First Capital REIT (FCR-UN-T), engaged in a battle for control of its operations with a group of dissident shareholders, has announced two changes to its board of trustees including the immediate retirement of chair Bernard McDonnell.

The announcement was made Tuesday night at the same time as First Capital released what president and CEO Adam Paul called “strong fourth-quarter and full-year 2022 operational and financial results.”

Paul C. Douglas has moved up from his position as trustee and member of the audit and governance committees to become chair of the REIT's board, while Gluskin Sheff + Associates Inc. co-founder Ira Gluskin was named a trustee. 

McDonell had served as a trustee (previously director) since 2007 and was lead independent director from 2011-'19, when he was appointed chair.

In its announcement, First Capital says the appointment is part of its “ongoing strategic approach to refreshment and planned chair succession process that balances the need for fresh perspectives with important historical continuity.”

The release states McDonell expressed his desire to retire in mid-2022.

The changes and the dispute

Douglas was selected to succeed McDonell after indicating he’d be able to take on the elevated role once his retirement from TD Group was announced. 

"I want to thank Bernie on behalf of the entire board for his stewardship, mentorship of management and many other important contributions to the board and to First Capital,” Douglas said in the announcement. "I fully believe in the management team, the Optimization Plan and the direction the company is taking.

"Unitholders can be assured that I and every member of the board and management team of First Capital will continue to work tirelessly on behalf of all unitholders to execute our strategic plan as an important step towards surfacing value from the portfolio and maintaining the highest quality growth opportunities for our unitholders.”

First Capital’s performance and current strategy have been under fire for several months in a public campaign led by investors Sandpiper Group, Artis REIT, Ewing Morris and Co., and First Capital founder and former CEO Dori Segal.

The group has forced a special meeting of shareholders, which First Capital has now set for March 28, to vote on several board positions. 

One of the group’s demands was the removal of McDonell. It has also called for the replacements of three other board members (Andrea Stephen, Annalisa King and Leonard Abramsky) and Paul as the CEO.

The dissidents offered a slate of four prospects to replace them: Sandpiper founder and CEO Samir Manji; K. Adams and Associates Ltd., founder and president Kerry Adams; lawyer and Definity Financial director Elizabeth DelBianco; and Minto Apartment REIT and IMCO board member Jacqueline Moss.

Reactions from Segal, Manji

In a letter to unitholders released Wednesday morning, Segal said he supports the changes, but stands firm in his demand for additional moves, including the removal of the board members and Paul.

“I’m very pleased with yesterday’s announcement of the appointment of Paul Douglas as chair and Ira Gluskin as a trustee. These changes confirm that unitholders’ concerns and suggestions are finally being heard,” he wrote. “Paul and Ira are highly respected and Paul is an exceptionally good choice to lead the board. I expect they will both be tremendously constructive in their new roles and we should all wish them much long-term success.

“While I believe that yesterday’s announcement is a significant positive step in the right direction, I maintain that more needs to be done.” 

He also released a letter which he says was sent to Paul this week in the wake of a court decision which forced First Capital to move up its special meeting to March 28 – rather than the May 16 date proposed by the REIT.

“Last week court’s decision was an embarrassment to First Capital REIT and indictment of your leadership, the governance committee chair and the board on business judgement and governance processes (or lack thereof),” Segal wrote.

“You wasted the REIT’s resources on a matter that you ought to have taken a reasonable position on in the first place.”

Segal posed a number of questions in the letter, asking that they be addressed in today’s (2 p.m. EST) conference call to discuss First Capital’s results with unitholders and analysts.

In an interview this morning with RENX, Manji backed Segal's position.

“We thought Dori’s letter was excellent, we thought that the questions he has directed to the CEO are very appropriate and this time it will be very interesting to see if the CEO chooses to do the right thing in responding to those questions or whether, as has been the case for a number of unitholders who have come forward expressing concerns, whether this CEO and this board are going to continue to ignore unitholders," Manji said.

Manji also said there is no change in the demand to oust several board members. He declined to comment directly on the appointments of Douglas and Gluskin, but did note, “We were not looking to remove Paul Douglas from the board.”

Management comments on activist investors

First Capital management did address several questions contained in Segal's letter, including how much it has spent dealing with activist activities – $1.4 million during 2022.

Paul said due to competitive concerns, he did not want to comment on specific properties which FCR might divest. He did say 28 properties with an average value of $30 million remain for sale, but none are grocery-anchored retail.

He reiterated current management has no plan to change its current strategy.

"We believe now more than ever that the optimization plan is the right path forward," Paul said. "First Capital has a credible and executable plan that delivers enhanced earnings growth while at the same time strengthening our balance sheet.

"Management and the board unanimously support this plan."

First Capital's new board members

Douglas joined the board as an independent trustee in 2019 and recently announced his retirement – as of the end of April – as group head, Canadian business banking at TD Bank Group.

He has managed over $100 billion of assets including the small business and commercial banking division (including the national real estate group and commercial mortgage group) and TD Auto Finance.

Douglas has had a 45-year career at TD, holding positions of increasing responsibility including as a member of the senior executive team, founding and leading the real estate group in TD Securities.

Gluskin is the chief investment officer of Irager + Associates Inc., a family office overseeing strategy and investments, in addition to his role with Gluskin Sheff + Associates Inc., a Canadian wealth management firm focused on the high-net-worth private client market. 

He was its president and chief investment officer from 1984 through 2009, and a director and vice-chair through 2013. 

Before co-founding Gluskin Sheff, Gluskin worked in the investment industry for 20 years and as a real estate securities analyst. He is currently a board member at Tricon Residential and European Residential Real Estate Investment Trust.

First Capital REIT Q4 2022 financial report

In its Q4 2022 financials, First Capital reported Q4 funds from operations of $80.5 million (compared to $60.8 million in Q4 2021) and full-year revenues of $263.2 million ($251 million in 2021).

Its FFO per diluted unit was $0.37 in Q4 (compared to $0.28 a year earlier) and $1.21 for the year ($1.14 in 2021).

Total same-property NOI growth was 8.3 per cent compared to 3.2 per cent for Q4 a year earlier, and year-over-year it declined slightly to 5.1 per cent from 5.7 per cent in 2021.

Net income attributable to unitholders was $42.4 million for the quarter ($28.6 million in Q4 2021) and a loss of $160 million for the year (compared to positive income of $460.1 million in 2021).

The loss is attributed mainly to fair value decreases of $409.7 million in 2022, versus fair value increases of $198.6 million in 2021. 

EDITOR'S NOTE: This article was updated after being published to include comments from FCR management during its Q4 2022 financials conference call with analysts and investors.