RICHMOND, B.C., March 5, 2013 /CNW/ - Huntingdon Capital Corp ("Huntingdon") (TSX: HNT, HNT.DB and HNT.WT) announced today that it has published
an open letter to unitholders of KEYreit ("KEYreit") (TSX: KRE.UN).
The open letter from Huntingdon details the following points:
KEYREIT APPEARS TO BE A CAPITAL STRUCTURE PONZI SCHEME
MR. BITOVE IS BETTING ON LOW VOTER TURNOUT TO IMPLEMENT POISON PILL
MANAGEMENT HAS PRESENTED INACCURATE AFFO GUIDANCE
KEYREIT'S AFFO CALCULATION CONTRADICTS REALPAC BEST PRACTICES
KEYREIT HAS REFUSED TO ENGAGE IN VALUE MAXIMIZATION DISCUSSIONS
HUNTINGDON OFFER HAS BROAD INVESTOR SUPPORT
The contents of the letter are inserted below.
Huntingdon's 100% Cash Offer for KEYreit units - An Open Letter to
Dear KEYreit Unitholders,
It has become clear that the KEYreit Board and management team are
hoping that you will ignore Huntingdon's attractive $7.00 offer and
vote in favor of a poison pill, allowing them to continue with their
dilution campaign and further erode the value of your equity
Retail Investor Apathy and Capital Structure Ponzi Schemes
KEYreit's entire business model, the more than $10 million in fees paid
to John Bitove's management company, and the Board's "just say no"
defense all rely on retail investor apathy. Until our offer was
announced and trading volume increased, KEYreit had no material
institutional ownership, largely in part due to the reckless management
of the REIT's balance sheet and its unsustainable cash distribution.
The Board has supported Mr. Bitove's aggressive distribution policy in
order to entice the retail investor with an artificial yield that is
neither sustainable nor supported by operating cash flow. This has led
to one 30% distribution cut already. When capital is raised from new
debt and equity investors and then used to pay distributions to prior
investors while management claims that its distribution is sustainable,
this amounts to a capital structure Ponzi scheme. This is no way to
run a business but appears to be a very efficient means of enriching
Mr. Bitove at your expense.
Apathy runs deep in the retail investment world. Public disclosure for
KEYreit indicates a historical low turnout of Unitholders of less than
30% based on the past three meetings. Mr. Bitove is clearly wagering
that his own diluted 16.5% stake in KEYreit along with any retail
investors he can mislead and a record date of February 20 will win the
day when it comes to a unitholder vote on a poison pill, (the
"Unitholders Rights Plan").
I respect the right of any unitholder to choose to entrust their capital
to Mr. Bitove, but how can I respect a Board that is bent on
entrenching an underperforming conflicted management team in the face
of alternatives that will obviously deliver better value to
unitholders? As both a unitholder and fiduciary, I will certainly be
voting all KEYreit units for which I have direction and control.
Don't Confuse a Willingness to Mislead with Leadership
KEYreit's Trustees seem to believe that they can outsmart unitholders
and the market. They are comfortable issuing misleading presentations
and press releases, which make statements and detail expectations that
are never met.
In management's June 2012 investor presentation, available on the
KEYreit website, page 26 outlines management's 2013 AFFO per unit
forecast - it says that unitholders should expect to earn between $0.80
- $0.83 per unit of AFFO and enjoy a payout ratio below 80% in 2013.
According to KEYreit's February 27, 2013 press release, unitholders
should now only expect between $0.52 - $0.54 of per unit AFFO in 2013,
a 39% drop relative to what was communicated to unitholders in the June
2012 presentation! Moreover, the release claims that recent
acquisitions were accretive. It must be referring to the accretion to
Mr. Bitove's external management contract and not to unitholder value.
Moreover, we believe accretion is not being calculated on a
leverage-neutral basis, which allows KEYreit's Board tremendous
discretion to approve acquisitions which are likely to be dilutive
based on its weighted average cost of capital.
Management has a history of presenting a selective "AFFO" figure that is
inconsistent with industry best practices. KEYreit's calculation does
not deduct tenant inducements and capital expenditures, something done
by all Canadian REIT's with institutional credibility. Based on a
reasonable industry accepted calculation of AFFO we expect that the
ACTUAL payout ratio for 2013 will be closer to 140% - so do the
research analysts that cover the stock!
KEYreit's CFO was previously the VP of Financial Reporting for REALpac,
the senior industry association for Canadian real estate. KEYreit's
AFFO REPORTING PRACTICES ARE IN DIRECT VIOLATION OF THE BEST PRACTICES
OUTLINED BY REALPAC. Why? If KEYreit's AFFO calculation incorporates
deductions for leasing costs and sustaining capex, it becomes blatantly
obvious that KEYreit will never grow into its distribution.
Desperate Entrenchment at the Expense of Unitholders
Despite approaching KEYreit to discuss a friendly transaction both
before and after we announced our offer, the Board has shown no
willingness to engage in discussions with Huntingdon. I also
understand that multiple interested parties have approached KEYreit
over the last year and have all been rejected. Instead of working
towards value maximization, the Board has engaged some of Canada's most
expensive lawyers (which you and I are paying for) in an effort to
mislead and pacify investors, implement a poison pill and permanently
impair your ability to tender to our offer or other superior offers
that may be available. Not only has the Board called a special meeting
for this purpose, but they have also attempted to have our offer
cease-traded altogether with an application to the Ontario Securities
Commission. They recently abandoned this application after realizing
that it was a desperate tactic and certain to fail.
Who Loses If Unitholder's Win?
Why would the current Board of Trustees be so desperate to take away
your right to choose? The short answer is JBM Properties Inc., your
external manager and a company owned by John Bitove (your CEO). In over
6 years he has been paid over $10 million in management fees from the
REIT while destroying $33 million of equity value along the way.
Shockingly, last May your Board of Trustees decided to reward him with
a new management contract (without seeking unitholder approval) that
not only increased the fees paid on existing services being provided
but also allowed him to charge new fees on services he was already
providing. The Board willingly gave JBM a sweetened contract without
JBM paying for it. The Board clearly had no idea as to the implication
that this unilateral move would have on the REIT's cost of capital.
I believe that the special committee is neither special nor independent
and is taking direction from John Bitove and protecting his interests
ahead of yours, a clear violation of their fiduciary duties. Why
should we expect anything else from a Board that has over seen the
destruction of so much value over the past 7 years?
Independence Requires Courage
Independence in a corporate setting requires a true sense of
responsibility to unitholders - unfortunately these "independent"
trustees of KeyREIT are seemingly lacking in this regard. These are
the same independent trustees who:
Did not invest a single dollar of their own capital in KeyREIT units for
Presided over a 38% decline in unit price since IPO at a time when the
majority of REITs in Canada were delivering 20% total returns annually
Sold approximately 40% of the equity of the REIT at a net price of less
than $5.85 and then only months later told you that an offer 20% higher
at $7.00 per unit was "wholly inadequate"
Cut distributions by 30% in May 2012
Spent close to $500k in legal fees trying to recover proceeds related to
the default of PRISZM, the REIT's largest tenant and a company
controlled by your CEO, John Bitove
Amended John Bitove's external management contract twice without
unitholder approval, providing Mr. Bitove's management company with the
highest management fee schedule in the industry
Instead of entering in discussions with multiple interested and highly
qualified acquirers, allowed John Bitove to approach Bay Street
investment bankers to accept a "stay public" mandate to benefit his
Have called a special meeting of unitholders for March 26 in an attempt
to ensure that you have no right to tender to our offer and to
discourage other potential offers
Have permitted Mr. Bitove to make the coercive claim that he will saddle
the REIT with $10 million in termination fees upon a change of control.
We are very concerned about this claim as well as the risk that
Trustees have paid Bitove more than he is entitled to under his
contract. We will gladly audit (or conduct a forensic investigation of)
the fees charged and collected by John Bitove's management company and
litigate on behalf of unitholders if necessary.
Your Right to Choose
In my experience, the capital markets have the ability to overcome even
the most entrenched management team and Board of Trustees. This battle
will not be won by the loudest voice in the room or the party that
spends the most on legal fees. YOU are the owners of the REIT, and
will ultimately determine its fate. I suggest that you review our
February 26 presentation to KEYreit unitholders regarding our proposed
$7.00 cash offer for 100% of KEYreit's units in detail by clicking on
the following link:
I encourage you to read the independent reports published by analysts at
CIBC and Dundee Securities as well as KEYreit's AUDITED statements in
detail so you can form your own view.
I believe in your right to choose. Huntingdon has put an attractive
$7.00 cash offer on the table and respects your right to accept this
offer or to turn it down. I respectfully suggest that entrusting your
precious capital to one of the worst performing management teams and
boards in the industry is not a great idea. If you no longer want to
pay John Bitove some of the highest fees in the industry and ensure
that his hand picked Board continues on its campaign to dilute the
value of your equity you will have to take action. John Bitove and the
Board are banking on the historic apathy demonstrated by unitholders -
please exercise your right to make a choice. The decision should be
I have seen value destroyed by management teams who focus on growth for
growth's sake. I have seen the disastrous results of unqualified boards
bent on empire building and keeping external managers paid at the
expense of unitholders. It rarely ends well.
Finally, I would like to thank the scores of supportive calls and emails
I have received from retail investors and merger arbitrageurs who have
indicated their support and appreciation for the liquidity we have
offered to them. I hope you all reach the outcome that you seek.
/s/ Zachary George
About Huntingdon Capital Corp
Huntingdon is a British Columbia real estate operating company listed on
the TSX (Common Shares: HNT; Debentures: HNT.DB; Warrants: HNT.WT).
Huntingdon owns and manages a portfolio of 36 industrial, office,
retail and aviation-related properties throughout Canada that have a
total gross leasable area of 2.9 million square feet. In addition,
Huntingdon owns an approximate 30% interest in FAM Real Estate
Investment Trust (the "REIT") (TSX: F.UN, F.WT) and manages, on behalf
of the REIT, a portfolio of 27 industrial, office, and retail
properties throughout Canada that have a gross leasable area of 1.7
million square feet.
This announcement is for informational purposes only and does not
constitute or form part of any offer or invitation to purchase,
otherwise acquire, subscribe for, sell, otherwise dispose of or issue,
or any solicitation of any offer to sell, otherwise dispose of, issue,
purchase, otherwise acquire or subscribe for, any security. The
release, publication and distribution of this announcement in certain
jurisdictions may be restricted by law and therefore persons in such
jurisdictions into which this announcement is released, published and
distributed should inform themselves about and observe such
restrictions. The propsed $7.00 offer referred to herein is not being
made in, nor will deposits of securities be accepted in, any
jurisdiction in which the making or acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, Huntingdon may,
in its sole discretion, take such action as it deems necessary to
extend the proposed offer in any such jurisdiction.
Cautionary Note Regarding Forward-Looking Statements
Certain information contained in this news release constitutes
"forward-looking information" (or "forward-looking statements") within
the meaning of applicable securities laws. All statements, other than
statements of historical or present fact, constitute forward-looking
information and typically include words and phrases about the future
such as "may", "will", "anticipate", "estimate", "expect", "plan",
"intend", "believe", "predict", "goal", "target", "project",
"potential", "strategy" and "outlook" or the negative thereof or
similar variations. Forward-looking information is necessarily based
upon a number of assumptions that, while considered reasonable by
Huntingdon, are inherently subject to significant business, economic
and competitive uncertainties and contingencies. Huntingdon cautions
the reader that such forward-looking information involves known and
unknown risks, uncertainties and other factors, estimates and
assumptions that may cause actual results and developments to differ
materially from those expressed or implied by such forward-looking
information. Some important factors, estimates and assumptions that
could cause actual results to differ materially from expectations
include, among other things, the assumption that Huntingdon will
acquire 100% of the issued and outstanding trust units in KEYreit
through the Amended Offer; the assumption that all of the conditions to
the Amended Offer will be satisfied; certain assumptions relating to
general economic conditions, market factors, competition, changes in
government regulation and changes in prevailing interest rates; and the
assumption that there are no inaccuracies or material omissions in
KEYreit's publicly available information, and that KEYreit has not
disclosed events which may have occurred or which may affect the
significance or accuracy of such information. While Huntingdon
considers these factors, estimates and assumptions to be reasonable
based on information currently available to them, they may prove to be
The information concerning KEYreit contained in this press release has
been taken from or is based entirely upon KEYreit's publicly available
documents and has not been independently verified by Huntingdon.
Huntingdon, nor any of its respective directors or officers assumes any
responsibility for the accuracy or completeness of such information, or
for any failure by KEYreit to disclose events or facts which may have
occurred or which may affect the significance or accuracy of any such
information, but which are unknown to Huntingdon. Forward-looking
information contained herein are made as of the date of this press
release based on the opinions and estimates of Huntingdon on the date
statements containing such forward-looking information are made.
Huntingdon does not undertake any obligation to update or revise
forward-looking information, whether as a result of new information,
future events or otherwise, except to the extent legally required.
Accordingly, readers should not place any undue reliance on
SOURCE: Huntingdon Capital Corp.
For further information:
Zachary R. George, Director, President and Chief Executive Officer
Tel: (604) 249-5119
Fax: (604) 249-5101