The Canadian Real Estate sector may be in for a shake-up. Reuters recently reported (here) that activists may be eyeing real estate investment trusts (REITs), and their approximate combined C$67 billion in market capitalization, as ripe targets for activist campaigns in light of: attractive prices, vulnerability in the market based on uncertainty surrounding the effects of interest rate shifts, and potential opportunities to unlock unrealized value.
In particular, with the Canadian REIT index down approximately 7% since August 2016, activists may ramp up efforts to target REITs for activist campaigns. Recent interest rate hikes may have the further effect of exacerbating vulnerability in the real estate sector and inciting further activist initiatives. Reuters attributes the appeal of REITs, as targets for activists, as a function of:
- perceived corporate governance issues (including high management and board compensation);
- underperforming stock results; and
- recent successes in the REIT space for activist campaigns.
The potential uptick in activism may manifest in a number of ways. Capturing value in REITs that trade at a discount may be achieved by activists through various channels. By working constructively behind the scenes to generate value-enhancing solutions, activists may seek to close the gap between market price and net asset value by: boosting returns through asset sales, recapitalizing and consolidating, requisitioning shareholder meetings, or publicly announcing intentions to nominate alternative directors.
In Kingsdale Advisors' annual Proxy Season Review for 2017, which we recently reported on (here), Kingsdale reported that the most active sector for proxy fights was the materials sector, followed by information technology and real estate. Shifting tides appear to be on the horizon for this historically robust corner of the Canadian economy. Further significant activity may be on the way.
The author would like to thank Peter Valente, articling student, for his assistance in preparing this legal update.
About Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.
Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.
For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.
Law around the world
nortonrosefulbright.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
