Sandpiper Group has launched a bid to oust most of the board of Artis Real Estate Investment Trust, partly in response to the commercial landlord’s plan to spin off $779-million of retail assets into a new trust.
Sandpiper, the Vancouver-based activist real estate investment firm, wants to replace five of the seven trustees on Artis’s board, including chief executive Armin Martens, with its own slate. Sandpiper has more than 5 per cent of the trust units in Winnipeg-based Artis, having initially bought a stake in 2017, and has requisitioned a special vote for its proxy fight.
“There’s just been, in our view, over these last few years that we’ve been involved, examples that have been of concern to us from a governance and stewardship standpoint that we don’t believe can continue any longer, and that unit holders shouldn’t have to put up with any longer,” Sandpiper CEO Samir Manji said in an interview. He is one of the firm’s five nominees for the board of Artis, which has properties in Canada and the United States.
Artis said it received Sandpiper’s requisition and plans to comment on specifics in the coming days after reviewing the situation with its advisers. “In the meantime, there is no need for unitholders of the REIT to take any action,” it said.
Last month, Artis said it would spin off Western Canadian retail properties in an effort to gain a higher worth in a stock market it says undervalues the assets. Artis said the move would simplify its business and allow it to concentrate on industrial and office holdings.
The trust units have declined by more than a third this year, suffering a big drop after the COVID-19 outbreak. But they climbed nearly 5 per cent to close at $8.33 on the Toronto Stock Exchange Thursday, after Sandpiper’s announcement. That gives Artis a market capitalization of about $1.1-billion.
“We don’t know … what value we’re getting for our retail in our portfolio. Some people say little or no value. It might be negative value,” Mr. Martens told analysts after announcing the spinoff. “It’s better for our retail portfolio to be in a separate retail REIT. It’s better for our investors, better for the portfolio, better for everybody involved.”
However, Mr. Manji said the move is fraught with risk, given Artis’s concentration of retail assets in Western Canada, where the market had been under economic pressure even before the pandemic. Instead, he said, Artis should have launched a process for outright sales of the assets.
“Nobody has interest in owning a retail REIT in today’s environment,” he said. “Saddling unitholders with an illiquid, orphan, Western Canadian, externally managed REIT, we don’t think is the solution, and as a result are going to vote against it.”
Mr. Manji also raised questions about the independence of a construction, property acquisition and management company, Marwest Management Canada Ltd., controlled by Mr. Martens and members of his family. Artis said in its annual information form that Marwest performs work for it from time to time, but Mr. Manji pointed out that such transactions are not disclosed to unitholders.
Mr. Manji founded Sandpiper in 2016, and the private equity company made a name for itself after it launched a proxy fight at industrial property company Granite REIT in May, 2017, and won support from influential proxy advisers for its slate of directors. Since then, Sandpiper has pushed for change at other publicly traded entities, including Extendicare, Agellan and Hudson’s Bay Co.
Diversified REITs such as Artis have been under pressure since the start of the pandemic, and the company is a victim of a murky outlook for cash flow, said Jenny Ma, analyst with BMO Capital Markets. It’s unclear how much value a spinoff can generate given the state of the retail sector, but Sandpiper’s proposal for asset sales would also be tough, Ms. Ma said.
“I’m not sure that idea is something you could execute in a short amount of time right now, because with the pandemic, everything’s on hold,” she said “We’ve heard about multifamily [property] transactions – in fact that seems to one of the more buoyant parts of the private market. But, certainly with retail assets, I spoke to somebody who basically said every retail property is for sale.”
Artis’s largest shareholder is the estate of Tim Hortons founder Ron Joyce, which had 10.7 per cent of the trust units as of Aug. 10, according to S&P Capital IQ. Mr. Manji said he has not sought support from the estate or other unitholders yet.
Mr. Martens, along with current Artis trustees Edward Warkentin, Victor Thielmann and Wayne Townsend have all been on the board for 16 years. Sandpiper is seeking their ouster along with Bruce Jack, a trustee for three years. Another board member, Lauren Zucker, is a Sandpiper nominee named to the board in 2018.
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