Sandpiper sees need for speed at First Capital REIT

First Capital asks investors for patience as it faces challenge from activist funds

Samir Manji, founder and chief executive officer of Sandpiper Group in Vancouver, on Dec. 19, 2018.DARRYL DYCK/Globe and Mail

Activist investor Sandpiper Group is going to court in a bid to push First Capital Real Estate Investment Trust to speed up a vote on replacing four board members, a move aimed at blocking the shopping-mall owner’s plans to sell trophy properties.

Sandpiper and a number of other First Capital unitholders, including Ewing Morris & Co. Investment Partners Ltd. and the REIT’s founder and former chief executive officer Dori Segal, are campaigning for new leadership at the Toronto-based REIT, which owns $10-billion of grocery store-anchored malls in four provinces.

The fund managers and former CEO targeted First Capital after its units underperformed peers over the past five years. The REIT announced turnaround plans last September that include selling up to $1-billion in real estate by 2024 to fund development projects, while doubling monthly cash distributions. Shortly after the announcement, First Capital sold a 50-per-cent stake in a downtown Toronto residential property at 1100 King St. W. for $149-million, a project the REIT previously described as a “generational asset.”

In mid-December, Sandpiper launched a campaign to replace four First Capital trustees, including chair Bernard McDonell. Vancouver-based Sandpiper said one of its goals is to limit the REIT to sales of $400-million of non-core properties over the next two years, with a focus on malls in smaller cities.

In late December, First Capital announced plans to vote on Sandpiper’s slate of board candidates at its annual meeting on May 16. In a press release, the REIT said: “Holding both the annual and special meetings at the same time will spare First Capital unitholders the additional distraction and costs associated with holding two separate meetings.”

On Monday, however, Sandpiper asked the Ontario Superior Court to force First Capital to hold a meeting on its proposals by March 1, or as soon as practically possible.

The fund manager said waiting until May to replace the REIT’s trustees risks First Capital selling more “crown jewel assets” at discount prices. In a press release, Sandpiper founder and CEO Samir Manji said: “A growing number of concerned unitholders believe that the board and CEO’s proposed plan is not going to maximize value for the owners, but rather that it will diminish value every time a trophy asset is sold.”

Sandpiper’s concerns echo criticisms from Mr. Segal, who ran First Capital for 15 years and owns 1.5 per cent of the company. “The plan to sell high-quality core growth assets to finance the increased distribution is reckless and irreparable,” Mr. Segal said in a recent open letter to unitholders.

He said the recent “liquidation” of the downtown Toronto property took place at less than the project’s replacement value. ”What I observe is the illusion of value creation through capitalizing on past achievements,” Mr. Segal said.

Sandpiper and its affiliates own 9 per cent of First Capital. In recent years, the investment manager has launched campaigns that successfully placed directors on a number of real estate company boards, including Granite REIT and Artis REIT.

In a recent report, analyst Tal Woolley at National Bank Financial said if the activists are successful in nominating new trustees, the rejigged First Capital board may put the company up for sale. “It is conceivable to us larger entities could become more interested if the whole portfolio were on the block,” he said.

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