Activist wins court approval for faster proxy vote in First Capital fight

Activist investor Sandpiper Group won a skirmish Wednesday in its battle to replace board members at First Capital Real Estate Investment Trust, with an Ontario court ordering one of the country’s largest shopping centre owners to speed up a vote on the campaign.

The Ontario Superior Court of Justice ruled Toronto-based First Capital must hold a unitholder vote on Sandpiper’s request to replace four of the REIT’s nine trustees, including chair Bernard McDonell, “as soon as practical after March 1.”

The decision comes after Sandpiper launched a campaign in December to jettison board members. Later in the month, the REIT responded by scheduling a vote on the activist’s proposal for its annual meeting on May 16.

In court documents, Sandpiper alleged the lengthy delay was designed to give First Capital management time to sell properties and attempt to improve the price of the REIT’s units. In the court decision, Justice Jessica Kimmel agreed that allowing time for real estate sales to play out “was not a reasonable factor” in setting the meeting date.

“We are grateful the court recognized the urgency of an expeditious meeting,” Samir Manji, chief executive and founder of Sandpiper, said in a press release.

As part of its push for new leadership at First Capital, Sandpiper said on Wednesday it lodged a complaint with the Ontario Securities Commission over the REIT’s decision to set a date for the meeting on Dec. 14, then wait until Dec. 30 to do so. Mr. Manji said the approach showed a disregard for regulations around timely disclosure. “This behavior is not acceptable and certainly not befitting of a board tasked with acting in the best interests of unitholders,” he said.

On Wednesday, a spokesperson for First Capital said the company is reviewing the court decision, and that the judge suggested unitholders meet in late March or early April.

First Capital units significantly underperformed real estate peers over the past five years. Last September, CEO Adam Paul announced plans to sell up to $1-billion of real estate over the next two years to fund new developments and pay down debt, while increasing the REIT’s cash distributions. First Capital owns approximately $10-billion of properties, mainly grocery storeanchored malls, in British Columbia, Alberta, Ontario and Quebec.

The REIT’s plan to sell properties during a period of economic uncertainty and rising interest rates drew criticism last fall from founder and former CEO Dori Segal and Ewing Morris & Co. Investment Partners Ltd., which also wants to replace Mr. McDonell.

Sandpiper has raised concerns with the REIT’s plans to sell landmark urban developments, and said if it wins the proxy battle, it would recommend First Capital target $400-million of property sales. Last week, Toronto-based asset manager Anson Funds said it supports Sandpiper’s campaign.

However, analysts say Mr. Paul’s plan to sell some of the REIT’s malls and pay down debt is a sensible strategy. In a report, Pammi Bir at RBC Capital Markets said: “We believe First Capital’s recently announced strategic initiatives are steps in the right direction to support a stronger valuation.”

Last September, CEO Adam Paul announced plans to sell up to $1-billion of real estate over the next two years to fund new developments and pay down debt, while increasing the REIT’s cash distributions.