NEW YORK--(BUSINESS WIRE)--Orange Capital LLC, an event-driven global investment firm, has issued the following letter (text below) to the Independent Directors of Charter Hall Office REIT (ASX: CQO) in response to the Company’s recent ASX announcement regarding its Operational and United States Strategy Update.
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Letter Copy: |
| 13 April 2011 |
| The Independent Directors |
| Charter Hall Office Management Limited |
| (in its capacity as responsible entity of Charter Hall Office REIT) |
| Level 11, 333 - 339 George Street |
| Sydney NSW 2000 |
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RE: CHOML US Strategy Update |
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Dear Independent Directors: |
We have reviewed Charter Hall REIT’s (“CQO”) 12 April 2011 ASX announcement providing an Operational and United States Strategy Update. Although we were encouraged that a joint venture was not expressed as the “preferred” alternative, we remain skeptical that Charter Hall Office Management Limited (“CHOML”) is placing unitholder interests above those of the responsible entity. As the largest independent unitholder in CQO, we are disappointed that CHOML’s latest release selectively emphasized potential complexities of the existing joint ventures that need to be addressed in connection with a sale of the US portfolio, rather than highlighting the broad interest in the US assets at an attractive valuation for CQO unitholders. Needless to say, Management’s original plan of adding a joint venture on top of the existing joint ventures was and still is ill-advised.
The release included a discussion of change of control issues associated with the existing joint venture agreements. It is very unusual to publicly highlight technical issues in connection with an announced process to explore interest in a group of assets, rather than use this pre-marketing period to proactively position the interests in the joint venture assets to have the broadest market appeal. As with any effort to maximize value in a REIT context, certain consents or agreements may be needed. This is not unusual or unique to CQO and the issues raised in the update are customary provisions in almost any partnership. Orange Capital can only conclude that this unusual update is an attempt by CHOML to delay or even skew its evaluation of offers regarding a sale of the US portfolio to a third party.
We would expect that CHOML would use the time prior to receiving final bids to “clear away” any structural issues so that cash offers for 100% of the US Assets can be unconditional and evaluated quickly and easily. CHOML should have stated their ability and willingness to dissolve existing joint ventures, if necessary, as part of any public announcement.
While CHOML goes to great length to discuss change of control issues, management failed to disclose the important unitholder protections under the existing joint venture agreements upon a sale or dissolution. CQO’s stake in the MPG Office Trust, Inc. joint venture (by far the largest component of the US portfolio held in joint ventures) is unequivocally for sale if CHOML so desires to sell it under a typical “put-call” mechanism, and the execution risks are far less than management suggests given the provisions of the agreement. In fact, MPG Office Trust, Inc. issued the following language in their latest 10-K filed with the US Securities and Exchange Commission (“SEC”):
“Charter Hall Group has stated that they wish to pursue an orderly exit from the joint venture. Our joint venture documents contain procedures whereby either party can trigger a formal dissolution process. This process involves multiple steps and provides the non-triggering party with various rights.”
Orange Capital, based on publicly available information, including the First Amended and Restated LLC Agreement filed with the SEC by MPG Office Trust, strongly believes that a mechanism is in place to protect unitholders and provide full market value for CQO’s joint venture stake if MPG Office Trust, Inc. were unwilling to grant a change of control.
Lastly, Orange Capital notes that it is very encouraged by the serious third-party interest in the US portfolio. We have had contact with a number of prospective purchasers for all or part of the US portfolio, and have informed them that we are willing to exercise all of our legal rights to effect any transaction that we deem is in the best interest of all unitholders.
Sincerely,
| Daniel Lewis |
| Managing Partner |
| Orange Capital LLC |
| Cc: | David Harrison, Joint Managing Director, Charter Hall Group | |
| David Southon, Joint Managing Director, Charter Hall Group | ||
| Adrian Taylor, CEO, Charter Hall Office REIT |