid for half the company and the CEO saying it's the wrong time to sell.

"Now is not the time to sell the company when you've just come through a major tenant default, you've just paid off some of your original IPO loans and the company has clear sailing ahead," CEO John Bitove says.

Key REIT, which used to be called Scott's REIT, had been the largest landlord for the Priszm Income Fund, of which Mr. Bitove had been the executive chairman. Priszm owned and operated 60 per cent of all Kentucky Fried Chicken outlets in Canada when it filed for bankruptcy in 2011 due to falling sales. At the time about half of Scott's REIT's properties were leased to Priszm as restaurant locations.

"We've proven that we can diversify," Mr. Bitove said. "It started with 99 per cent KFCs, and now we're two and a half times the size of when we [went public] and our biggest tenant Shoppers Drug Mart is almost a third of the portfolio."

Key REIT owns more than 225 so-called small-box retail properties in eight provinces. Other tenants include chains like Tim Hortons.

Mr. Bitove is on the hot seat to demonstrate that the company has a solid growth strategy, as he seeks to fend off an offer from Huntingdon Capital, which already owns more than five per cent of Key REIT and in January made a hostile bid for a further 45 per cent of the company's units, offering $7 cash per unit. Huntingdon has said in regulatory filings that if its bid succeeds it would potentially look to deleverage the REIT, replace board members and Mr. Bitove, sell some assets, and potentially combine the REIT with another company or take it private.

Mr. Bitove fought back Friday, saying the bid is partial and inadequate and that "there's a lot more upside to the company from holding on to the units for the next while."

One of the ways in which he thinks the firm can unlock value is by selling or redeveloping a number of downtown properties it holds, largely in Toronto.

"We've got a lot of properties in downtown cities which for the most part are older KFCs that have a much higher and better use than the value of the real estate on our books," he says.

Key REIT's units were trading down three cents midday Friday, at $6.65.

(Tara Perkins is a Globe and Mail Financial Services Reporter.)

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