It’s November, but the temperature in Winnipeg is getting hotter – at least in one building less than a block west of Portage and Main.
Artis Real Estate Investment Trust, which is headquartered in that Portage Avenue office tower, has been forced to put on hold a plan aimed at boosting the value of the overall business by spinning off Western Canadian retail properties.
The commercial landlord is still keen on the concept, saying it is a tax-efficient way to try to wring some value out of assets whose worth isn’t reflected in the market. Chief executive Armin Martens, in fact, has complained that part of the business may be cutting into the REIT’s overall value.
But now, Mr. Martens is feeling some heat. Last week, Artis postponed a unitholder vote on the move, blaming the activist investor that has spent recent weeks firing off barrages of criticism at management, and which aims to replace most of the board, including the CEO. Vancouver-based Sandpiper Group opposes the spin-off of assets into a new publicly traded REIT, saying the move is too risky.
Artis calls the attack by Sandpiper Group “an unnecessary and resource-consuming proxy fight” and an “American-style smear campaign.”
The REIT has about 220 properties in Canada and the United States and wants to concentrate on its office and industrial portfolio at a difficult time in the commercial real estate industry, especially in the retail sector. But Sandpiper has already recruited key stakeholders to its cause. In October, Jetport Inc., the largest unitholder with 13.3 per cent of the units, said it backs the activist. Last week, Firm Capital Lending Group threw its support behind Sandpiper, claiming the spinoff would harm investors who own preferred units.
Sandpiper CEO Samir Manji has predicted the new REIT would be a thinly traded “orphan” in the market. He has pledged to scrap the plan in favour of a sales process for the properties if he is successful in ousting the board trustees.
On Monday, Mr. Manji said in a letter to unitholders that he believes the decision to postpone the vote suggests Artis has determined the spinoff lacks the necessary support from the unitholders. They must vote two-thirds in favour for it to proceed.
“It is disappointing that the board and management are more focused on preserving their jobs than accepting reality, reinforcing why new stewardship is needed,” Mr. Manji wrote.
It has been a tumultuous year for Artis. The trust units have been under heavy pressure, suffering their biggest drop after the COVID-19 outbreak. Before that, the REIT had said it was in talks with potential suitors as part of a strategic alternatives review. Artis pulled the plug on the process in May without a deal, saying market conditions were no longer conducive. The trust units were up more than 6 per cent in Monday’s broad market rally.
Artis announced the spinoff in September, and a few weeks later, Sandpiper, which first invested in the REIT three years ago and currently holds more than 5 per cent, launched its proxy battle. Sandpiper has questioned the independence of Marwest Group of Companies, a construction and management company owned by members of the Martens family that performs work for Artis. Mr. Manji has suggested that the family has benefited at the expense of other investors.
Mr. Martens has called Sandpiper’s allegations “fictional” and said conflicts of interest between the two organizations either do not exist or are managed appropriately to make sure decisions are made in the best interest of unitholders.
In Monday’s letter, Mr. Manji raises questions about the resignation of long-time board member Victor Thielmann. The company said on Oct. 29 that a review of the board’s composition had determined that Mr. Thielmann was not independent, but it did not provide details. Mr. Thielmann is president of Nova 3 Engineering Ltd., which provides services to the construction industry.
Mr. Manji said he believes Artis has “a culture of undisclosed transactions with related and familial entities that negatively impact unitholder value.”
However, in a statement, Mr. Martens pointed out that Artis has outperformed its diversified REIT peers since its initial public offering in 2005 and in the past 12 months (although all have fallen sharply). In third-quarter results, released last week, Artis increased its net income and its distributions to unitholders despite the industry’s woes, he pointed out.
“Unitholders have told us they are focused on what matters: Artis' consistent track record of strong performance and management and the board’s uninterrupted concentration on creating value as demonstrated in another stellar set of quarterly results,” he said.
Both sides are looking to make their case, but unitholders are not slated to vote on Sandpiper’s plan to replace five of the board members until Feb. 23. That leaves a lot of time for Artis and Sandpiper to keep the heat up during the Manitoba winter.
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