IGW Real Estate Investment Trust

May 09, 2013 13:20 ET

IGW Files Proxy Circular Calling For Replacement of Four Trustees of Partners REIT

- Largest Unitholder Opposes Trustees' Plan

- Circular and Letter to Fellow Unitholders Explains Why the Trustees Should Be Changed - Not The Manager

VICTORIA, BRITISH COLUMBIA--(Marketwired - May 9, 2013) - IGW Real Estate Investment Trust ("IGW REIT") today announced that it has filed a proxy circular with securities regulators providing reasons why four trustees of Partners REIT ("Partners") should be removed and replaced by four highly experienced real estate executives IGW REIT has nominated for election to the Board of Trustees at Partners' annual meeting scheduled for June 6, 2013.

IGW REIT is a private real estate investment trust and, through its affiliates, is the largest unitholder of Partners REIT with 14.7% of the units. It has engaged National Bank Financial Inc. as financial advisor.

Accompanying the circular being mailed to all Partners unitholders is a letter from Adam Gant, Trustee and President of IGW REIT. Excerpts of that letter are below:

Keep Partners REIT on Track

Change the Weak-Link Board. Not the Strong Manager.

May 8, 2013

Dear Fellow Unitholders:

We have an important decision before us. Here are the facts:

The Incumbent Non-Management Trustees:

  • Are not acting in your best interests
  • Are not aligned with you, the unitholders
  • Are making a decision based on personal retaliation
  • Are placing the future of your REIT at risk

The Manager:

  • Has grown your REIT's assets by more than 400% in 33 months
  • Has delivered more than $45 million in earnings and an aggregate total return of 97%
  • Has increased the unit price by more than 54%
  • Has far more invested in the REIT than the incumbent non-management trustees

At the annual meeting of the unitholders of Partners Real Estate Investment Trust (Partners) to be held on June 6, 2013, IGW Real Estate Investment Trust (IGW), a private Canadian REIT and the largest unitholder of Partners (owning 14.7% of the units), proposes to nominate for election as trustees four highly qualified individuals to replace the four incumbent non-management trustees (Incumbent Trustees).

We are taking this step because we have lost confidence in the stewardship of the Incumbent Trustees and believe that Partners needs new, refocused, independent oversight that will:

  • work constructively with existing management to continue and to build on Partners' strong track record since LAPP Global Asset Management Corp. (LAPP) became manager of the REIT; and
  • facilitate Partners' ability to grow its business and to increase long-term value for all unitholders.

IGW's nominees include three independent, highly qualified, and experienced real estate executives, being James R. Bullock, Graham Senst and Wilbur H. Smith III, as well as LAPP's similarly qualified and experienced nominee, Patrick Miniutti. Together, they represent more than 100 years of experience in a wide range of real estate management. They will act in the best interests of Partners unitholders, including making the right decision about when and how to internalize management.

LAPP, an affiliate of IGW REIT, has managed Partners since August of 2010. Over time, it has become apparent to LAPP that at least certain of the Incumbent Trustees do not share LAPP's vision to grow Partners and maximize value for all unitholders. This has resulted in disagreements between LAPP and certain of the Incumbent Trustees, which led LAPP several months ago to suggest to the Incumbent Trustees that it was an appropriate time to add new, highly qualified, independent trustees with significant retail real estate experience.

LAPP's position was based in part on the fact that two of the four Incumbent Trustees serve on the board of Summit Industrial Income REIT (Summit), which competes with Partners for capital. Paul Dykeman, a former trustee of Partners, is also on the Summit board. He resigned from the Partners' board three weeks ago. But the two others have not resigned: Partners' Chairman, Louis Maroun, who is a driving force behind Summit and its chair, and Incumbent Trustee Saul Shulman, who also serves on both boards.

This set the stage for the following events over the past month:

  • On April 12, 2013, the full board of Partners reviewed a draft management information circular which included the nomination of the current trustees, being the Incumbent Trustees and the two nominees of LAPP. At this time, the Incumbent Trustees made no suggestion of internalizing management.
  • On April 19, IGW determined that it could not support the re-election of Louis Maroun as a trustee due to concerns about his involvement with Summit. IGW informed the Incumbent Trustees of this decision.
  • On April 24, IGW learned that the Incumbent Trustees were now considering internalizing management. This was undertaken without involving or consulting with LAPP.
  • On May 2 - just six business days later - the Incumbent Trustees announced their decision to internalize management. Rather than first exploring internalizing the existing manager, which would have been logical and normal industry practice, the Incumbent Trustees have opted to try to create a new management team from scratch.

This is the wrong decision, made for the wrong reasons, at the wrong time, by the wrong people.

Unitholders should consider whether the decision to begin to assemble a new internal management team is nothing more than retaliation against IGW for seeking to facilitate new independent trustees joining the board. They should ask themselves whether this decision was made to entrench the Incumbent Trustees - and whether it is in the best interests of all unitholders.

As the largest investor in Partners, we believe that our investment - like yours - is subject to significant risk because of the Incumbent Trustees' decision. We believe the Incumbent Trustees who made the internalization decision are not acting in the best interests of the unitholders.

We are seeking your support to keep Partners on track to continue to build on its strong record in recent years and to grow its business to increase long-term value for all unitholders. We ask you to review our circular and vote the GOLD form of proxy in favour of positive change at Partners REIT.

The Wrong Decision

Unitholders are better served by LAPP, the existing manager, than by disrupting the growth of Partners while unitholders wait for a new, unknown and untested group to be assembled. Consider the record of LAPP since it took over management in August of 2010.

Since then, it has:

  • Increased the asset base by 440%
  • Created earnings of more than $45 million for unitholders
  • Reduced the weighted average cost of capital by approximately 3%
  • Increased the unit price from $5.04 to $7.78 as of May 2, 2013
  • Generated a 28% return annualized and 97% aggregate total return

The Wrong Reasons

The Incumbent Trustees claim that internalizing management will remove conflicts of interest, improve corporate governance and reduce costs. They also claim our nomination of new trustees is motivated by a desire to maintain LAPP's management fee.

In each case, the opposite is true.

Two of the four Incumbent Trustees serve on the board of another REIT, which competes directly against Partners in the capital markets and that is externally managed - without an "internalization clause" - by an entity owned by its chair, Louis Maroun. This is the actual conflict of interest.

LAPP's interests are fully aligned with those of Partners unitholders. As a significant investor, it stands to gain or lose along with you. Further, the manager's contract includes direct incentives for unitholder value creation.

The Incumbent Trustees together hold only approximately 128,000 units of Partners - only 0.5% of the outstanding units of Partners. The Incumbent Trustees have little vested interest in the REIT and are not aligned with unitholders' interests. We do not believe the Incumbent Trustees are focused on growth and unitholder value. This has created a fractious and dysfunctional relationship between them and LAPP's representatives. This is the actual weakness in current corporate governance.

The four Incumbent Trustees that we are seeking to replace claim cost savings as the reason to internalize management. In some other cases, this might be plausible. At Partners, it is not. The fees payable under LAPP's contract with Partners are among the lowest in the industry. More than 30 LAPP employees are dedicated to Partners. Putting together a comparable internal team would cost unitholders many times more than the current manager's fees. Further, the Incumbent Trustees say their analysis was based on management and acquisition fees compared with internal costs. However, they do not mention the other costs associated with internalization - the termination fee payable to LAPP, engaging financial advisors, substantial legal expenses, proxy solicitor expenses and the costs of finding and hiring the new people. Those costs must all be borne by the unitholders. So must the potentially greater costs of six months of delay and lack of direction at a critical stage in Partners' growth. These are the actual costs of the decision.

The Incumbent Trustees' claim about our motivation is clearly ludicrous. We are acting on behalf of all unitholders because we are concerned about the future of our investment. Given the size of our investment, a 5% increase in the unit price - which we believe is easily achieved by LAPP - is worth far more to us than the management fee. Particularly since the fee is simply revenue and, after expenses, its value is much less. Protecting the value of our investment in Partners is the actual motivation for nominating new trustees.

The Wrong Time

LAPP has spent the past two years building Partners from assets of $132 million to approximately $600 million today, and positioning Partners so it can grow to more than $1 billion in assets within the next year. On the other hand, the Incumbent Trustees intend to halt that growth and inflict additional costs that will hurt results for at least two quarters - and then wait for a new internal management team to get up the learning curve, develop a strategy and implement it. Unitholders do not know who the team will be, how long it will take, or whether it will be able to execute a successful strategy. This process will create great uncertainty in the market and could possibly have a negative impact on unit value.

There will be a time to internalize management at Partners. LAPP foresaw that, supports it, and agreed to the addition of the "internalization clause" in the management agreement that is now being used by the Incumbent Trustees. But that time is not now. Partners needs to be allowed to grow first. The current scale of the REIT does not yet justify internalization from a cost perspective. Disciplined growth means an increased ability to pay distributions as well as increased market capitalization, making Partners more attractive to institutional investors. This will result in a higher valuation for the units of Partners.

The Wrong People

For the reasons outlined here - inherent conflicts, lack of a shared vision and the lack of a rationale for what appears to be a rash and illogical decision to internalize management - it is clear that the Incumbent Trustees are the wrong people for the job of building long-term value for Partners unitholders. They are asking us to put our trust in a management team that doesn't exist.

It is time for the Incumbent Trustees to go.

Change is Needed at Partners REIT: The Right People to Make the Right Decision

It is to all unitholders' benefit that there be significant change at Partners. However, as the record shows, it is not the manager that needs to be changed; it is the Incumbent Trustees.

We have a slate of highly qualified and experienced real estate executives nominated to the Board of Trustees to replace the Incumbent Trustees.

[Biographies of James R. Bullock, Patrick Miniutti, Graham Senst and Wilbur Smith III are provided in the letter and circular]

As a group, these four represent more than 100 years of real estate management experience and bring expertise the Incumbent Trustees cannot rival. They have board experience as well as industry experience and will act in the best interests of Partners unitholders. When they consider the time to be right to internalize management, they will. They will weigh the evidence, make the right decision and execute the process efficiently. And they will do it with the cooperation of the Manager.

The Right Time is Now

We ask you to review our attached Circular and consider supporting the continued development of Partners by voting the GOLD proxy for the four IGW Nominees. Do not use the Blue proxy. Discard it. Simply follow the instructions on the GOLD proxy and submit it by the required time. That will ensure that your voice is heard at the annual meeting.

Please contact us for more information through our proxy solicitation agent Laurel Hill Advisory Group at the numbers below. We will keep you informed of important developments and suggest you visit a website we're building at www.partnersreitgrowth.com since the annual meeting is approaching rapidly.

We look forward to hearing from you and gaining your support to keep Partners on Track.



Adam Gant, Trustee and President, IGW REIT

Make the Right Decision. For the Right Reason. Vote for the Right People.

[Letter ends]

How to Vote the GOLD Proxy

Unitholders are advised to use the GOLD form of proxy or voting information form (VIF) enclosed with the circular to vote FOR the four IWG nominees and to discard the Blue proxy sent by Partners REIT.

Time is short since the annual meeting is on June 6, 2013 and, in order to be counted at the meeting, GOLD proxies and VIFs must be received by 10:30 a.m. (Eastern Time) on June 4.

If they have already voted using the Blue proxy, unitholders can still use the GOLD proxy or VIF which revoke the previous vote. It is only the last proxy or VIF that is submitted that is counted at the meeting.


IGW REIT is a Canadian private real estate investment trust founded in 2007. With over $280 million in assets, IGW REIT invests in commercial real estate, mortgages and units of publicly traded REITs. In addition to being the largest single unitholder of Partners REIT, IGW REIT also owns commercial properties in British Columbia, Alberta, Ontario and Quebec, and has a portfolio of mortgages of just under $100 million dollars.

Contact Information