Key Takeaways
- • Five institutional shareholders, including the New York City comptroller, CalSTRS, the State Board of Administration of Florida, BCI and Norway's KLP, plan to vote against the proposed C$6.7B (roughly $4.7B) breakup of H&R REIT, according to proxy voting records reviewed by Bloomberg.
- • At least four other holders, including RBC Global Asset Management, Mill Pond Capital, Scheer Rowlett & Associates and Sandpiper Asset Management, have also opposed the deal, together controlling roughly 19 million units, or about 7% of outstanding units.
- • The deal's value has eroded: the cash-and-stock package was worth C$12.01 per share when announced in August, but GO Residential share declines have reduced it to roughly C$10.13 per share, per Bloomberg.
- • Proxy advisers Institutional Shareholder Services and Glass Lewis both recommended that H&R investors vote against the breakup.
- • Approval requires two-thirds of votes cast across two voting tests plus a majority of unaffiliated unitholders in a third, with a vote scheduled for Friday.
Summary
A growing group of H&R REIT shareholders is opposing the proposed breakup of the Toronto-based REIT ahead of a shareholder vote scheduled for Friday, Bloomberg reported, based on proxy voting records. Five institutional investors have disclosed plans to vote against the transaction: the New York City comptroller, California State Teachers' Retirement System, the State Board of Administration of Florida, British Columbia Investment Management Corp. and Norway's KLP. At least four other shareholders have also said they will vote no. RBC Global Asset Management, which holds 9.3 million units, and Mill Pond Capital, with 2.2 million units, came out against the deal in October, joined by Scheer Rowlett & Associates and Sandpiper Asset Management. Bloomberg estimates the four named investors control a combined 19 million units, roughly 7% of outstanding units. The size of the five pension funds' stakes has not been disclosed.
The transaction, struck in August, offered H&R unitholders C$4.28 in cash plus 0.57 shares of GO Residential REIT for each H&R share. At announcement, the package was valued at C$12.01 per share and implied a total enterprise value of C$6.7B, or roughly $4.7B. Since then, declines in GO Residential's share price have reduced the implied value to approximately C$10.13 per share, according to Bloomberg. Opposition is partly driven by this erosion in value, which followed a review of strategic alternatives.
Under the plan, H&R's assets would be divided among Blackstone Real Estate, Crestpoint Real Estate Investments, PSP Investments and a company controlled by the family of H&R CEO Tom Hofstedter. Twenty-seven properties would go to GO Residential, which launched last year to invest in luxury high-rise multifamily assets. Blackstone, PSP and Crestpoint would acquire H&R's Canadian industrial properties, while the Hofstedter family would absorb the remaining noncore assets. H&R estimated its portfolio's fair market value at $6.5B at the end of the second quarter. The REIT has spent several years shedding assets, including $1.5B of retail and office sales in the first quarter, as part of a strategic shift toward multifamily and industrial real estate.
Proxy advisers Institutional Shareholder Services Inc. and Glass Lewis & Co. have also recommended that investors vote against the breakup. To pass, H&R must secure approval from two-thirds of votes cast across two voting tests and a majority in a third vote of unaffiliated unitholders.
The transaction, struck in August, offered H&R unitholders C$4.28 in cash plus 0.57 shares of GO Residential REIT for each H&R share. At announcement, the package was valued at C$12.01 per share and implied a total enterprise value of C$6.7B, or roughly $4.7B. Since then, declines in GO Residential's share price have reduced the implied value to approximately C$10.13 per share, according to Bloomberg. Opposition is partly driven by this erosion in value, which followed a review of strategic alternatives.
Under the plan, H&R's assets would be divided among Blackstone Real Estate, Crestpoint Real Estate Investments, PSP Investments and a company controlled by the family of H&R CEO Tom Hofstedter. Twenty-seven properties would go to GO Residential, which launched last year to invest in luxury high-rise multifamily assets. Blackstone, PSP and Crestpoint would acquire H&R's Canadian industrial properties, while the Hofstedter family would absorb the remaining noncore assets. H&R estimated its portfolio's fair market value at $6.5B at the end of the second quarter. The REIT has spent several years shedding assets, including $1.5B of retail and office sales in the first quarter, as part of a strategic shift toward multifamily and industrial real estate.
Proxy advisers Institutional Shareholder Services Inc. and Glass Lewis & Co. have also recommended that investors vote against the breakup. To pass, H&R must secure approval from two-thirds of votes cast across two voting tests and a majority in a third vote of unaffiliated unitholders.
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