Activist FrontFour Targets Granite REIT, Pushes for Changes

(Bloomberg) -- Activist investor FrontFour Capital Group and its partners have taken a stake in Granite Real Estate Investment Trust, pushing for board changes and other measures to boost shareholder value. The stock rose to a record high.

FrontFour and private-equity firm Sandpiper Asset Management Inc. own 6.2 percent of Toronto-based Granite, according to a regulatory filing Tuesday. The group is disappointed with Granite's lower growth rate relative to peers, as well as its performance and prospects, board compensation and other issues, according to people familiar with the matter, who asked not to be identified as the details aren't public.

Greenwich, Connecticut-based FrontFour, run by Zachary George, and Vancouver's Sandpiper have held preliminary discussions with Granite. Representatives for FrontFour and Granite weren't immediately available for comment.

“Granite represents a very compelling opportunity,” Sandpiper chief executive officer Samir Manji said in an interview. “They have a phenomenal platform. We believe there are avenues that the board and management can pursue that can help unlock substantial value for unit-holders.”

Manji declined to comment on the specifics of the discussions with the Granite's board, although he described the talks as “constructive.”

Strategic Review

Granite is a global real estate trust with a market value of about C$2.4 billion ($1.75 billion). It owns and manages a portfolio of more than 100 industrial, logistics and warehouse distribution properties. Its operations are spread across North America and Europe and leased primarily to Magna International Inc., Canada's biggest auto-parts maker. 

The company launched a strategic review in 2015. After exploring several options, it determined its existing strategy was the best course. Shares in the company have gained 11 percent this year, compared with a 3.6 percent increase in the S&P/TSX Capped REIT Index. Granite rose as much as 2.8 percent Tuesday in Toronto to a record C$50.76, and were trading at C$49.83 at 2:57 p.m.

Granite is a good target for an activist because “its balance sheet is dramatically underutilized or unencumbered versus most Canadian REIT peers,” said Michael Markidis, a Toronto-based analyst with Desjardins Securities, noting that the company's debt levels are much lower than its peers.

“It has a tremendous amount of acquisition capacity that this company has not utililized,” he said. “An activist would likely be vying for an acceleration of capital deployment, whether that be acquisitions or using that money for buying back stock.”

To contact the reporter on this story: Scott Deveau in Toronto at sdeveau2@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Chris Fournier, David Scanlan