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A workman installs a sign at the Zellers store on Thermos Rd., Toronto in this file photo.Fernando Morales/The Globe and Mail

Primaris Real Estate Investment Trust

Monday's close: $26.60, up 6 cents a share

52-week trading range: $20.32 - $26.72 a share

Annual dividend: $1.22 a unit for a yield of 4.6 per cent

Analysts' ratings: There were six buys, four holds, and no sells, according to Bloomberg data. Target prices range from $25 to $28 a share.

Recent history: Units of Canada's only public REIT focused on enclosed shopping malls have gained 36 per cent this year, including reinvested dividends. Like its peers, Primaris's units have climbed because of growing interest from yield-hungry investors. The REIT came into spotlight last Wednesday because of a hostile bid by KingSett Capital Inc. As part of its proposed cash bid at $26 per unit – a nearly 13-per-cent premium to the previous day's closing price – RioCan REIT would buy a $1.1-billion portfolio of Primaris properties."

Outlook: Primaris units hit a 52-week intra-day high of $26.72 a share on Monday before retreating, but they still closed at more than $26 a unit. "I think they [KingSett] recognize that they will probably have to come back to the table if they want to get the deal done," said Andy Nasr, a portfolio manager at Middlefield Capital Corp., which owns Primaris in various funds. "It would have to be a bid of least $27 to $28 for us to seriously consider it...We think there is going to be lot of value that is going to be unlocked over the next two to three years."

Before last week's unsolicited bid, Primaris's units had been lagging their peer group because there is a transition period occurring as its Zellers stores shut down to make way for U.S.-based retailer Target Corp. "With Target moving into Primaris's locations, it is going to represent about 40 per cent of their square footage, or one-third of their locations," Mr. Nasr said. "It is going to create an immediate increase in mall traffic, and lift adjacent rents as tenant leases come up for renewal… At the current bid of $26, I don't think that you are getting any of the additional upside of those adjacent rents moving higher during the next two to three years."

In addition, the bid price does not reflect a lot of development potential in Primaris REIT, he added. "I think there is a lot of opportunity either to expand the existing malls or to intensify them. For example, at its Dufferin Mall [in Toronto], you could build condos on that property."

Mr. Nasr would not recommend investors buy Primais REIT just to make about 50 cents a unit because there is still risk that KingSett may not raise its offer and walk away. "If you own the REIT, I would recommend hanging onto it," he said. "If you are not in it and KingSett walks away with the REIT falling back to $24 a unit, then that is a buying opportunity."

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