Shopping mall owner First Capital Real Estate Investment Trust defeated an activist campaign from asset manager Sandpiper Group, the latest in a series of wins for management and incumbent boards at Canadian companies.
On Monday, Toronto-based First Capital announced Sandpiper and a related company, Artis Real Estate Investment Trust , agreed to drop plans to nominate four trustees to the REIT’s 10-member board and cancel a planned special meeting scheduled for March 28. Vancouver-based Sandpiper and Artis abandoned the campaign without winning a seat on the board.
“First Capital is pleased to have reached an agreement with Sandpiper and Artis that the board believes is in the best interests of all unitholders,” said Paul Douglas, chair of First Capital, in a press release. The settlement ended six months of activist activity at the REIT, one of the country’s largest owners of grocery store-anchored malls, with property portfolio valued at $9.6-billion.
In 2021, management teams and incumbent boards won approximately 60 per cent of the 47 activist campaigns at Canadian companies, according to a recent report from law firm Blake, Cassels & Graydon LLP.
Last month, First Capital reached agreements with two other activist fund mangers - Ewing Morris & Co. Investment Partners Ltd. and Vision Capital Corp. - that saw former CIBC executive Richard Nesbitt join the board. The REIT also recently added real estate investor Ira Gluskin as a trustee and named Mr. Douglas, a retired Toronto-Dominion Bank executive, as its new chair.
Ewing Morris, Vision and Sandpiper targeted First Capital after the REIT’s units underperformed most of its rival real estate companies over the past five years. The activists, and First Capital’s founder and former CEO Dori Segal, raised concerns with the REIT’s plans to sell up to $1-billion of properties to fund new developments, arguing rising interest rates and economic uncertainty make this the wrong time to dispose of properties.
In recent years, First Capital units significantly outperformed those of Artis REIT. Sandpiper won control of the Artis board three years ago.
When the activist campaigns began last fall, First Capital’s board and management team held a series of meetings with its institutional shareholders, including the fund managers attempting to replace its board members.
The REIT’s advisers were RBC Capital Markets, law firm Stikeman Elliott LLP and shareholder services firm Kingsdale Advisors. Sandpiper’s advisers are law firm Norton Rose Fulbright Canada LLP and Morrow Sodali (Canada) Ltd.
Engaging with activist investors, and finding compromise solutions to their concerns, is now considered the best approach to resolving disputes, according to lawyers who work on both sides of campaigns. In a recent report, lawyer Jennifer Longhurst at McCarthy Tétrault said directors became far more receptive to working with activists after fund manager Pershing Square won a boardroom battle with Canadian Pacific Railway Ltd.
“Boards in Canada, like elsewhere, are more aware of their potential vulnerability and many have become more proactive in trying to anticipate and pre-empt issues,” said Ms. Longhurst. She said activist campaigns tend to succeed if directors “underestimate their susceptibility to challenge” and refuse to negotiate.
“There remains a culture in Canada that can result in greater hostility by issuers and their boards and shareholders to perceived “outsiders,” Ms. Longhurst said. “This is exacerbated when U.S.- or foreign-based activists seek to import tactics or rhetoric that may have worked well elsewhere, but have not been tailored to the Canadian context.”
First Capital owns 145 properties in British Columbia, Alberta, Ontario and Quebec, with the majority of its malls in major cities. The REIT is expected to sell real estate in secondary markets and suburbs, while holding on to properties in the cores of Vancouver, Calgary, Toronto and Montreal.