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Partners REIT wins proxy fight, keeps external management

JASON FRANSON/The Globe and Mail

Partners REIT has won a heated proxy battle over how best to manage the company.

At the company's annual general meeting Thursday it was revealed that the existing management team beat out the real estate investment trust's own independent trustees, who argued in favour of internalizing the management team.

In May the independent trustees blindsided the Partners' executives with a proposal to bring the REIT's management team in-house. Unlike regular corporations, where managers are paid as regular company employees, a slew of REITs now pay outside parties to run the show, meaning their executives are compensated by an outside organization.

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The model is a controversial one, because critics argue that external managers' interests aren't aligned with those of REIT unitholders. External managers are typically paid fees as a percentage of a REIT's revenues, so the fees get bigger as the REIT grows. Plus, there are extra fees for things like acquisitions. Every time the REIT buys a property, the external manager is cut a cheque worth a percentage of the purchase price.

Critics, like Partners' independent trustees, argue that such an arrangement gives the REIT reason to buy things it doesn't need, especially when the external manager is owned or affiliated with the REIT's management. This is the case with Partners, as Adam Gant, co-founder of external manager League Asset Management, was until very recently Partners' chief executive officer.

However, the independent trustees couldn't convince the REIT's investors that changing models would make the REIT any better. That means Partners will remain externally managed, and the independent trustees will leave the board to be replaced by new faces. The new directors are James Bollock, Graham Senst and Wilbur Smith.

Following the AGM, the size of Partners' board will also shrink from six people to four following the departures.

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