Making a Activism pitch to a HF for a takeover ~ Any insights would be great

Hello everyone, 
I wanted to get everyone's perspective on the following. 

I'm a CRE broker who worked on institutional assets for clients for about 2yrs now. One day I came across a public US REIT that has been doing poorly since inception. The Real estate portfolio was owned by a family in the 1950s and was taken public in the 2010s. They raised about $2B - $3B via their IPO BUT now, the REIT is trading at less than $1.7B. 

Notes: I worked with a reputable strategy consulting firm based in NYC to devise a plan on doing a takeover and the advisors there said it makes sense to go after it. Even though the probability of succeeding is not high. 
 

What I see from this REIT:
 ~ Owners didn't buy any properties for the last 6 yrs 

  ~ Few influential executives at the REIT were upset with how the family is using the firm to grow their wealth and not doing what's in the best interest for their partners (shareholders) 
 ~ The firm has been trading at lower lows since they IPO'd back in the 2010s 

  ~ 75% of their revenues are coming from the 5 properties they own. The remaining 15 properties account for only 25% of their annual revenues. 

  ~ They pay a low dividend relative to the industry 

   ~ The REIT overpaid for about 15% of their portfolio

   ~ The REIT was unprofitable in 2018, 2017 & 2019 

   ~ The portfolio is 100% occupied in ONE US state 
 

My simplified strategy for the firm based on what I see in the CRE space 

~ To win over the unhappy shareholders with 51% voting rights 

~ Sell off 15 - 18 properties and use the proceeds to purchase assets in growth markets across the US & Canada. This will increase the overall cap rate/ROI for the portfolio and provide diversification. 
~ I plan to do this over a 10-15 yr time-frame. 

What I wanted to ask the Hedge Fund community was: 
1) Does it make sense to pitch this opportunity to the known activist investors in the US (Think Pershing Square or Icahn Enterprises, etc)? 

    My thinking was to try and get in touch with those type of firms and have a sit down with them about doing the hostile takeover. 
 

Thank you everyone, 
 

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Comments (22)

  • Intern in PE - Other
Nov 8, 2021 - 3:56pm

Not even in the industry and just an intern but commenting for visibility. But I'd assume that worst case, if you have absolutely 0 connections you can always try the trusty cold email from your work email with pretty limited downside. Would be interested if any activism folks could chime in here though. 

  • Intern in PE - Other
Nov 11, 2021 - 2:14am

There were 0 comments in 2 days before me so as I said, commenting for visibility. If anything, what was the point of your comment? You feel good about yourself now??

Most Helpful
  • Research Analyst in HF - Event
Nov 8, 2021 - 4:23pm

Size is way too small for Pershing, Icahn, etc. A $1.7BN super under the radar REIT that is probably not trading, probably no analyst or news coverage, not heavily banked, maybe even with inadequate disclosures - is not going to be attractive for large public activist funds and is probably not liquid enough to take a position without moving the market. If I were you, I would look for aggressive value-oriented private equity funds that can commit to a take private / buyout. What are you trying to gain from pitching this?

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  • Prospect in RE - Comm
Nov 8, 2021 - 6:52pm

Hi, Thanks for the reply, 
The goal of doing a takeover for me is not about getting a job at a Hedge or PE Fund but to instead grow the AUM of the acquired REIT as a partner of the REIT.  

I took the initiative to work with a well known consulting firm to help come up with a strategy to do it because of a nest-egg I built up over the past few yrs. 
They think IT's a great REIT to buy IF I can do it because the REIT owns some really good trophy-like assets that stood the test of time since the 1960s. 

. The consulting firm believes its hard since Hostile takeovers are not easy and have a not so high success rate. 
But this REIT does have enough negatives to at-least send a takeover bid to the Owners. 

Also, the PR backlash most likely will be stressful and not too fun which I don't like at all.

  • Research Analyst in HF - Event
Nov 8, 2021 - 7:17pm

Interesting situation - I guess what I would consider is what you're bringing to the table. If you have enough funds to take a sizeable stake, you might just try to vote yourself onto the board. If you have insufficient funds (nest egg + line of credit + other sources) and you bring this idea to any fund, what stops them from just hiring an operating partner at cost and cutting you out? Seems naive to think they would just generously give you a cut of what you claim is a lucrative opportunity if they have half a brain and the resources that you are seeking. If the REIT opportunity falls under the funds mandate, there's a higher likelihood they will have their own network of advisors and won't need to bring you on as a partner. Also, if you have such a great consulting firm working all the angles, why do you need to crowdsource strategy from WSO?

  • Prospect in RE - Comm
Nov 8, 2021 - 7:49pm

Hi, 
I don't have enough funds to take on a public firm and thats why I wanted to partner with a HF or PE fund to do so. You're right about it being naive of to think a fund would take me on but some people have done it. Some guys partnered up and did it. Which is why I'm somewhat optimistic. 

If anything, me asking this question on here is equal to getting a sentimental view from fellow HF guys/gals. 

Good question, I'm on this WSO forum because I'm nearing my mid-20s and don't know about the HF space but do know about the CRE space decently well. 
I ask this forum on some inputs to get some POV of those who are also in their early 20s but in a diff boat. 
As we all know, the consultants provide advice and that's about it. It's up to me to either act on it or not and so far I didn't. 

  • Associate 2 in PE - Other
Nov 8, 2021 - 11:34pm

I'd encourage you to think deeply about why this opportunity exists. As in, why hasn't someone else already done what you propose? Illiquid stock, no analyst coverage and other "technical" overhangs won't dissuade a serious financier and there are very smart people in REPE. If the fundamental business looks like a no brainer, you should try assessing corporate governance and seeing if management has entrenched themselves. It could be the most undervalued stock in the world, but could be for a good reason if there's nothing anyone can do about it. The fact is that these days there is so much $ in the world chasing yield that there is likely a good, maybe not deal killing, but valid reason why the opportunity exists as there is an implication that others have passed already.  
 

Assuming the above checked out, you probably want to commit a modest amount of cash to retaining a private placement agent or someone similar who can go solicit your idea and try to raise $ from a club of co investors into a single purpose SPV to make the investment. You would ultimately make your $ based on a waterfall of some sort that will likely yield less total dollars than you have in mind but a tremendous MOIC relative to the amount of capital you actually invest.

  • Associate 3 in PE - Other
Nov 21, 2021 - 8:22am

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