A growing chorus of shareholders is revolting against the proposed $4.7B breakup of H&R REIT ahead of a vote on the deal Friday.
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Five institutional shareholders have disclosed plans to vote against the transaction, according to proxy voting records reviewed by Bloomberg, and at least four other shareholders have said they plan to vote against the deal. The group is opposing the deal, which came after a review of strategic alternatives, in part because the buyout price has been chipped away.
The deal to sell off the REIT's assets was struck in August and promised investors in Toronto-based H&R 4.28 Canadian dollars in cash plus 0.57 shares in GO Residential REIT for each of their H&R shares.
At the time, the cash-and-stock deal was worth CA$12.01 per share and gave the REIT a total enterprise value of CA$6.7B, or roughly $4.7B. But shares in GO Residential have been sliding since the deal was announced, whittling away the value for investors to roughly CA$10.13 per share, according to Bloomberg.
The New York City comptroller, California State Teachers’ Retirement System, State Board of Administration of Florida, British Columbia Investment Management Corp. and Norwegian pension fund KLP all plan to vote against the deal.
RBC Global Asset Management, which holds 9.3 million units in H&R, and Mill Pond Capital, which has 2.2 million units, previously came out against the deal in October and were joined by Scheer Rowlett & Associates and Sandpiper Asset Management.
The four investors control a combined 19 million units, or roughly 7% of H&R outstanding units, Bloomberg estimates. The size of the stakes of the five pension funds that oppose the deal isn’t public.
Two shareholder advisory firms, Institutional Shareholder Services Inc. and Glass Lewis & Co., also advised H&R investors to vote against the breakup, Bloomberg reported.
H&R must secure approval from two-thirds of votes cast across two voting tests and a majority in a third vote of unaffiliated unitholders to win approval for the deal, which would break up the REIT's assets between Blackstone Real Estate, Crestpoint Real Estate Investments, PSP Investments and a company controlled by the family of H&R CEO Tom Hofstedter.
The deal, first rumored to be in negotiations in June, would send 27 properties to GO Residential, which launched last year to invest in luxury high-rise multifamily assets. Blackstone, PSP and Crestpoint would acquire H&R’s Canadian industrial properties in the deal, and the Hofstedter family would absorb H&R’s remaining noncore assets.
H&R estimated the fair market value of its portfolio at $6.5B at the end of the second quarter. The REIT had been shedding assets, including $1.5B of retail and office property sales in the first quarter, for several years as part of a strategic rotation into the multifamily and industrial sectors.
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