RBC Seeks to Block H&R’s Breakup and Sale to Blackstone, Others

RBC Global Asset Management says it will vote against the breakup and sale of Canada’s H&R Real Estate Investment Trust, adding to opposition on a deal that would give Blackstone Inc. a collection of industrial properties in Canada.

RBC is one of H&R’s largest equity investors with 9.3 million units and it plans to cast them against the transaction, Managing Director Hanif Mamdani said in an emailed statement. He wouldn’t elaborate on the reasons.

The fund manager is the second in two days to come out publicly against the deal, a complex cash-and-shares offer that would see H&R split into pieces. Blackstone and other investors would get industrial assets, while New York-based GO Residential Real Estate Investment Trust would acquire about two dozen residential properties in the US sunbelt, along with H&R’s 50% stake in the Jackson Park luxury high-rise apartment complex in New York and other assets.

A company controlled by the family of Tom Hofstedter, H&R’s executive chairman and chief executive officer, would keep some assets.

In a letter to the company’s trustees, Boston-based Mill Pond Capital said the complex transaction “does not deliver fair value to H&R’s public unitholders” while giving sweeter terms to Hofstedter and his family.

Holders are set to receive C$4.28 in cash plus 0.5688 units of GO REIT for every unit of H&R they own. That’s a package worth roughly C$10.16 per share, based on GO’s closing price on Wednesday. H&R closed at C$9.26 that day.

In US dollar terms, GO’s stock has tumbled about 25% since the transaction was announced.

It’s “one deal for the CEO’s family, a worse deal for everyone else,” Mill Pond’s Daniel Farb wrote in the letter, which he released on Wednesday. He said he believes the Hofstedters are acquiring those “non-core” assets at a discount to net asset value, or NAV.

“What is not acceptable is asking unitholders to accept a dilutive, tax-inefficient transaction into a more levered entity at a large discount to the company’s stated NAV, while the CEO and his family receive an entirely different form of consideration,” Farb wrote, adding that his firm will vote its 2.2 million units against the deal.

In a letter sent to shareholders on Thursday, H&R’s board urged investors to vote in favor and said Tom Hofstedter’s participation is “an essential element” of the deal. The Hofstedter family company, known as CRAL, is set to acquire nine Canadian office properties, three Canadian development properties, a 50% interest in a US mixed-use property, plus US land parcels and interests in joint ventures, among other assets.

“CRAL’s willingness to acquire these specific assets and associated liabilities, which had attracted limited interest from other potential purchasers, was a critical component” of making the deal happen, according to the letter signed by Stephen Gross, H&R’s independent lead trustee.

GO REIT also told investors to vote for the deal on Thursday.

Under Canada’s “majority of the minority” rules, H&R’s transaction needs the support of the majority of votes cast by shareholders other than insiders and related entities.