Huntingdon Capital Corp announces open letter to KEYreit unitholders

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:


The contents of the letter are inserted below.


Huntingdon's 100% Cash Offer for KEYreit units - An Open Letter to Unitholders

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 7 years

  • 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 management company

  • 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 yours.

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

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.

Important Notice

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 inaccurate.

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 forward-looking information.

SOURCE: Huntingdon Capital Corp.

For further information:

Zachary R. George, Director, President and Chief Executive Officer
Tel: (604) 249-5119
Fax: (604) 249-5101

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Huntingdon Capital Corp.

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