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Huntingdon Capital Corp. is turning up the heat on Key REIT, expanding its bid for the whole company rather than half, and taking direct aim at the company's management.

Roughly one month after Huntingdon launched a hostile offer for 45 per cent of the real estate investment trust (it already owned five per cent), it has received a bridge loan from KingSett Capital to help finance the expansion of its offer.

It still values the bid at $7 per unit. The previous offer was all-cash, while under the new offer investors could receive 25 per cent of the price in the form of Huntingdon shares.

Key REIT, formerly known as Scott's REIT, owns more than 225 so-called small-box retail properties in eight provinces, with tenants such as KFC, Taco Bell, Tim Hortons and Shoppers Drug Mart.

It faced difficulties in 2011 when Priszm Income Fund filed for bankruptcy. Key REIT CEO John Bitove was executive chairman of Priszm, which at the time owned more than half of the Kentucky Fried Chicken outlets in Canada and had been suffering from falling sales. Key REIT (then called Scott's) had been Priszm's biggest landlord. Roughly half its properties were leased to Priszm as restaurant locations.

But Mr. Bitove has said that Key REIT now has "clear sailing ahead," having diversified its tenant base (its largest tenant is now Shoppers Drug Mart). He and the REIT's board rejected Huntingdon's initial bid for half the company, suggesting the "partial" offer was an attempt to scoop up the firm on the cheap just at a time when its prospects were looking better. The REIT called the bid "inadequate, coercive [and] highly opportunistic."

Huntingdon had made it clear that if its original bid succeeded it intended to look at a range of actions including removing Mr. Bitove and some board members and potentially combining Key REIT with another firm or taking it private.

But it has stepped up its arguments now, releasing a presentation that takes aim at Mr. Bitove and his colleagues, calling the management team "entrenched" and "distracted." It alleges the company's distributions are unsustainably high and that it is paying too much in fees, and says its offer comes at a time of peak valuations in the sector.

Key REIT came out Wednesday with early fourth-quarter highlights as well as some guidance for the next two years.

It said it had record revenues of $6.9-million in the three months ended Dec. 31, record net operating income of $5.9-million, and adjusted funds from operations per unit of $0.174. Its final results for the fourth quarter will be released March 6.

"We are back to over 97 per cent committed occupancy, have paid off our original IPO loans and have a strong balance sheet with debt at approximately 62 per cent of our book value," Mr. Bitove stated in the release. "We have over $50-million of acquisitions lined up for the next two quarters and we are excited about 2013 and beyond."

It said it expects net operating income to reach more than $23-million this year, and its AFFO payout ratio to fall from between 111 and 115 per cent this year to a range of 97 to 100 per cent in 2014.

Chief financial officer Teresa Neto said the payout ratio is expected to top 100 per cent for the first three quarters of this year because of the impact of the company's January equity offering, the proceeds of which are being used to de-lever the REIT's balance sheet, and increased interest expenses related to new debt financing for acquisitions.

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

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