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Agellan Commercial Real Estate Investment Trust

Exchange: TSX Exchange | Dec 14, 2018, 10:36 AM EST

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Agellan Commercial Real Estate Investment Trust Responds to Dissident Requisition and Sets Meeting Date


Agellan Commercial Real Estate Investment Trust (the "REIT" or "Agellan") (TSX: ACR.UN) announced today that its board of trustees (the "Board"), in response to a unitholder requisition made by Sandpiper Real Estate Fund Limited Partnership (“Sandpiper” or the “Dissident”), has called an annual and special meeting of unitholders (the “Meeting”) to be held on April 17, 2018 (the “Meeting Date”).

Following receipt of the Dissident’s requisition, a special committee of the Board comprised exclusively of independent trustees (the “Special Committee”) reviewed and considered the requisition with its professional advisors. After careful deliberation, and with the interests of ALL of the REIT’s unitholders in mind, the Board determined the Meeting Date based on the following facts:

  • The REIT held its regular annual general meeting only three months prior to receiving the Dissident requisition (the “2017 AGM”).
  • Three new and highly qualified independent trustees were elected by unitholders at the 2017 AGM and all seven trustees elected received over 93%+ of unitholder votes cast.
  • At the 2017 AGM, both Sandpiper and ELAD Canada Inc. (“ELAD”) had the opportunity to express “dissenting” views; however the current Board was overwhelmingly supported.
  • A representative of ELAD was elected to the Board at the 2017 AGM.
  • There is no new business or strategy being proposed by the Dissident that warrants the REIT urgently holding a 2nd unitholder meeting at this time.
  • The significant cost and distraction to management that comes with holding a 2nd meeting of unitholders sooner than the Meeting Date would be detrimental to unitholders.
  • Both the REIT’s retail and institutional unitholder base have expressed concerns over Sandpiper’s real objectives and have stated their strong support for the current Board, the REIT’s current strategy and the current management team.
  • Sandpiper has privately submitted to the REIT that it supports many of the strategic directives that the current Board has put in place and is in the process of successfully executing.

While the REIT is committed to engaging with all of its unitholders and considering proposals to enhance unitholder value, the Dissident’s only publicly stated objective for a new unitholder meeting is majority control of the Board with its own hand-picked “independent” nominees.

Sandpiper has also referenced the support of ELAD, an approximate 19% unitholder of the REIT, in its public filings. If true, and IF Sandpiper and ELAD were acting jointly as a group, they would control over 30% of the issued and outstanding units of the REIT. Furthermore, if Sandpiper is successful in its attempt to gain five additional board seats at the Meeting, Sandpiper and ELAD together would control the Board and would effectively be taking over control of the REIT without paying a “premium” to ALL unitholders, which “premium” is normally expected by unitholders when giving up control.

The Meeting Date selected also provides the REIT with a reasonable period of time to consider the implications of Sandpiper’s and ELAD’s combined 30%+ position, what their long-term objectives might be and what impact a potential change of control would have on ALL unitholders.

The REIT Continues To Successfully Execute on Its Stated Strategy and Deliver Strong Returns -- Dissident's Demands Simply Redundant and Self-Serving

As has been previously announced, the REIT continues to implement its strategic plan of focusing on core industrial real estate in the U.S., monetizing the REIT’s remaining office properties and maximizing the value of the REIT’s largest asset, Parkway Place, with a sale at the appropriate time. Last week, the REIT announced another important strategic step in the continued redevelopment of Parkway Place when it closed the sale of the REIT’s partnership interest in the recently completed car dealership and corporate head office of Porsche Cars Canada Ltd.

Oddly, these are the exact same key “initiatives” that Sandpiper has privately proposed the REIT consider as part of its “strategic plan”. The fact is, the majority of the “value enhancing proposals” put forward by Sandpiper are already being implemented by the REIT. This view is also shared by the research community that has been covering Agellan since its IPO.

“We are of the view that management has been executing well on the REIT’s strategy, and Agellan has outperformed the Canadian REIT sector since its IPO in January 2013. We continue to believe that ultimately, management’s and Sandpiper’s long-term strategic visions for the REIT are in alignment (both Agellan and Sandpiper want the REIT to evolve into a focused, US industrial player), and it is not clear to us how the changes to the board would meaningfully accelerate value creation.” - Canaccord Genuity

"The urgency of [Sandpiper’s] demands remain unexplained and seems odd to us to say the least…..We think CEO Frank Camenzuli has done a good job of working the REIT's asset base to extract value and position it for the future as a U.S. focused REIT. Indeed, Parkway Place has significantly exceeded our expectations, reaching near all-time high occupancy levels…Management contends that its strategy is already on the right path and that it sees no value in replacing four independent trustees. We agree." - RBC Capital Markets

"The core of [Sandpiper’s] recommended strategy does indeed appear redundant. We (as well as both parties) believe that the eventual sale of Parkway [Place] is a key catalyst for the stock, something management has already been working diligently to achieve." – GMP Securities

Since the completion of its IPO on January 25, 2013, the REIT has successfully executed a strategy that has driven significant gains for its unitholders:

  • A total cumulative return to unitholders of approximately 17.9% in 2017, compared to approximately 5.8% for the S&P/TSX Capped REIT Total Return Index.
  • A total cumulative return of approximately 74.7% since the IPO, compared to a total cumulative return of approximately 22.7% for the S&P/TSX Capped REIT Total Return Index over the same time period.

We do not believe that the Dissident fully appreciates the implications of their timing demands around their private proposals. The Dissident’s desire to accelerate the sale of the REIT’s U.S. office portfolio has important tax implications for the REIT and its unitholders. While the REIT is pleased that its U.S. office assets have appreciated in value since they were purchased, the result is a meaningful embedded tax gain. As the REIT is a taxable corporation in the U.S., any sale of these U.S. office assets would trigger a current and sizable cash tax obligation. As such, the U.S. office sale process needs to be methodically managed and timed to allow the REIT to reinvest proceeds from asset sales into other properties on a tax deferred, “rollover” basis. Naively accelerating these property sales without identifying an acceptable “replacement” asset or assets would be imprudent and financially detrimental to unitholders. The current Board and management team have a thorough understanding of this process and continue to explore the best alternatives to both maximize value and minimize any adverse tax consequences to the REIT and its unitholders.

Sandpiper’s private proposal also includes the immediate sale of Parkway Place with the proceeds being used to fund a Substantial Issuer Bid (“SIB”) by the REIT. While the REIT has publicly expressed its intention to sell Parkway Place on a number of occasions, it strongly believes that a sale should only occur when it maximizes value for ALL unitholders. Selling Parkway Place today, before several strategic initiatives are completed, including the extension of a major tenant lease which expires in 2020, to simply fund a SIB is both shortsighted and not in the best interest of ALL unitholders.

The REIT Is Disappointed By The Questionable Approach Taken By the Dissident

Sandpiper first engaged with the REIT and its Chief Executive Officer, Mr. Frank Camenzuli, earlier this year under the guise of being a small, but long-term and supportive unitholder. On a number of occasions, Mr. Samir Manji, Sandpiper’s Chief Executive Officer, and Mr. Camenzuli engaged in typical unitholder conversations as Mr. Camenzuli does regularly with the REIT’s institutional and retail investor base. As part of that engagement, Mr. Manji, on behalf of Sandpiper, expressed a particular interest in potentially acquiring the REIT’s largest asset, Parkway Place. In one specific meeting in May 2017, Mr. Manji inquired about the real value of Parkway Place. Following that meeting, Mr. Manji requested on multiple occasions, and the REIT sent by e-mail, confidential information regarding Parkway Place, including financial forecasts, rent rolls and development plans. In the REIT’s communication to Mr. Manji, it was clear that the information was being provided to the Dissident on a confidential basis and solely for the purpose of considering a potential acquisition of Parkway Place. After receipt of this information, one of Mr. Manji’s employees and Mrs. Terra Attard, the REIT’s Chief Operating Officer, subsequently toured Parkway Place in June. Since this tour and receipt of this non-public information, Sandpiper has materially increased its ownership of REIT units, has become one of the REIT’s largest unitholders and continues to acquire more REIT units in the open market from its fellow unitholders.

As previously disclosed, after months of engaging with Sandpiper under the assumption that Sandpiper was a supportive unitholder and potentially an eventual buyer of Parkway Place, Sandpiper unexpectedly submitted an aggressive proposal seeking majority control of the Board on the evening of Tuesday, September 12, 2017. The proposal included an ultimatum from Sandpiper that if a response was not received from Mr. Camenzuli by 5:00 p.m. the following day, Sandpiper would evaluate its options to effect change, including the threat of requisitioning a unitholder meeting to take majority control of the Board through its own hand-picked, “independent” nominees.

The REIT finds the fact pattern, timing and unexplained urgency around Sandpiper’s proposal extremely troubling and highly disruptive to the REIT.

Given the redundancy of Sandpiper’s “strategic plan”, the Board is concerned that Sandpiper’s, and potentially even ELAD’s, ultimate goal may be:

(i) An attempt to take control of the REIT without paying a premium to ALL unitholders.

(ii) A maneuver to either control or potentially buy Parkway Place in a related party transaction at a discounted price after the Meeting.

(iii) A first step towards obtaining a much larger ownership position in the REIT (50%+) without investing a single additional dollar, by causing a reconstituted board of the REIT to use the net proceeds from an early sale of Parkway Place to buy back outstanding units of the REIT from other unsuspecting unitholders through an SIB.

(iv) Simply a “brand-building” exercise for the Sandpiper Group, as part of its ongoing desire to become an “activist” investor.

Internalization of Asset Management

Given the poor reception from independent unitholders and research analysts to Sandpiper’s original September 14th press release, Sandpiper pivoted sharply and took a new approach in their September 19th press release attacking the REIT’s recent announcement regarding the internalization of asset management and the purchase of Agellan Capital Partners Inc. (“ACPI”) for $15 million (the “Internalization” or the “Transaction”).

As previously disclosed, the terms of the Transaction were negotiated over a number of months by a special committee (formed in October 2016) comprised exclusively of independent trustees of the REIT. Furthermore, the Transaction was announced after a thorough due diligence process had been completed and the Board determining that the Transaction was in the best interests of ALL unitholders of the REIT.

  • The Transaction is expected to be immediately accretive to the REIT's adjusted funds from operations (AFFO) per unit;
  • The Transaction responds to the market's strong preference for internally managed REITs;
  • The Transaction will allow the REIT to continue to benefit from the expertise, vision, platform and relationships of the very well respected ACPI management team; and
  • The REIT will benefit from incremental 3rd party fee revenue from assets managed by ACPI but not owned by the REIT.

Notwithstanding the Dissident’s hyperbole and misrepresentation of the REIT’s contractual rights and obligations under the external management agreement with ACPI in their press release, the special committee received a fairness opinion from Ernst & Young LLP that the consideration to be paid by the REIT in connection with the Internalization is fair, from a financial point of view, to the REIT's unitholders. The fairness opinion was one component of a broader fulsome financial, legal and qualitative analysis performed by the special committee relating to the benefits of Internalization.

Additionally, the Internalization announcement was welcomed by long-term unitholders and widely supported by the independent research analyst community.

"…we understand that discussions regarding the internalization of asset management have been ongoing for several months, and while the internalization comes at a moderate cost to unitholders, at approximately 4x annual fees, we believe the cost is reasonable compared to what other Canadian REITs have paid to internalize management. Further, an internalized structure should better align the interests of management and unitholders." - Canaccord Genuity

"Overall, we view the [internalization] deal as a net positive given stronger management alignment with unitholders, a reasonable price paid (~3.5x last 12 months’ fees), and expected improvement in long-term cost structure, partly offset by modest potential dilution to our NAVPU…. we view the internalization as step toward a structurally stronger valuation given the reduction of perceived conflicts of interest with unitholders and the expected positive impact on long-term cost structure." - Scotia Capital

"In comparison with recent internalization transactions, the price seems reasonable…. internalization of asset management usually has a positive impact on valuation (included as a positive component of our NAV price target derivation approach) as investors generally prefer internally managed REITs." - Laurentian Bank Securities

Closing of the Transaction is expected to occur during the fourth quarter of 2017, and is subject to satisfaction of customary closing conditions for a transaction of this type. The REIT has also applied to the Toronto Stock Exchange ("TSX") for approval to list the trust units of the REIT issuable upon exchange of the Class B LP Units issued to ACPI as part of the consideration for the Transaction. Accordingly, the listing application will be subject to the satisfaction of all applicable listing requirements of the TSX.

Meeting Updates

The REIT will provide further important information regarding the Meeting in due course and a management information circular will be mailed to unitholders and posted to the REIT's website and SEDAR in advance of the Meeting.


The REIT has retained Trimaven Capital Advisors as its financial advisor, Torys LLP as its legal advisor, and Laurel Hill Advisory Group as its strategic proxy advisor in connection with the unitholder requisition and Meeting. The Special Committee has retained Davies Ward Phillips & Vineberg LLP as its legal advisor.

Unitholder Questions

Unitholders may contact Laurel Hill Advisory Group toll free at 1-877-452-7184 (416-304-0211 collect outside North America), or by email at assistance@laurelhill.com, if they have any questions regarding the Meeting.

Forward-Looking Information:

This news release contains forward-looking information within the meaning of applicable securities legislation. Forward-looking information can be identified by words or expressions including, but not limited to, “plans”, “expects”, “scheduled”, “estimates”, “intends”, “anticipates”, “predicts”, ”projects”, “believes”, or variations of such words and phrases or statements to the effect that certain actions, events or results “may”, “will”, “could”, “would”, “should”, “might”, “occur”, “be achieved” or “continue” or similar expressions. Forward-looking information is necessarily based on a number of estimates and assumptions that are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies, many of which are beyond the REIT’s control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. As such, management can give no assurance that actual results will be consistent with the forward-looking information. While such assumptions are considered reasonable by management of the REIT based on the information currently available, any of these assumptions could prove to be inaccurate and, as a result, the forward-looking information based on those assumptions could be incorrect. These risks and uncertainties include, but are not limited to: the REIT’s future growth potential; results of operations; future prospects for additional investment opportunities in Canada and the U.S., including access to debt and equity capital at acceptable costs, the ability to obtain necessary approvals and to minimize any unexpected costs or liabilities, environmental or otherwise, relating to any acquisitions or dispositions; demographic and industry trends remaining unchanged, including occupancy levels, lease renewals, the exercise of any early termination rights, rental increases and retailer competition; future levels of the REIT’s indebtedness remaining at acceptable levels, including its credit rating; tax laws as currently in effect remaining unchanged, including applicable specified investment flow-through rules; and current economic conditions remaining unchanged, including interest rates and applicable foreign exchange rates. Readers, therefore, should not place undue reliance on any such forward-looking statements, as forward-looking information involves significant risks and uncertainties and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not the times at or by which such performance or results will be achieved. All forward-looking information in this news release speaks only as of the date of this news release. The REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by applicable securities laws. All forward-looking statements in this news release are qualified by these cautionary statements. Additional information about these assumptions and risks and uncertainties is contained in the REIT’s filings with securities regulators, including its current annual information form and MD&A.

Non-IFRS Supplemental Measures

Certain terms used in this news release are not recognized under International Financial Reporting Standards (“IFRS”) and therefore these terms should not be construed as alternatives to IFRS measures, such as net income or cash flow from operating activities nor are these terms necessarily comparable to similar measures presented by other reporting issuers. These terms are used by management to measure, compare and explain the operating results and financial performance of the REIT. Management believes that these terms are relevant measures in comparing the REIT’s performance to industry data and the REIT’s ability to earn and distribute cash to the REIT’s unitholders. These non-IFRS measures, including AFFO, are defined, and AFFO is reconciled to net income, in the REIT’s management’s discussion and analysis for the three and six month periods ended June 30, 2017, which should be read in conjunction with this news release.

About Agellan Commercial Real Estate Investment Trust

The REIT is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been created for the purpose of acquiring and owning industrial, office and retail properties in select target markets in the United States and Canada.

The REIT’s 44 properties contain approximately 7.0 million square feet of gross leasable area, with the REIT’s ownership interest at approximately 6.7 million square feet. The properties are located in major urban markets in the United States and Canada.

Additional information about the REIT is available at www.agellancommercialreit.com or www.sedar.com.

Agellan Commercial Real Estate Investment Trust
Frank Camenzuli, 416-593-6800 x226
Fax: 416-593-6700

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