Primaris REIT's $124.3M Secondary Offering: A Strategic Move to Fuel Growth in Canada's Retail Sector

Primaris Real Estate Investment Trust (TSX: PMZ.UN) recently completed a $124.3 million secondary offering, selling 8.46 million units at $14.70 per unit. While the transaction itself did not provide new capital to the REIT—since the units were sold by existing unitholder Cadillac Fairview—it offers a critical lens into Primaris's broader capital allocation strategy and its implications for future growth in Canada's evolving retail real estate sector.

At first glance, the secondary offering might seem like a routine liquidity event. However, its timing and structure underscore Primaris's disciplined approach to capital management, which has enabled the REIT to navigate challenges like tenant churn (most notably, The Hudson's Bay Company's lease exits) while positioning itself to capitalize on opportunities in the recovery of experiential retail spaces.

A Liquidity Play for Sellers, Not a Capital Raise for Primaris

The secondary offering's most notable feature is that Primaris did not receive any proceeds from the transaction. Instead, the sale by Cadillac Fairview—a major unitholder—served to convert a portion of its stake into cash, avoiding dilution to existing investors. This reflects the confidence of institutional stakeholders in Primaris's long-term value: the offering price of $14.70 per unit traded at a 34% discount to the REIT's NAV of $21.40, signaling an attractive entry point for new investors.

The transaction also highlights Primaris's robust balance sheet, which remains a cornerstone of its growth strategy. As of Q1 2025, Primaris held $648.5 million in liquidity and $4.0 billion in unencumbered assets, with a conservative debt-to-EBITDA ratio of 5.7x. This financial flexibility allows the REIT to pursue acquisitions and disposals without overleveraging, a critical advantage in a sector where capital discipline separates winners from losers.

Strategic Capital Allocation: Acquisitions, Disposals, and Portfolio Optimization

Primaris's recent moves reveal a clear focus on portfolio quality. In Q1 2025 alone, it acquired a 50% stake in Edmonton's Southgate Centre and full ownership of the Oshawa Centre, adding 1.64 million sq ft of gross leasable area (GLA). These acquisitions align with its three-year target of exceeding $1 billion in purchases, while disposals of non-core assets—such as two enclosed malls and excess land—help streamline the portfolio toward higher-performing properties.

The REIT's occupancy metrics reflect this strategy: in-place occupancy rose to 93.2% in Q1, with committed occupancy at 94.2%, despite the headwinds from HBC's exit. Management has also emphasized tenant mix optimization, prioritizing experiential retailers and services that drive foot traffic—a key differentiator in an era where malls must compete with e-commerce and suburban sprawl.

Growth Catalysts: NAV Expansion and FFO Upside

Primaris's long-term value hinges on its ability to grow Funds from Operations (FFO) and Net Asset Value (NAV) per unit. In Q1 2025, FFO per unit surged 13.3% to $0.439, with a conservative payout ratio of 52.8%, leaving ample room for reinvestment. Management has reaffirmed its 2025 FFO guidance of $1.70–$1.75 per unit and aims for 4–6% annual FFO growth through 2027, supported by:
1. Strategic Acquisitions: The Southgate and Oshawa deals, which boast strong tenant sales productivity ($768/sq ft), signal the REIT's focus on high-quality assets.
2. Redevelopment Pipeline: Capital expenditures of $48–50 million in 2025 will target underutilized spaces, such as former department store “anchor boxes,” converting them into mixed-use or community-oriented spaces.
3. Debt Management: With no debt maturing until 2027 and 96% of its debt at fixed rates, Primaris is insulated from interest rate volatility, enabling it to pursue accretive deals.

Risks and Considerations

The departure of HBC—a former anchor tenant occupying 1.03 million sq ft—remains a near-term concern. Primaris expects in-place occupancy to dip 6–7% in 2025, though it has already begun re-leasing vacated space at 7.8% rent spreads, mitigating the impact. Additionally, the Canadian retail sector's slow recovery could delay occupancy and NOI growth.

Investment Thesis: A Contrarian Opportunity

Despite the HBC headwinds, Primaris's 34% discount to NAV at the secondary offering price presents a compelling contrarian play. The REIT's balance sheet strength, disciplined capital allocation, and focus on high-quality assets position it to outperform peers as experiential retail demand rebounds.

Investors should monitor two key metrics:
1. Occupancy Trends: A stabilization or rebound in occupancy post-HBC exits would validate management's leasing capabilities.
2. Acquisition Pipeline: Progress toward exceeding $1 billion in acquisitions by 2025 will be critical for NAV expansion.

Final Take

Primaris REIT's $124.3M secondary offering, while not a direct capital raise, underscores its financial resilience and strategic clarity. For income-oriented investors, the REIT's 2–4% annual distribution growth target and undervalued units offer a margin of safety. For growth investors, the thesis hinges on Primaris's ability to execute its portfolio transformation—turning underutilized malls into community hubs—and leverage its liquidity to acquire undervalued assets.

In a sector where many peers are defensive, Primaris's proactive capital allocation and NAV upside make it a standout name in Canadian retail real estate.