Samir Manji, founder and chief executive officer of Vancouver-based Sandpiper Group, launched a proxy contest aimed at replacing four of nine trustees on First Capital’s board.DARRYL DYCK/Globe and Mail
First Capital Real Estate Investment Trust First Capital Real Estate Investment Trust is asking investors to be patient as activist campaigns from two fund managers and the REIT’s founder set out a starkly different approach to property sales than the strategy introduced this fall by the REIT’s own executives.
First Capital owns one of the country’s largest retail property portfolios, a collection of grocery store-anchored malls in four provinces valued at $10-billion. Over the past five years, the price of First Capital units significantly lagged peers, declining by 19 per cent.
In September, the REIT announced plans to sell up to $1-billion of real estate over the next two years to fund new developments. At the same time, First Capital doubled its monthly cash distributions. Shortly after, First Capital sold a 50-per-cent stake in a downtown Toronto residential property at 1100 King St. W. for $149-million.
In October, Toronto-based Ewing Morris & Co. Investment Partners challenged First Capital’s property sales plan by starting a campaign to replace the REIT’s chair, Bernard McDonell.
This week, Vancouver-based activist investor Sandpiper Group upped the ante by launching a proxy contest aimed at replacing four of nine trustees on First Capital’s board, including Mr. McDonell. Sandpiper requested First Capital hold a unitholder meeting to vote on its slate of trustees by March 1, 2023.
On Tuesday, First Capital said in a news release its board is reviewing Sandpiper’s request “and will respond appropriately in due course. In the meantime, there is no need for First Capital’s unitholders to take any action.”
First Capital’s board and executives are considering launching a strategic review that could see the entire REIT sold, and remain committed to $1-billion of property dispositions, according to two sources familiar with First Capital’s plans. The Globe and Mail is not naming the sources because they are not permitted to speak on the process.
If First Capital and its 215-property portfolio are put up for sale, both sources said that one logical buyer is Choice Properties Real Estate Investment Trust, the country’s largest grocery store-focused REIT, controlled by the Weston family. Choice owns more than 700 properties, valued at $16-billion.
Sandpiper and Ewing Morris, along with First Capital founder and former chief executive Dori Segal, want First Capital to halt sales of properties in the cores of Canada’s largest cities, such as 1100 King St. W., and focus on raising cash by selling malls in smaller centres. Sandpiper also said it may push for a strategic review that could result in the sale of First Capital.
“The plan to sell high quality core growth assets to finance the increased distribution is reckless and irreparable,” Mr. Segal said recently in an open letter to unitholders. Mr. Segal founded First Capital in 1979 and left the board in 2021. He said the current management team’s strategic announcements are “stunts” that only serve short-term objectives. “Liquidating generational core assets like 1100 King at below replacement cost is not the right way to go.”
On Monday, Sandpiper published a five-point plan to improve First Capital’s financial performance that included capping property sales over the next two years at $400-million. Samir Manji, Sandpiper’s founder and chief executive, said in an interview there is significant unrealized development potential in First Capital properties in downtown Vancouver, Calgary, Edmonton, Toronto and Montreal.
“First Capital continues to pursue a flawed disposition strategy involving sales of portfolio jewels and super urban assets which we believe reduces the value of the REIT,” Mr. Manji said. If Sandpiper’s campaign is successful, Mr. Manji said real estate sales would focus instead on secondary markets such as Ottawa and the suburbs of major cities.
The debate over property sales at First Capital revolves around what real estate the company puts on the auction block, as analysts back the REIT’s plans to auction off second-tier malls. “We strongly agree with First Capital’s initiative to sell low-yielding assets at reasonable valuations to repay debt and repurchase units, contrary to the view that dispositions should be halted,” Mario Saric, an analyst at Bank of Nova Scotia, said in a recent report.
Numerous REITs are looking at property sales as a way to raise money and pay down debt at a time when interest rates are rising. Last month, office property owner Allied Properties Real Estate Investment Trust put its data-centre portfolio up for sale. Allied values the portfolio at $1.3-billion.