Institutional investors launched a bid Thursday to replace the chair of shopping mall owner First Capital Real Estate Investment Trust FCR-UN-T, the latest in a series of activist campaigns aimed at property companies perceived as underperformers.
Fund manager Ewing Morris & Co. Investment Partners Ltd., backed by investors that include First Capital founder and former chief executive officer Dori Segal, are pushing to remove the REIT’s current chair, Bernard McDonell, with veteran real estate executive Kelly Marshall. The fund manager also wants to put its CEO, Darcy Morris, on the First Capital board. The company has a $3.3-billion market capitalization.
First Capital owns $10-billion worth of grocery store-anchored shopping malls in major cities in British Columbia, Alberta, Ontario and Quebec. In a press release, Ewing Morris said: “On a one-, three- and five-year basis, First Capital is the worst-performing REIT in Canada and has consistently underperformed both the REIT index and its peer group.”
First Capital executives could not be reached for comment late on Thursday after the Ewing Morris press release went out.
Last month, First Capital boosted its monthly payout to investors to prepandemic levels, making good on a promise to do so within two years after management slashed the distribution at the start of 2021.
First Capital named Adam Paul as its CEO in 2015 and he earned $4.7-million in 2021, up from $4.4-million the previous year. Ewing Morris took issue with increases in the compensation to Mr. Paul and other members of the management team. The fund manager said: “Despite chronic underperformance and a shrinking overall business, First Capital’s executive compensation continues to grow.”
Ewing Morris added: “We suspect that, like us, many investors are struggling to follow First Capital’s ever-evolving strategy.”
That sentiment was echoed by the company’s founder.
Mr. Segal launched First Capital as a private company in 1997, and was CEO of the company after it went public for 15 years. He left the board in 2021 and remains a significant unitholder. At First Capital’s annual meeting last June, he publicly expressed a number of concerns with the company’s strategy.
“I support what Ewing Morris is doing,” said Mr. Segal in an interview on Thursday. He said First Capital historically focused on developing superior properties, and holding them for many years. Recently, the company sold several holdings.
”My concern is the current strategy is more a reaction to market sentiment than one to build a sustainable, long-term business,” Mr. Segal said.
The push for change at First Capital is the latest in a series of activist campaigns to replace board members at real estate companies. In several cases, the companies ended up being sold. One activist fund manager, Vancouver-based Sandpiper Group, specializes in investments in real estate companies.
Mr. Marshall, the real estate veteran, is chair of Granite Real Estate Investment Trust. He assumed the role in 2017 after Sandpiper and another fund manager staged a proxy battle to remake the company’s board. Mr. Marshall was previously a senior executive at the Ontario Municipal Employee Retirement System pension plan and Brookfield Asset Management Inc.
Mr. Morris has experience as a REIT director. He joined the board of shopping mall owner Cedar Realty Trust Inc. last year as part of an arrangement between the company and two institutional investors, Ewing Morris and Camac Partners LLC. Cedar Realty sold a number of properties over the past year and, in August, U.S. real estate company Wheeler Real Estate Investment Trust acquired the company.
Law firm McCarthy Tétrault LLP is acting as legal counsel to Ewing Morris on the First Capital initiative.
Andrew Willis