Samir Manji, founder and chief executive officer of Sandpiper Group, has also become CEO of Artis REIT.DARRYL DYCK/The Globe and Mail
The activist investor who took control of Artis REIT has unveiled his transformation plan after 100 days in power, and his fix is to turn the real estate investment trust into a holding company that looks very similar to his existing private equity firm.
The plan, if approved by unitholders, would see Artis sell many of its properties and redeploy the cash into equities of real estate companies. The REIT will also fund development projects and embark on its own activist campaigns.
The approach is similar to Sandpiper Group’s business model. The private equity firm ran the proxy battle to take control of Artis, but replicating its strategy at the REIT was not mentioned as a possibility during the campaign. Artis also announced Wednesday that Sandpiper founder Samir Manji has become the chief executive officer of Artis.
The new strategy is a major departure for Artis because REITs are often owned by retail investors, who buy these trusts because they own income-producing properties and normally pay out stable distributions.
Not only will Artis invest in equities, but the REIT disclosed Wednesday that it will do so on margin, meaning some purchases will be funded with debt – a much riskier strategy. Artis will also hire some Sandpiper employees, but exact details on the number of people who will move over is not yet available.
Artis REIT’s units dropped 5.1 per cent Wednesday to close at $10.89.
In an interview, Mr. Manji said a dramatic makeover was necessary. “Whatever Artis was doing for many years … it wasn’t working,” he said.
The company trades at a deep discount to its net asset value, in part because its retail property portfolio has over half its footprint in Alberta. Retail has been one of the hardest hit sectors in commercial real estate during the pandemic, and this sector of the market was struggling even before COVID-19 hit.
“We made a commitment to unitholders to bridge this perennial value gap,” Mr. Manji said.
Vancouver-based Sandpiper Group launched its activist campaign against Artis last fall, arguing that the REIT’s management team’s strategy to spin out its retail properties and focus on its industrial and office portfolio was ill-advised. The REIT has about 220 properties in Canada and the United States. Mr. Manji also alleged the REIT had conflicts of interest because it gave work to a company affiliated with its former CEO’s family – a claim the previous CEO said was “fictional.”
Sandpiper ultimately won the proxy battle and embarked on a 100-day strategic review, the results of which were announced Wednesday. Mr. Manji said many options were considered, including selling the REIT outright.
“Most buyers, as we understand, who were looking at or exploring that possibility had one objective in mind, and that is, to use the cliché, buy wholesale and sell retail,” he said. This means buyers would buy the whole portfolio for $12 or $13 a unit, Mr. Manji explained, and then break it apart and pocket the incremental $1 or $2 a unit they would realize from doing so.
For the new board, such a sale “was an option of last resort if we couldn’t come up with something more innovative,” he added.
In the same interview, Ben Rodney, Artis’s new board chair, did not shy away from the suggestion that Artis will now look a lot like Sandpiper. “The Sandpiper dynamic gives us a competitive dynamic,” he said, adding that he wants the REIT to “piggy back” on what Sandpiper has done.
As for potential conflicts of interest, considering Artis may invest in equities that Sandpiper already owns, Mr. Rodney said the board will address any concerns with an independent committee of directors.
Because the REIT will rely on Sandpiper’s personnel and strategy, it can seem as though Sandpiper is taking control of Artis despite having only a minority stake. Asked if that was the goal all along, dating back to the proxy battle, Mr. Manji said the new plan “was not envisioned at the outset.”
Artis intends to start funding its new operating model by selling the REIT’s industrial properties first, because they will likely be the easiest to unload. To fully pivot, the REIT will need to modify its declaration of trust, and that requires unitholder approval.
Mr. Manji said his plan already has the support of 31 per cent of shareholders, which includes the 11 per cent stake that Sandpiper holds.
As part of its strategy announcement Wednesday, Artis also disclosed an 11-per-cent distribution increase, which could help to win over retail voters.
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Tim Kiladze