IGW Real Estate Investment Trust

May 28, 2013 17:44 ET

IGW Gaining Support of Partners REIT Unitholders For Board Change

Corrects Continuing Board Misinformation

VICTORIA, BRITISH COLUMBIA--(Marketwired - May 28, 2013) - IGW Real Estate Investment Trust ("IGW") today announced it is gaining significant support from other unitholders of Partners REIT ("Partners") for its effort to elect four highly experienced real estate executives trustees to replace the non-management incumbent trustees ("Incumbent Trustees").

IGW is a private real estate investment trust and, through its affiliates, is the largest unitholder of Partners, with 14.7% of the units. It has nominated James Bullock, Graham Senst, Wilbur Smith III, and Patrick Miniutti, for election to the board of trustees (the "Board") at Partners' annual meeting scheduled for June 6, 2013.

A growing number of unitholders, including Allen Berg, the largest known individual unitholder of Partners, have voted the GOLD proxy to change the Board which has not acted in their best interests.

"Like IGW, these unitholders have a true vested interest in Partners and a strong understanding of the issues to be decided. The Incumbent Trustees have little invested in Partners and their statements indicate either they do not understand that the future of Partners is at stake or they are deliberately misleading unitholders," said Adam Gant, President and Trustee of IGW. "Our $30 million investment in Partners is one of our largest and our prime motivation is to see that investment increase in value. We are completely aligned with other unitholders."

The Incumbent Trustees continue their attempts to mislead Partners unitholders with a news release and letter issued today which claim the management contract requires a termination payment of either $2.1 million now or $8 million in five years' time.

This is false.

The management contract includes an internalization clause, added with the full support of the manager, which allows for orderly and rational internalization without the payment of ANY termination fee. It is only the Incumbent Trustees' rush to pursue their irrational decision that would require Partners unitholders to pay a termination fee. At the right time, and with the right oversight, internalizing management would cost unitholders NOTHING. At the wrong time, and with the wrong oversight, internalizing management would cost unitholders substantial sums to hire new executives and staff and lease office space -- and would have to incur a termination fee.

This is only the latest in a series of misleading statements from the Incumbent Trustees.

  • The Incumbent Trustees have tried to portray the vote at the June 6 annual meeting as being about internalizing the management of Partners. It is not. It is about the Incumbent Trustees' decision to terminate the current manager, which has delivered a total aggregate return of 97% to Partners unitholders, and instead assemble a new, unknown, and unproven internal management team. IGW and the manager believe management should be internalized when Partners has the scale to make such a step economic. It is generally understood in the real estate industry that the threshold for internalization is assets in the range $1.5 billion, approximately two and a half times larger than Partners is today. The Incumbent Trustees' reckless plan to terminate the manager would increase direct costs to unitholders. It is likely to lead to poorer performance in value-creation over time. A new management team cannot be recruited and maintained for less than the current management fee and those additional costs will put downward pressure on distributions to unitholders. The manager has increased funds from operations (FFO) from $0.55 per unit in 2011 to $0.64 per unit in 2012, a 16% increase that has resulted in a similar decrease in the distribution payout ratio. This supports continued strong distributions while the Incumbent Trustees' plan puts them at risk.

  • The existing management team: is experienced; is vested economically and professionally; has significantly improved the performance of the inherited portfolio; has established relationships within the real estate industry to source growth; has identified and closed accretive acquisitions; has increased the occupancy in properties acquired; has shown both an openness to and the ability to source and execute strategic M&A transactions; and is willing to be internalized as economics dictate. This is the management team that has delivered a 54% increase in unit price since it took over, while increasing the asset base of the REIT by over 400%.

  • Partners' unitholders should recognize that the Incumbent Trustees' position on internalization is not consistent. Both Louis Maroun and Saul Shulman sit on the board of trustees of Summit Industrial Income REIT, which is managed by a company owned by Mr. Maroun. Its contract clearly excludes any process for internalization at Summit.

IGW's legal counsel has sent a letter to the Incumbent Trustees' counsel which indicates that IGW and the manager believe that certain statements in the May 16th letter of the Incumbent Trustees are defamatory. The letter demands that the Incumbent Trustees publicly retract the defamatory statements and cease and desist with any further defamatory statements. IGW and the manager are also exploring all legal options available to them to seek recourse in connection with the defamatory statements.

The Incumbent Trustees claim the manager has acted inappropriately, when the facts prove the opposite.

  • The statement by the Incumbent Trustees about the use of appraisals for the vend-in of properties was grossly misleading. The facts are that the Board was provided with two different independent appraisals from two different companies, using different assumptions relating to the percentage of completion (the centre was not being sold until fully complete). This was clearly explained in the respective appraisal reports on the cover pages. The transaction was not approved because the Board never seriously considered it. The value of the property has appreciated since then and its purchase at the time would have been accretive to Partners.

  • The Incumbent Trustees intentionally and maliciously distort the background to, and the actual events of, the financial support provided by an affiliate of the manager which allowed Partners to complete the highly accretive and creative acquisition of NorRock Realty Finance Corporation. The affiliate provided a $12.6 million liability guarantee and the manager arranged for the purchase of $7.9 million in mortgages from Partners. The purchaser asked for and received an extension on the note at the first meeting of the Board. The note is nearly fully extinguished with Partners having earned 12% interest on it. The actual backstopping of the transaction demonstrates the commitment of the manager and IGW to building value at Partners and to acting in the interests of unitholders. The Incumbent Trustees' misrepresentation of the facts is a disservice to unitholders.

  • The statement that the manager failed to disclose the existence of the only centre it manages near a proposed acquisition is completely false. This fact is supported by the written presentation made to the trustees and the subsequent approval of the acquisition, subject to a non-compete leasing agreement giving leasing preference to the centre acquired by Partners.

  • It is also false for the Incumbent Trustees to claim the manager's efforts to suggest potential acquisitions to the Board represented conflicts of interest. The facts are that, through its relationships with developers, the manager is in a strong position to present acquisition opportunities to the Board. The manager believes a key way to grow Partners' portfolio and create value is to work with development partners so it can add new properties that would otherwise be unavailable and to do so at a reasonable price. Two of Canada's largest REITs have built their success on the same strategy.

    It is important for unitholders to understand that neither the manager, IGW, nor any of their affiliates held an ownership position in any of these properties, including two that were managed by the manager. The process to acquire any completed development asset requires independent parties to negotiate a fair price and for any acquisition to be approved by independent parties. The Incumbent Trustees have not accepted that responsibility. With a new experienced board focused on adding value, and through the manager's relationships, within the next few years there will be new completed properties that will be strong candidates for Partners to acquire. The manager and its affiliates have consistently acted in the best interests of unitholders, following a successful strategy. By misrepresentation and claiming a purported conflict of interest, the Incumbent Trustees are not.

Consider these facts about the Incumbent Trustees: only one of them has actually reviewed acquisitions in any detail; the claim of inaccurate information is due to their not reading what was actually provided; no trustee has ever brought forth an acquisition opportunity; no trustee has seen any of the properties acquired; only one trustee has retail real estate expertise; only two trustees have operational real estate experience; the trustees have not had a strategic meeting or reviewed the existing portfolio in any detail over the past 18 months; the trustees have only met with senior management for obligatory quarterly financial reviews; and the trustees have no interest in pursuing strategic M&A transactions. The manager has tried to keep the trustees fully informed of all relevant activities in spite of their lack of availability. The manager has consistently fulfilled its duty to unitholders. The Incumbent Trustees have not.

"It is clear from the facts that the Incumbent Trustees are not acting in the best interests of all unitholders and increasingly our fellow investors recognize that fact," Mr. Gant said. "A new board, comprising experienced retail real estate professionals, and committed to creating value is urgently needed. Our nominees can grow Partners to the size it needs for internalization to make financial sense."

The Incumbent Trustees have also relied on a flawed report from Institutional Shareholder Services Inc. (ISS) which appears to believe, wrongly, that the unitholder vote is about internalizing management. ISS made its recommendation without meeting with IGW, which is customary and, as a result, has ignored IGW's agreement on internalization and made a fundamental error in its recommendation as well as factual errors in its report.

Investor Conference Call

IGW invites its fellow unitholders of Partners to participate in a conference call providing the reasons for change at Board and to allow unitholders to direct questions to Adam Gant, President and Trustee of IGW and Patrick Miniutti, IGW nominee to the Board.

Thursday, May 30, 2013 at 1:30 p.m. Eastern Time

Participant dial-in number(s): 416-695-7806 / 866-862-3930
Participant pass code: 5777049

Unitholders are encouraged to submit questions by e-mail to assistance@laurellhill.com.

A replay of the call will be available until midnight June 4, 2013 by dialing 905-694-9451 or 800-408-3053 and entering passcode 2262288.

Make the Right Decision. For the Right Reason. Vote for a Board that Will Act for You:
James Bullock. Graham Senst. Wilbur Smith. Patrick Miniutti.

How to Vote the GOLD Proxy: Time is Short

Unitholders are advised to use the GOLD proxy or voting information form (VIF) enclosed with the circular provided by IGW to vote FOR the four IGW nominees and to discard the Blue proxy sent by Partners. 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, 2013.

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 SO, TO SUPPORT CHANGE AT THE PARTNERS BOARD, VOTE ONLY THE GOLD PROXY OR VIF. AND VOTE TODAY.

About IGW

IGW is a private real estate investment trust and, through its affiliates, is the largest unitholder of Partners, with 14.7% of the units. On May 9, 2013 it filed a proxy circular with securities regulators providing reasons why four trustees of Partners should be removed and replaced by four highly experienced real estate executives IGW has nominated for election to the Board at Partners' annual meeting scheduled for June 6, 2013.

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