Granite REIT Proposes Directors Amid FrontFour Activist Push

  • Investors urged to vote against slate backed by dissidents
  • FrontFour, Sandpiper own 6.2 percent of REIT’s shares

Granite Real Estate Investment Trust, Canada’s largest industrial real estate landlord, plans to nominate two new board members amid a push for change by activist investor FrontFour Capital Group and its partner, Vancouver-based Sandpiper Group.

Granite, in a regulatory filing Tuesday, cast the changes as part of a board renewal process that began last year. The Toronto-based company urged its investors to vote against a slate backed by the dissident shareholders that it was told privately would include FrontFour co-founder Zachary George and Sandpiper Chief Executive Officer Samir Manji.

“The dissidents have a track record of value destruction in the real estate sector, a history of related-party transactions and a short-term orientation,” Granite said in the filing. “The arguments they have made against Granite are weak, misleading or false.”

Granite said it would nominate real estate veteran Remco Daal, president of Canadian real estate at QuadReal Property Group, and Kelly Marshall, managing partner of corporate finance at Brookfield Asset Management Inc. Two of the eight trustees, Michael Brody and Brody Gilbertson, aren’t standing for re-election, the company said.

Greenwich, Connecticut-based FrontFour and Sandpiper, which collectively own 6.2 percent of Granite, have said they planned to put forth a slate of their own independent directors and trustees at the annual general meeting on June 15.

The two have argued Granite failed to leverage its balance sheet as effectively as its peers and could make billions of dollars on acquisitions over the next several years if it did. They also contend the company’s costs and board compensation are excessive, saying it could be worth C$60 or more a share if it were run more effectively. Granite closed at C$50.63 Tuesday.

True ‘Champion’

“A number of unitholders have indicated that they are supportive of a refreshed board focused on cost-control and definitive action,” the pair said in a statement Monday. Granite could become “a true Canadian industrial real estate champion,” they said.

Granite argues in its filing that it’s among the best performing real estate investment trusts in the country. Over the past year, its shares have gained more than 26 percent despite the S&P/TSX Capped REIT Index being flat over the same period. It also notes that its expenses were down 11 percent year over year during the first quarter.

Granite argues that FrontFour, in particular, has had a “dismal track record” in the real estate sector, including George’s tenure as chairman of FAM Real Estate Investment Trust. Granite argues that that he oversaw a series of “highly dilutive acquisitions” during his two-year tenure. The company’s net asset value fell and it then was sold to Slate Asset Management for a discount to its fair value per unit, according to Granite.

Granite also argues that Sandpiper’s Manji’s previous business, Amica Mature Lifestyles Inc., trailed its peers before it was sold to Baybridge Seniors Housing Inc. for about $821 million in 2015.

Granite, with a market value of about C$2.4 billion ($1.8 billion), owns and manages a portfolio of about 100 industrial, logistics and warehouse distribution properties. Its operations are spread across North America and Europe and leased primarily to Magna International Inc., Canada’s biggest auto-parts maker. 

Strategic Review

Granite launched a strategic review in 2015. After exploring several options, it determined its existing strategy was the best course.

"Granite is one of the best-performing REITs in Canada, has strong corporate governance, and is well positioned to pursue its acquisition strategy,” according to Tuesday’s filing. “Do not let short-term oriented dissidents with a history of value destruction jeopardize your investment.”

Neil Downey, an Toronto-based analyst with Royal Bank of Canada, said he believes FrontFour and Sandpiper have put forth "extremely one-sided views" although there is some room for improvement.

"With the benefit of hindsight, these views focus on opportunity loss. But they seemingly fail to give credit for good decisions and a strong overall ‘batting average,’" he said in a note to clients last week. "Not to be misread, we also think there may be potential for performance improvement and efficiency gains."

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