TORONTO, Nov. 10, 2022 (GLOBE NEWSWIRE) -- Mr. Dori J. Segal today issued the below open letter to unitholders of First Capital Real Estate Investment Trust (TSX: FCR.UN).
Dear First Capital REIT (“FCR”) Unitholders,
I am writing to you on a matter of great concern to all unitholders.
For those who don’t know me, I am the Founder and former CEO of FCR (1997-2015), the former Chair (2015-2019), and an active real estate investor/entrepreneur. I believe my family is one of the largest individual unitholders of FCR (owning approximately 1.5%). I have expressed my serious concerns regarding various strategic and business issues privately with the board on several occasions. I went on record at the 2022 AGM with my dissatisfaction and the response from FCR did not address my concerns https://vimeo.com/722615016. I had hoped FCR would address the legitimate business issues raised, but regrettably, it instead chose to make baseless accusations and intimidate unitholders, and I can no longer remain silent.
When I stepped down from the CEO role in 2015, I believed that FCR had found a promising leader to take it to the next level. Unfortunately, almost eight years later, not only did the next level fail to materialize, but the REIT has lost its industry-leading position. Since early 2019, FCR business has contracted, its reputation and credibility has declined, its development deliveries dwindled, its multiple premium evaporated, its financial flexibility vanished, its debt ladder shrunk, and its equity market capitalization went from $5.5 billion to $3.6 billion. Part of the significant underperformance is also attributable to the fact that FCR’s peer group became much more rigorous, particularly in growth initiatives and development activities, and has impressive strength at the top and sponsorship. In the five-year period leading up to my active concerns raised at FCR’s June 21st 2022 Annual General Meeting, FCR has been the worst performing Canadian retail REIT. Whereas its Canadian listed comparables have generated an average total return over this five-year period of +35%, FCR’s stock performance has been a negative -13%. FCR has suffered from stunts like repackaging FCR’s core strategy with new adjectives such as “evolving” or “super urban”, or another yet again new “portfolio optimization plan” that was recently announced, which are all short-term reactions that will not make FCR gain lost ground. Similarly, the plan to sell high quality core growth assets to finance the increased distribution is reckless and irreparable. It is especially problematic in the current capital market and economic environment in which FCR’s unit price is well below its net asset value and so preservation of capital to finance more accretive capital allocation opportunities would be prudent. FCR leadership has a poor track record in value creation. Liquidating generational core assets like 1100 King at below replacement cost, is not the right way to go. FCR’s October 11, 2022 press release stated “…FCR’s unit price and total returns, have exceeded that of the retail REITs…referenced by the Segal Group since the announcement of each of these steps…”. This statement and the sale of 1100 King demonstrate how much the leadership of FCR is out of touch with the capital and real estate markets. No doubt much of this very recent buying and price improvement is attributable to both the murmuring of shareholder unrest and the REIT’s buyback program (NCIB) – not fundamental buying by investors.
It is my assessment that FCR’s CEO is driven by short-term goals, is unduly guided by market sentiment, and has no real vision for the future of the REIT. The Chair, Bernie McDonell, clearly is unable to provide effective oversight of management of a public company. This was evidenced by his chairmanship at Bauer Performance Sports Ltd. between 2012-2016. Investors should take note that FCR does not disclose this part of his tenure at Bauer, FCR only discloses that he had a role during the CCAA/Chapter 11 restructuring. To be clear, I still believe that most of the board has the best interest of the REIT in mind but given the vital role the CEO and the Chair play, particularly during volatile times, someone must openly confront the issues facing FCR. Five years of consistent relative underperformance is enough time to call for a change in leadership. While I appreciate that these are difficult decisions to make, it is the responsibility and fiduciary obligation of a Board of Directors to effect this change.
I have held shares/units in First Capital for over two decades, and I have continued to acquire units since. On numerous times, I have stated my belief that real estate is a long-term investment, but only with the right assets and the right leadership. The bottom line, in my opinion is that Mr. Paul and Mr. McDonell will not make money for investors and FCR’s relative valuation will, under their leadership, continue to deteriorate. My concern is that if action is not taken now, FCR will continue down a path where it may be impossible for the board to change its course. If FCR leadership had a different vision that they stood behind and had a consistent strategy to execute on that vision, that would have been fine. Instead, their conduct since mid- September 2022 of attacking and intimidating unitholders is ethically wrong. A reputable, publicly traded entity should not behave in the following manner:
- Since FCR became aware of the serious concerns raised by two of its unitholders, FCR began a smear campaign, including meritless complaints to the Ontario Securities Commission. This was all done with the sole purpose of derailing the request for change. FCR used its muscle and not insignificant resources as a large publicly traded REIT to inflict financial and reputational damage on those who dared to agitate for change. Despite all of this, FCR has yet to truly explain why they are the worst performing REIT. Instead, they deflect by making personal attacks because they are not capable of addressing the business case made against them. All unitholders should be concerned with the use of these tactics.
- FCR’s October 7th, 2022 press release stated that I ”departed the board in 2021 at the request of the trustees...” As a publicly traded entity, making a statement that the founder and former CEO and Chair was asked to leave the board by the trustees, without explaining why, is not only petty, but is not consistent with proper disclosure. As a former trustee of FCR I am bound by confidentiality, so I am not able to publicly elaborate on this. I believe given the statement that they made, the board now has a fiduciary duty to fully disclose the reasons. One can only reasonably conclude that the intention behind making that statement was to deliberately omit the facts and leave the wrong impression in the minds of both unitholders and the public. I hereby request that FCR provides true, full and plain disclosure of all facts that led to my departure from the board.
- Contrary to the disclosure in the FCR press release, I did not “ask for my job back”. I met the board on June 14, 2022 and voiced serious concerns about the risks the business was facing given the way it was being managed. At that meeting I proposed a strategic review process and also said that I was prepared to act as chair to lead the endeavor which included a grant of out of the money options (one to two million at the board discretion at $17 and $19) that will only vest if FCR outperforms its peers which I offered to pay for, and a 20% pay cut to named executive officers during the review period. These two conditions would have incentivized everyone to focus on what’s best for the business and align everyone’s interest with unitholders. Once again, it is reasonable to conclude that the intention behind making the statement that I only wanted my job back was to deliberately omit the facts and leave the wrong impression in the minds of both unitholders and the public.
I remain encouraged that FCR still owns the premium urban and top-tier suburban portfolio, all of which was carefully and methodically assembled, developed and curated over two decades. However, selling the wrong assets at the wrong price to fund increased distribution is harmful to any business. Arguably, in a high-quality business, the whole is worth more than the sum of its parts. If FCR believes that the parts are worth more than the whole, then the inevitable conclusion is liquidation, which I’m sure is not the intention of the board, unitholders and neither is it mine.
In my opinion there are two key ways to increase the value of the business and restore the sustainable multiple premium FCR once enjoyed. First: persistent hard work, while patiently creating long-term real estate value through capitalization on rent growth over time, coupled with strategic, thoughtful investment activities, both dispositions and acquisitions. Second, proactive asset management with pristine operation and excellence in execution of the development pipeline. Unfortunately, I don’t think leadership is willing to embrace these principles and they are not capable of executing on them. What I observe is the illusion of value creation through capitalizing on past achievements.
As unitholders, we deserve leadership that is aligned and who can lead with integrity, confidence, credibility and entrepreneurship. For the reasons outlined above, I am calling for the immediate removal or resignation of Mr. Paul and Mr. McDonnell. In addition, an independent special committee of the board should be formed immediately to explore strategic alternatives that may be available to FCR and bring the business to its full potential. I remain willing to assist in this process.
I thank you for your time and attention to this very important matter. Sincerely,
Dori J. Segal
Unitholder of FCR
Email: Dorijsegal@gmail.com
Additional Information
The information contained in this public letter does not and is not meant to constitute a solicitation of a proxy within the meaning of applicable corporate and securities laws. While Dori Segal may take additional steps in the future, which may include requisitioning a meeting of unitholders of FCR, soliciting proxies of unitholders, filing a dissident information circular and/or other actions or steps, no such decision has yet been made, nor has any requisition of a meeting been submitted to FCR. There is currently no record date or meeting that has been called and unitholders are not being asked to execute or not execute a proxy with respect to any matter (including any potential nominees of Dori Segal).
