Partners Real Estate Investments Trust is a pretty risky REIT now based in Barrie Ontario. I’ve been following Partners for a while going back to the experience with League. I think Partners REIT is the only publicly listed company based in Barrie?
Ron McGowan seems to be a fly-by-the-seat-of-his-pants real estate investor. He is known to come up with financing schemes and arrangements that push the envelope of risk and governance, and now that he’s dealing with a public company, he is drawing criticism from investors, and maybe some investigations from regulators.
- November 2013: McCowan & Associates Ltd. acquires the largest block in Partners REIT. McCowan bought the almost 15% block from IGW Public Limited Partnership Company at $7 a unit. The block of 3.87 million units was available because of the bankruptcy protection sought by League Assets Corp., a privately held real estate company. IGW is a related party to League and the block was sold to generate cash for League. The sale to McCowan — who assumed at least $17-million of third party debt to fund the share block — occurred about a week after Orange Capital has submitted an offer for the same block.
- December 2013: Partners enters into a purchase and sale agreement for four Ontario properties. No seller of the properties was disclosed. Plans call for the seller to receive almost 20% of the REIT from units “issued at an effective price of $7.61,” per unit. The deal was slated to close in January 2014.
- February 2014: For the first time, Partners names the vendor Holyrood Holdings while McCowan is named as the interim CEO and Derrick W. West is named chief financial officer. The original deal is modified slightly.
- April 2, 2014: Partners provides an update. The former, four-property deal is off, replaced by a three property deal. The cost is revised to $90-million; the vendor will receive about six million units at “an effective price of $5.80,” per unit. After the sale, Holyrood will have an 18.7% stake.
- April 3, 2014: Partners names two new trustees, Lindsay Adam Weiss and Kevin VanAmburg.
- April 23, 2014: The three-property acquisition closes.
- April 30, 2014: Weiss resigns as a trustee. Partners announces that it “accepted a financing commitment from a mortgage lender to secure $15-million of financing as a second mortgage loan on certain properties of the REIT. The one-year loan comes with a rate that could be as high as 10%.
- May 1, 2014: Orange Capital issues a release calling for “an independent forensic audit of the REIT and of transactions undertaken by the REIT by or under the direction of CEO Ron McCowan and the newly appointed trustees of the REIT.
- May 2, 2014: Partners announces that it will respond to the comments from Orange “in due course.”
- May 4, 2014: Partners issues its response, asks Holyrood to unwind the transaction, and announces that it has a new acting CEO.
The Holyrod deal seems to be motivated by McGowan’s desire to gain firm voting control over the REIT. If a friendly (“related”???) investor also owned a block of shares, and that investor remained a passive supporter of McGowan, they could raid the Partners cookie jar in a variety of ways. Unfortunately for McGowan, he seems to have broken some securities rules. Holyrod will certainly be deemed a related party, and McGowan and Holyrod had (have) a business relationship as McGowan Associates provides property management services to Holyrod.
