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(B)(N) PMZ.UN Primaris Retail REIT

December 5, 2012

Deal Book. Primaris Retail REIT is on the block for an unsolicited offer of $2.6 billion in cash which amounts to $4.4 billion on the assumption of the Primaris debt ($1.8 billion) which is then reduced by an estimated $1.1 billion on the sale of certain Primaris properties to a third party so that it looks like a $3.3 billion net deal to us although the Primaris unit holders are being offered a flat $26 per share which would value all of the stock if tendered at $2.6 billion, as stated. And, after all, one doesn’t want to confuse the shareholders, do we? (Reuters. December 5, 2012, Canada’s KingSett leads C$2.6 billion bid for Primaris REIT).

It’s clever to sharpen our pencils but now we need to sharpen our wits and we need to ask, Why should we buy into this deal? What’s in it for us except cash (net of taxes withheld) that we then need to re-invest or lose out to inflation and the other problems of cash that we thought that we had already solved with our investment in Primaris (please see Exhibit 1 below).

The current dividend yield on Primaris is more than 5% and the dividend rate is $0.102 (10¢) per share per month (or $120 million per year in total) and a lot of us bought those shares for between $15 and $20 two years ago. Where can we now invest $20,000 (or 1,000 shares at the time) and expect to get $102 per month or $1,224 per  year, for it?

The deal makers have volunteered the information that  “This all-cash offer is an attractive opportunity to obtain immediate liquidity in the face of economic uncertainty and volatile markets.” Indeed. But, as investors,  “liquidity” is not our problem.  What we want – and what we seem to have – and what we “like” is that our capital should be provably safe and obtain a hopeful return above the rate of inflation.

Primaris has been in the Perpetual Bond™ at various times (please see Exhibit 1 below, Red Line over Black Line) and the relationship between the ambient stock prices Stock Price (SP) and the Risk Price (SF) demonstrates a comfortable Nash Equilibrium in which both prices appear to be substantially aligned. (Please see our Post, The Nash Equilibrium & Its Stock Price, October 2012.)

As to capital safety, we note that the stock at $23 (yesterday) is already up 10% for the year and our estimate of the downside based on volatility alone is minus ($1). Moreover, the market for put options (please see our Post, The Wall Street Put, August 2012) at $26 for January has vaporised and is now asked at $0.40 per share, down from $3.20 just last week. They might be worth something if the deal doesn’t go through at $26 or better, one would think.

Exhibit 1: (B)(N) PMZ.UN Primaris Retail REIT – Risk Price

(B)(N) PMZ-UN Primaris Retail REIT

Primaris Retail Real Estate Investment Trust (REIT) is a real estate investment company that directly or indirectly owns, manages, leases and develops retail properties in Canada.

(Please Click on the Chart to make it larger if required.)

Primaris Retail REIT owns more than thirty properties in cities across Canada, including the Dufferin Mall in Toronto, the Cornwall Centre in Regina, Saskatchewan, the Tecumseh Mall in Windsor, Ontario, and the Woodgrove Centre in Nanaimo, British Columbia and more than a half dozen Zellers outlets that are now being converted into Target stores. Their tenant list includes household names such as the Hudson’s Bay Company, Canadian Tire Corporation, Reitmans, Sears Canada, Target, Shoppers Drug Mart Corporation and many others. Please see our Posts on some of these companies and their current “deals”.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of  investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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