HR’s US$4.8 billion deal sparks revolt over CEO family’s share

Canada’s H&R Real Estate Investment Trust is facing growing opposition to its plan for a breakup and sale, with some investors arguing the deal gives too much value to the family of the chief executive.

Sandpiper Group, which holds one per cent of the property company’s shares, said Friday it will vote against the complex transaction that would see H&R split up into parts.

It was followed Monday by another Canadian investment manager, Scheer, Rowlett & Associates Investment Management Ltd. The firm, “representing clients that own approximately 4.6 million H&R REIT units, intends to vote against the proposed transaction,” Brenna Phelan, a Toronto-based portfolio manager at the firm, said in a statement to Bloomberg.

She didn’t elaborate on the reasons. Scheer Rowlett’s stake represents more than 1.5 per cent of H&R’s shares. The investment firm is part of Connor Clark & Lunn Financial Group.

The deal would see Blackstone Inc. and other investors get H&R’s industrial assets, while New York-based GO Residential Real Estate Investment Trust would acquire residential properties, mostly in the U.S. sunbelt. H&R shareholders would get a mix of cash and GO shares.

A company known as CRAL that’s controlled by the family of Tom Hofstedter, H&R’s chief executive, would buy a collection of assets from H&R worth about $2 billion — and it’s paying far less than that for them, according to Sandpiper and others.

Sandpiper has hired Norton Rose Fulbright Canada LLP as legal counsel and Kingsdale Advisors as a strategic adviser.

The opposition has intensified since H&R disclosed details of a nearly two-year sale process, including earlier cash offers that ultimately fell apart.

Analysts at RBC Capital Markets led by Jimmy Shan estimated that Hofstedter’s CRAL is paying about $500 million less than the properties it’s receiving are worth. The analysts cautioned that many of the properties are difficult to sell and carry substantial potential liabilities.

RBC also questioned whether H&R’s insistence on selling the entire company in one transaction cost shareholders a better deal. “We struggle to see how HR unitholders will approve the deal,” Shan wrote in a note last week.

When the deal was announced in August, the offer was worth $12.01 per H&R share and a total enterprise value of $6.7 billion.

But GO REIT’s unit price has tumbled since then, reducing the deal value to around $10.50 a share, based on the price of GO early Monday afternoon in Toronto. H&R was trading at $9.81 as of 1:10 p.m.

A spokesperson for H&R didn’t offer comment.

H&R’s independent trustees unanimously recommended the deal, saying it represents the best option available after an extensive review failed to produce another viable offer for the entire company.

RBC Global Asset Management, which owns 9.3 million shares, and Mill Pond Capital have also said they’ll vote against it.

Shareholders are scheduled to vote on Nov. 13. The transaction requires approval from two-thirds of all votes cast and a majority of those cast by minority investors.