- Endorsement from Egan-Jones follows earlier recommendation from ISS and Glass Lewis to vote FOR Arrangement
- ISS cites "large premium cash exit” and "meaningful downside risks of non-approval” in its report
- Unitholders who have questions or need assistance in voting should contact Laurel Hill Advisory Group by telephone at 1-877-452-7184 (North American Toll Free) or 1-416-304-0211 (Outside North America), or by email at assistance@laurelhill.com
As an independent proxy advisory firm, ISS has approximately 3,400 clients including many of the world's leading institutional investors who rely on ISS' objective and impartial analysis to make important voting decisions. Egan-Jones, established in 2002 by Egan-Jones Ratings Co., is a leading independent provider of proxy vote guidance and vote issuance for a variety of retail, institutional, and governmental investors.
Together, the committee of independent trustees of the REIT (the "Independent Committee”), the board of trustees of the REIT (the "Board”) (with cross-trustees abstaining), ISS, Glass Lewis, and Egan-Jones have all reached the same conclusion: Unitholders should vote FOR the Arrangement.
Notwithstanding that ISS expressed some concerns with certain parts of the process, ISS has recommended that Unitholders vote in favour of the Arrangement for several reasons, including those outlined below, among others:
REJECTION OF USE OF IFRS NAV AS RELEVANT VALUATION METRIC
ISS went to great lengths to consider whether IFRS net asset value per unit ("IFRS NAV”) (as calculated by ISS) was a relevant metric to value the REIT, and their analysis concluded that there is no basis for relying on IFRS NAV in valuing the REIT's unit:
…important to recognize that [IFRS] NAV appears to depart from: (i) how the REIT's units have traded on a historical basis; (ii) how the equity analyst community values the REIT; (iii) where the REITs peers were trading around the time of announcement; and (iv) how the REIT has been valued according to two fairness opinions and an independent formal valuation.
ISS further examined the historical relationship between the REIT's unit trading price and IFRS NAV through the suspension of the distribution and initiation of the strategic review process, finding:
The gap between the closing price of MR units and NAV has remained significant since 2021 and was widening prior to the announcement of the distribution suspension and strategic review announcement on Feb. 22, 2024. As such, MR's trading history does not demonstrate the market believes NAV has been an accurate measure of the REIT's value in recent years.
The two equity research analysts that cover the REIT have the same view as ISS and find little value in the IFRS NAV metric, dispensing with it in favour of their own calculated net asset value per unit (averaged together to form "Consensus NAV”). As summarized in the REIT's October 29th press release, Consensus NAV is $5.25 per Unit. ISS considered this in its analysis, agreeing with the REIT in its findings:
The divergence in [Consensus NAV] from NAV as calculated above is large and appears to align more closely with the offer price and the market's assessment of [Melcor REIT]'s value over the preceding 24-month period. It is also worth noting that both analysts had price targets of $3.25 at the time of announcement, with neither being near NAV. The offer of $4.95 represents a discount of 5.7 percent to the consensus NAV of $5.25 on Sept. 12, 2024. This discount is less than the median trading discount of the consensus NAVs of the REIT's peer group on the unaffected date, implying a modest premium to the peer median…
In its conclusion on the matter, ISS recognized that "[a]lthough the offer falls short of NAV, additional analysis does not provide confidence that the measure should function as the focal point of value…”.
ISS OPINES ON THE OUTLOOK FOR THE REIT IF THE ARRANGEMENT IS NOT COMPLETED
ISS addresses the prospects for Unitholders if the Arrangement is not approved, stating "the strength of recovery in [Melcor REIT]'s unit price under a non-approval scenario appears unlikely”, "significant potential near-term downside risk and an unlikely medium-term price recovery” and contrasted with the "large premium” under the Arrangement:
In summary, minority unitholders are facing a standalone scenario which sees ownership of a REIT with: (i) no reasonable prospects for distribution reinstatement; (ii) a persistent historical discount to NAV that is likely to continue; (iii) ongoing ownership structure involving a controlling unitholder with a board endorsed by its most logical acquirer; and (iv) ongoing likely challenges in conducting individual asset sales.
THE INDEPENDENT COMMITTEE, THE BOARD, ISS, GLASS LEWIS, AND EGAN-JONES ALL RECOMMEND IN FAVOUR OF ARRANGEMENT; VOTE FOR TODAY
The Independent Committee and the Board (with cross-trustees abstaining) reiterates their recommendation, joined by ISS, Glass Lewis, and Egan-Jones, that Unitholders vote FOR the Arrangement at the special meeting of unitholders (the "Meeting”). Even if you have never voted before, every vote will count no matter how many Units you own. Unitholders can switch their vote at any time to vote FOR the Arrangement. Only the latest-dated proxy counts.
The Meeting will be held at the Windsor Room, Third Floor, Manulife Place, 10180 101st Street, Edmonton, Alberta,T5J 3V5 on November 26, 2024 at 9:30 a.m. (Mountain Time). Unitholders are encouraged to vote well in advance of the proxy cut-off, at 9:30 a.m. on November 22, 2024.
QUESTIONS AND VOTING ASSISTANCE
Voting Unitholders who have questions or need assistance in voting should contact Melcor REIT's strategic unitholder advisor and proxy solicitation agent, Laurel Hill Advisory Group, by telephone at 1-877-452-7184 (North American Toll Free) or 1-416- 304-0211 (Outside North America), or by email at assistance@laurelhill.com.
About Melcor REIT
Melcor REIT is an unincorporated, open-ended real estate investment trust. Melcor REIT owns, acquires, manages and leases quality retail, office and industrial income-generating properties in western Canadian markets. Its portfolio is currently made up of interests in 36 properties representing approximately 3.072 million square feet of gross leasable area located across Alberta and in Regina, Saskatchewan.
Forward Looking Statement Cautions and Disclaimers:
This news release includes forward-looking information within the meaning of applicable Canadian securities laws. In some cases, forward-looking information can be identified by the use of words such as "may”, "will”, "should”, "expect”, "intend”, "plan”, "anticipate”, "believe”, "estimate”, "predict”, "potential”, "continue”, and by discussions of strategies that involve risks and uncertainties, certain of which are beyond the REIT's control. In this news release, forward-looking information includes, among other things, statements relating to the Meeting proceeding as described herein or at all, expectations with respect to the timing and outcome of the Arrangement and the anticipated benefits of the Arrangement, the anticipated impact if the Arrangement does not proceed, including the impact on the REIT's unit trading price and continued operations, the REIT's ability to reinstate distributions, a continued discount to NAV, an ongoing controlling unitholder endorsing the board and challenges faced by the REIT in conducting individual asset sales. The forward-looking information is based on certain key expectations and assumptions made by the REIT, including with respect to the structure of the Arrangement and all other statements that are not historical facts. The timing and completion of the Arrangement is subject to customary closing conditions, termination rights and other risks and uncertainties including, without limitation, required regulatory, court, and unitholder approvals. Although management of the REIT believes that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that any transaction, including the Arrangement, will occur or that it will occur on the timetable or on the terms and conditions contemplated in this news release. The Arrangement could be modified, restructured or terminated. Readers are cautioned not to place undue reliance on forward-looking information. Additional information on these and other factors that could affect the REIT are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR+ website (www.sedarplus.ca).
By its nature, such forward-looking information necessarily involves known and unknown risks and uncertainties that may cause actual results, performance, prospects and opportunities in future periods of the REIT to differ materially from those expressed or implied by such forward-looking statements. Furthermore, the forward-looking statements contained in this news release are made as of the date of this news release and neither the REIT nor any other person assumes responsibility for the accuracy and completeness of any forward-looking information, and no one has any obligation to update or revise any forward-looking information, whether as a result of new information, future events or such other factors which affect this information, except as required by law.
Contact Information: Laurel Hill Advisory Group, by telephone at 1-877-452-7184 (North American Toll Free) or 1-416-304-0211 (Outside North America), or by email at assistance@laurelhill.com