Shopping mall owner First Capital Real Estate Investment Trust FCR-UN-T has pushed back against an activist investor campaign by attempting to enlist support from securities regulators, while the property company’s institutional investors continue to critique its financial performance and governance.
In a news release on Friday, First Capital said it filed a complaint with the Ontario Securities Commission over fund manager Ewing Morris & Co. Investment Partners Ltd.’s attempt to build support for replacing the real estate company’s chair, Bernard McDonnell, and add a trustee to its board.
Toronto-based First Capital is one of the country’s largest retail property owners, with $10-billion worth of grocery-store-anchored malls in major cities in British Columbia, Alberta, Ontario and Quebec.
The investors supporting Ewing Morris’s campaign for new leadership include First Capital founder and former chief executive Dori Segal. By working together, the two investors’ “conduct appeared to be in violation of securities laws,” said First Capital. “Given the seriousness of these concerns, First Capital brought these issues to the attention of the Ontario Securities Commission.”
In response, Ewing Morris said in a release that First Capital is making “baseless claims that are irrelevant in the context of value creation.” The fund manager said it addressed First Capital’s concerns in a meeting with the company this month, and Ewing Morris “remains in full compliance with all securities regulations.”
A spokesperson for the OSC said on Friday that, in keeping with its general policy, the regulator “is unable to confirm or comment on the existence, status or nature of any complaint, review or investigation.”
First Capital recently increased its distributions to unitholders, after cutting its payout during the COVID-19 pandemic. On Friday, the company said it plans to sell up to $1-billion of properties and redeploy that capital to new developments and other measures aimed at improving financial performance. First Capital’s market capitalization is $3.3-billion, and the price of its units has declined by 25 per cent over the past five years.
Ewing Morris is attempting to replace First Capital’s chair with veteran real estate executive Kelly Marshall, currently chair of Granite Real Estate Investment Trust, and add its own CEO, Darcy Morris, to the board.
First Capital’s current chair, Mr. McDonell, is 67 years old and former president of Montreal-based grocery chain Provigo. He has been on First Capital’s board for 15 years. Mr. McDonell was also chair of hockey equipment company Performance Sports Group Ltd., which filed for creditor protection in 2016.
On Friday, First Capital said it has renewed its board in recent years with executives who bring real estate skills and experience, with five of its nine trustees appointed since 2018.
First Capital named Adam Paul as its CEO in 2015. Ewing Morris said since that time, the REIT’s units have significantly underperformed peers. The fund manager said, “Prior to February 2015, First Capital regularly traded at a premium to IFRS net asset value.”
“The net asset value premium gradually eroded during the CEO’s first four years of leadership,” said Ewing Morris. “Today, First Capital trades at the widest discount to net asset value of any of its peers.”
In recent years, activist fund managers, including Ewing Morris, have successfully put directors on boards at a number of REITs, triggering shifts in leadership and strategy, and the sale of some real estate companies.
There were 47 activist campaigns at Canadian companies last year, the highest amount of activity seen since 2013, according to a recent report from law firm Blake, Cassels & Graydon.
“From 2018 to 2021, management was successful in resisting the activist in approximately 60 per cent of public contests,” said Blakes lawyers Alex Moore and Jennifer Crawford. “While this suggests that management holds a slight edge, the significant level of activist success gives management a strong incentive to explore acceptable settlement terms.”
Law firm Stikeman Elliott LLP is advising First Capital’s board, along with investment bank RBC Capital Markets.
Andrew Willis