Artis Real Estate Investment Pref Shs Series E T.AX.PR.E

TD comment on settlement

[incomedreamer11]

Event
This morning, FCR announced that it has reached an agreement with Sandpiper Group and Artis REIT (link) whereby Sandpiper/Artis will withdraw their special unitholder meeting requisition and also their nominees for the Board.

Our take: We view this agreement favourably since it ends what thus far has been a distracting proxy fight (and may have led to increased uncertainty regarding the REIT's strategic direction; see our assessment here), and ensures continuity and stability of governance and strategy which has seen improvements and broad unitholder support in recent months. We note that the settlement only provides Sandpiper/Artis cost reimbursement (capped at $1.9mm) with no Board representation (a very rare occurrence in similar precedent situations, we believe). We expect the unitholder meeting will be postponed until May/June, by which time we anticipate further progress on dispositions will be made.

Events leading up to this settlement:
In recent weeks, FCR has added three new Board trustees (including one recent nominee) and moved Paul Douglas into the Chair role (link).
FCR's proxy materials released March 1 presented a very strong case that further diminished Sandpiper/Artis's ability to win much support, in our view.
On March 3, FCR reached a support agreement with Ewing Morris (the initial activist) and also Vision Capital (link). Richard Nesbitt, who recently joined FCR's board, is on Vision Capital's Advisory Board.
Potential "overhang" of units:
With the proxy fight now over, there is potential for those involved to sell their unitholdings over time, which could place some temporary pressure on FCR's trading valuation. Their aggregate ownership positions represent ~13.5% of FCR's units (Sandpiper/Artis ~9%; Ewing Morris ~1.5%; Vision Capital ~3%). That said, we do not expect any of these unitholders to sell at FCR's recent discounted trading valuation.
Additionally, Vision Capital now has representation on the Board and Sandpiper/ Artis announced in this morning's press release that they will work with the Board going forward. We continue to expect FCR's discounted trading valuation