ISS Recommends Granite REIT Investors Back Dissident's Slate

  • Proxy advisory firm argues 3 nominees will accelerate change
  • Shareholders to vote for landlord’s board on June 15

FrontFour Capital Group’s efforts to shake up Granite Real Estate Investment Trust, Canada’s largest industrial landlord, received a boost Friday as a prominent shareholder-advisory firm recommended the activist investor’s slate of directors, saying the dissidents “have made a reasonably compelling case” for change.

Institutional Shareholder Services recommended shareholders vote for the three nominees put forth by FrontFour and its partner, Vancouver-based Sandpiper Group, at Granite’s annual general meeting on June 15. It suggested they withhold votes for existing director Brydon Cruise, Chairman Wesley Voorheis, and Vice Chairman Peter Dey.

“The board admits that there is a need for a change and the dissidents’ nominees appear to represent an attractive opportunity for board refreshment,” ISS said in its report. “The dissidents not only embrace the current strategic goals of the trust, but propose to increase the execution pace of the objectives and accelerate acquisition activity.”

A representative for Toronto-based Granite wasn’t immediately available for comment after regular business hours.

Connecticut-based FrontFour and Sandpiper, which together hold 6.2 percent of Granite, are nominating real estate veterans Al Mawani, the former chief executive officer of Calloway Real Estate Investment Trust, and Peter Aghar, the former president of real estate private equity firm KingSett Capital, to the company’s board, along with Sandpiper founder and CEO Samir Manji.

Cost-Cutting Efforts

The dissident investors’ slate will compete against another one put forth by Granite that includes two new nominees, 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 company’s eight trustees, Michael Brody and Brody Gilbertson, aren’t standing for re-election as part of its ongoing board renewal efforts, the company said.

FrontFour and Sandpiper revealed a stake in Granite last month and offered a plan to cut costs and increase leverage to help the REIT pursue acquisitions. They argued implementing those changes changes would push shares well above C$60. The stock closed at C$51.41 in Toronto Friday.

Granite has said its shares have outperformed and that FrontFour has a “dismal track record” in the real estate industry. The company’s stock has gained 31 percent over the past 12 months, while the S&P/TSX Capped REIT Index has climbed about 3 percent.

ISS said in its report that at least some of the Granite stock increase came as a result of the dissident shareholders’ efforts. It also said that the company has underperformed compared with relevant measures in U.S. trading, and that part of the gains on the Toronto exchange are due to currency fluctuations.

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 totaling about 30 million square feet of leasable area. Its operations are spread across North America and Europe and leased primarily to Magna International Inc., Canada’s biggest auto-parts maker. 

(An earlier version of this story corrected the spelling of ISS in second paragraph, Sandpiper in fifth paragraph.)

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