G2S2 Capital Inc. Issues Open Letter to Slate Office REIT Unitholders

• Publishes open letter to Slate Office REIT unitholders expressing its disappointment in management's performance and lack of accountability
• Highlights various instances of misaligned interests, unitholder value destruction, and incoherent strategic direction
• Announces intention to requisition a timely meeting of unitholders

HALIFAX, NS, Oct. 20, 2022 /CNW/ - G2S2 Capital Inc. ("G2S2") releases an open letter to the unitholders of Slate Office REIT ("SOT", "the REIT") following the recent announcement regarding a C$45 million convertible debenture offering. This transaction is unnecessarily dilutive to all unitholders and represents just one in a long list of incomprehensive decisions made by the REIT in recent years.

SOT's trustees and management have demonstrated time and again that unitholder interests are secondary to those of Slate Asset Management ("SLAM"), the REIT's external manager. Many of the REIT's questionable decisions only make sense when viewed through the lens of SLAM fee generation. As the REIT's largest unitholder, we lost confidence in management to preserve, let alone grow our capital, and we can no longer remain silent. 

"We have tried for months to work constructively with SOT's management and trustees, but it has become clear that they only seek to maintain the status quo and continue to line SLAM's pockets with management fees," said George Armoyan, Executive Chairman of G2S2. "We are releasing this letter to appeal directly to our fellow unitholders to push for change and to hold the trustees and management accountable."

To our fellow unitholders,

G2S2 is a multi-strategy value-oriented investment company focused on identifying undervalued companies. We seek to engage in a constructive manner with investee entities, with an intended goal of improving the business in the best interests of all stakeholders. G2S2, through a wholly owned subsidiary, beneficially owns 12,811,700 units of SOT, constituting approximately 15% of the outstanding units.

Despite G2S2's significant investment in SOT, the trustees and management of the REIT have for months deflected requests by G2S2 to meaningfully engage regarding the business of the REIT. G2S2 has provided suggestions to improve the business in the best interests of the REIT's stakeholders; these have been similarly ignored.

We would like to our draw your attention to several of G2S2's more pressing concerns regarding SOT:

1 - SLAM: A Clear Misalignment of Interests

We believe that SOT is, primarily, a vehicle for SLAM to generate a stream of fees at the expense of unitholder capital. Under the current management agreement, SLAM is incentivized to scale its portfolio at all costs, rewarding acquisition activity and gross book value as opposed to equity market value. They generate more fees by growing, even if that growth is destructive to unitholder value. This creates a fundamental conflict of interest with SOT unitholders, as evidenced by a series of questionable strategic and ill-timed acquisitions. Additionally, SLAM's management agreement guarantees SLAM trustee nomination rights, which are held by SLAM insiders, and the so-called "independent" trustees on the SOT board have failed to effectively represent unitholder interests. Over 40% of unitholders voted against management's slate of trustees at the 2022 AGM but even this strong show of non-confidence seems to have fallen on deaf ears.

2 – The Market Has Lost Confidence in SOT's Value

SOT trades at nearly a 50% discount to management's stated net asset value (NAV) and one of the lowest Price/Book ratios in the sector. This highlights a clear loss of confidence in management and the board's ability to create value. Management continues to promote SOT as an attractive investment but takes no meaningful action to narrow the discount. Despite advice given by G2S2 to focus on accretive, unitholder-friendly capital allocation efforts such as unit buybacks, SOT has continued to pursue dilutive transactions. Again, these transactions benefit SLAM by increasing the management fees it generates but accomplish nothing to restore unitholder value.

Example 1: On November 15, 2021, SOT announced the acquisition of Yew Grove in Ireland, further diluting the unitholders by raising C$60.8 million in equity at a significant discount to management's stated NAV. Besides its dilutive nature, SOT's pivot into non-core geographies and sectors further obfuscated the true value of the REIT's assets. Given a poor track record, we have no confidence in SOT's ability to create value.

Example 2: On October 17, 2022, SOT announced a bought deal offering of C$45 million of convertible debentures at a conversion price of $5.50 per trust unit, significantly below management's stated NAV of $8.71 per trust unit. This comes only days after SOT disposed of two office properties in Toronto, ON for C$97 million. It is unfathomable how management could view issuing convertible debentures at nearly a 40% discount to NAV an acceptable financing solution.

3 - Insignificant Trustee Ownership

We are concerned about the trivial ownership among the independent trustees. Excluding deferred units, the group of five so-called "independent" trustees owns among them a mere 77,500 units - less than 0.1% of the REIT's total units. Management presents SOT as an attractive investment opportunity, a "Valuation Disconnect" in their own words, but they refuse to invest their own money to take advantage of this opportunity. If a 50% discount to their stated NAV doesn't represent a compelling opportunity, we have to wonder how management and trustees really view the future prospects of the REIT.

G2S2 believes that SOT unitholders would be better served by trustees who have conviction in the REIT's ability to create value and who choose to align themselves with fellow unitholders. This is how we invest and how we would expect those who oversee our investments to conduct themselves. SOT deserves to be run by trustees who are willing to put skin in the game when real opportunities present themselves.

Conclusion

G2S2 believes in the value of the REIT's assets but recognizes that change is needed to unlock that value. G2S2 has attempted to work directly with SOT management and trustees to bring about positive change, and has been met with indifference, obstinance, and a clear lack of concern for the value of our investment. G2S2 is not in the habit of letting our investments languish, and we intend to take decisive action in order to create value for ourselves and all SOT unitholders. To that end, G2S2 intends to immediately requisition a special meeting of unitholders to give unitholders a democratic forum for expressing their views and concerns, and to elect trustees who will represent the interests of all unitholders.

Advisors

Bennett Jones LLP is acting as legal counsel to G2S2.

Additional Information

The information contained in this press release does not and is not meant to constitute a solicitation of a proxy within the meaning of applicable corporate and securities laws. While G2S2 intends to take additional steps in the future, which include requisitioning a meeting of unitholders of Slate Office REIT, soliciting proxies of unitholders, and filing a dissident information circular, no requisition of a meeting been submitted to Slate Office REIT, there is currently no record date or meeting that has been called and unitholders are not being asked to execute or not execute a proxy with respect to any matter at this time (including any potential nominees of G2S2).

About G2S2

G2S2 Capital Inc. is a privately held investment holding company focused on creating value across a variety of businesses with a long term horizon. G2S2 is incorporated under the laws of Canada. G2S2 is controlled by George & Simé Armoyan.

SOURCE G2S2 Capital Inc.