H&R Real Estate Investment Trust HR-UN-T is calling a truce with its activist investor, K2 & Associates Investment Management Inc., with both sides agreeing to put two new directors on the REIT’s board. The new appointees, however, were not on K2′s proposed slate.
Only three weeks into the activist fight, Toronto-based K2 is withdrawing its four nominees to the board and will support the appointments of two different directors: Lindsay Brand, a former real estate banker and former executive at property developer Dream Unlimited, and Leonard Abramsky, a commercial real estate veteran who is also on the boards of First Capital REIT and Dream Residential REIT.
H&R also appointed Donald Clow, the recently retired CEO of Crombie REIT, as its lead independent director in March when discussions between K2 and the REIT were happening behind the scenes. K2 has said it was not informed of the appointment ahead of time.
The truce echoes the resolution of the proxy fight at First Capital REIT earlier this year, when multiple investors attempted to shake up the board. In the end, two new directors were added, but they differed from those proposed by the activists.
Toronto-based K2 was created in 1998 by Shawn Kimel, whose family founded real estate developer and owner Westdale Properties. As part of the agreement with H&R, Joe Beard, who runs Westdale’s multifamily residential arm in the United States, will serve as an adviser to the REIT. However, Westdale and H&R are competitors in the U.S., so H&R will not be required to share confidential information, according to their agreement.
H&R used to be a giant in Canada’s REIT sector, and as a diversified trust it owned everything from industrial properties to apartment buildings to enclosed malls, but had a heavy weighting toward office towers, such as the Bow in Calgary. The REIT has been run by chief executive officer Tom Hofstedter since it was created in 1996.
H&R’s units suffered during the first year of the pandemic, and in early 2021 the company announced that it was considering a wholesale change to narrow its focus and pivot away from some of its asset classes. At the time, office and retail comprised 48 per cent and 29 per cent, respectively, of the REIT’s net operating income.
A few months later, in October, 2021, H&R committed to undoing its business strategy from the better part of the previous decade, which included spinning out its enclosed mall portfolio in order to focus on residential buildings and industrial properties. (H&R bought Primaris REIT, a major mall owner, in 2013 after a tense bidding war, and at the time Primaris was seen as a prized asset because a number of its shopping centres were expected to benefit when Target Corp. arrived in Canada.)
H&R now wants 75 per cent of its real estate portfolio geared toward multifamily properties in the United States, largely in the Sun Belt, and the remaining 25 per cent in Canadian industrial properties near Toronto, Montreal and Vancouver. Multifamily properties have performed well of late because of strong rent growth, and industrial properties in Canada are some of the hottest real estate to own anywhere in the world because there isn’t enough supply to keep up with the demand for them.