NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
DISTRIBUTION IN THE UNITED
STATES
TORONTO, Sept. 18, 2017 /CNW/ - Agellan Commercial Real
Estate Investment Trust (the "REIT" or "Agellan") (TSX: ACR.UN)
announced today that its board of trustees (the "Board") has
received, considered and rejected a demand from Sandpiper Group
("Sandpiper") that the REIT undertake, among other things, a
substantial reorganization of the Board, including majority control
by Sandpiper's hand-picked nominees.
Background to Dissident's Questionable Approach
Sandpiper's proposal was delivered via e-mail to the REIT's
Chief Executive Officer, Mr. Frank
Camenzuli, 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. on Wednesday, September 13, 2017, Sandpiper would
evaluate its options to effect change, including the threat of
requisitioning a unitholder meeting. Sandpiper's ultimatum also
required the Board to be in agreement with Sandpiper's demands by
the end of the day on Friday, September 15,
2017 and for finalized documents to be negotiated and agreed
to before the opening of markets on Monday,
September 18, 2017.
Following receipt of the proposal, the REIT convened a special
committee of the Board to determine how to respond to Sandpiper's
demands. While the REIT is committed to engaging with its
unitholders and considering proposals to enhance unitholder value,
the Board has determined that Sandpiper's demands, and the
unexplained urgent timing related thereto, are NOT in the best
interests of the REIT.
In its demand letter, Sandpiper advised Mr. Camenzuli that it
holds slightly less than 10% (the threshold at which legal
disclosure is required) of the outstanding units of the REIT.
Subsequently, on September 14, 2017,
Sandpiper publicly announced that it had increased its ownership in
the REIT to 10%.
Agellan's Strategy on the Right Path. Dissident's Demands
Opportunistic and Redundant.
As has been previously announced, the REIT intends to continue
to implement its strategy of focusing on core industrial real
estate in the United States. The
REIT has also previously announced that it is exploring a sale of
Parkway Place. Put simply, the majority of the value enhancing
proposals of Sandpiper are already being implemented by the REIT.
Accordingly, the Board sees no value to unitholders in replacing
four of its independent trustees who have been elected by
unitholders with Sandpiper's four hand-picked nominees,
particularly by the unexplained urgent deadlines threatened by
Sandpiper.
The REIT is confident in the strength and diversity of its
current Board. Each of the REIT's trustees was recently
elected at the annual meeting of unitholders of the REIT held on
June 12, 2017 (the "Meeting") with
each individual receiving more than 93% of the unitholder votes
cast at the Meeting. In addition, increased depth was added to the
Board with three new independent trustees being elected at the
Meeting.
Management believes that Sandpiper's ultimatum, rather than
improving the REIT's business and delivering value to unitholders,
is an attempt to temporarily divert their attention away from
operations and the achievement of the REIT's objectives. As
Sandpiper concedes in its demand letter, "any protracted
negotiations or, in the worst case scenario, a proxy fight, will
only mean huge costs on both sides and major distractions for the
REIT, ACPI and unitholders". While the REIT has rejected
Sandpiper's initial proposal, it remains open to considering
suggestions and concerns from its unitholders, including Sandpiper,
to achieve outcomes that are in the best interests of ALL
unitholders of the REIT.
REIT Performance Highlights
Since the completion of its initial public offering on
January 25, 2013 (the "IPO"), Agellan
has successfully executed a strategy that has driven significant
gains for its investors. The REIT has generated a total cumulative
return to unitholders of approximately 14.1% in 2017, compared to
approximately 3.0% for the S&P/TSX Capped REIT Total Return
Index. The REIT has generated a total cumulative return of
approximately 69.1% since the IPO, compared to a total cumulative
return of approximately 19.5% for the S&P/TSX Capped REIT Total
Return Index over the same time period.
In addition, the REIT is pleased to announce the following
achievements:
- The REIT's portfolio of properties has scored in the top
quartile for the first half of 2017 according to a recent MSCI
Benchmark Report, with the income return for the REIT's U.S. assets
exceeding the benchmark by 3.9% and the income return for the
REIT's Canadian assets exceeding the benchmark by 3.0%;
- The growth in the value of the REIT's investment properties has
increased by approximately 95% over the last 5 years;
- The REIT has reduced portfolio risk by lowering the REIT's debt
to Gross Book Value and Payout Ratio significantly since the IPO,
as well as expanding the REIT's geographic and tenant
diversification through accretive acquisitions;
- Tenant survey results indicate a very high level of
satisfaction with the REIT's buildings, management and services
provided;
- The REIT has had continuous success with its leasing program
and as at July 1, 2017 the REIT has a
portfolio occupancy rate of 95.4%.
Internalization of Asset Management
Despite the unreasonable private and public threats and
ultimatums made by Sandpiper over the last several days, the REIT
has remained focused on executing its strategic business
initiatives. Accordingly, the REIT is pleased to announce that
after completing a thorough due diligence process, it has entered
into an agreement with its external asset manager, Agellan Capital
Partners Inc. (the "External Manager"), to internalize the REIT's
asset management function (the "Internalization" or the
"Transaction"). 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. Upon closing of the Internalization, the
REIT will no longer be required to pay the External Manager an
annual management fee or any applicable incentive or unit price
performance fees.
The terms of the Transaction were negotiated over a number of
months by a special committee comprised exclusively of independent
trustees of the REIT (the "Special Committee"). Upon closing of the
Transaction, a Canadian operating limited partnership of the REIT
("Management LP") will acquire all requisite assets of the External
Manager to internalize the asset management function, and all
executives and other employees of the External Manager are expected
to become employees of the REIT or its subsidiaries.
The aggregate consideration payable to the Manager on closing of
the Transaction will be C$15.0
million, comprised of C$3.0
million in cash with the remainder to be satisfied by the
issuance of 1,045,296 exchangeable Class B LP Units of Management
LP ("Class B LP Units") which would represent an approximate 3%
voting interest in the REIT as at the date hereof (on a fully
exchanged basis). The number of Class B LP Units to be issued was
determined using the volume weighted average trading price of the
units of the REIT on the TSX for the five trading day period prior
to the date of the Transaction. The Class B LP Units are intended
to provide the holder with substantially the same voting and
economic rights as a holder of trust units of the REIT. Such Class
B LP Units will be exchangeable on a one-for-one basis for trust
units of the REIT and will be subject to prescribed contractual
hold periods. The Transaction will not entitle the External Manager
to receive any registration rights, pre-emptive rights or
piggy-back rights in respect of the REIT. The External Manager will
also not be entitled to any contractual nomination rights in
respect of positions on the Board.
The Special Committee has received a fairness opinion from Ernst
& Young LLP to the effect that, subject to the assumptions and
qualifications contained in such opinion, 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.
Key Reasons for Internalization
The Special Committee considered a number of factors in deciding
to proceed with the Internalization, including:
- The elimination of asset management fees and any applicable
incentive or unit price performance fees, which were originally
negotiated at a time when the REIT was significantly smaller and
the fixed costs of management relative to the size of the REIT's
balance sheet were higher;
- Allowing the REIT to operate under a more efficient and
streamlined cost structure;
- The Transaction is expected to be immediately accretive to the
REIT's adjusted funds from operations ("AFFO");
- The consideration for the Transaction is being satisfied
primarily with exchangeable equity securities, which increases the
alignment of interests between the REIT and its management
team;
- The Transaction responds to the market's general preference for
internally managed REITs; and
- The Transaction will allow the REIT to seamlessly continue to
benefit from the expertise, vision, platform and relationships of
the management team.
Although the REIT has entered into a definitive asset purchase
agreement to internalize management, there can be no assurance that
all conditions to closing will ultimately be satisfied or
waived.
The Exchangeable Limited Partnership Units
The Class B LP Units will carry an entitlement to distributions
equal to the distributions paid on the trust units of the REIT. In
order to provide the External Manager with a voting entitlement
approximately equal to the trust units of the REIT, the REIT will
also issue to the External Manager one special voting unit of the
REIT (which are transferrable only together with the accompanying
Class B LP Unit) for each Class B LP Unit issued to the External
Manager. The special voting units will entitle the Manager to one
vote per special voting unit at meetings of the unitholders of the
REIT. The Class B LP Units, or the trust units of the REIT into
which they are exchangeable, issued to the External Manager will
generally be subject to a three year holding period, with one-third
released after one year, one-third released after two years and
one-third released after three years, subject to early release in
the event of certain prescribed events, including a termination of
employment of certain executives or certain "change of control"
transactions affecting the REIT.
The REIT will apply 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. Accordingly, the listing application will
be subject to the satisfaction of all applicable listing
requirements of the TSX.
Internal Asset Management Team
Upon closing of the Transaction, Frank
Camenzuli and other personnel of the External Manager will
be employed by the REIT or a subsidiary thereof. In conjunction
therewith, Frank Camenzuli, among
others, will enter into a non-competition and non-solicit agreement
with the REIT.
Multilateral Instrument 61-101
The Internalization constitutes a "related party transaction"
under Multilateral Instrument 61-101 – Protection of Minority
Security Holdings in Special Transactions ("MI 61-101").
However, the Internalization is not subject to the formal valuation
and minority approval requirements of MI 61-101 as the fair market
value of the Transaction will be not more than 25% of the REIT's
market capitalization.
Unitholder Questions
Agellan has retained Laurel Hill Advisory Group ("Laurel Hill")
as its strategic advisor. Unitholders may contact Laurel Hill toll free at 1-877-452-7184
(416-304-0211 collect outside North
America), or by email at assistance@laurelhill.com.
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: not closing the
Transaction; 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, Payout Ratio and Gross Book Value 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 7.0 million square feet of
gross leasable area, with the REIT's ownership interest at 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.
SOURCE Agellan Commercial Real Estate Investment Trust