NEW YORK--(BUSINESS WIRE)--Orange Capital LLC (“Orange Capital”), an event-driven global investment firm, has issued the following statement (text below) announcing its request to obtain a copy of the unit register of Charter Hall Office REIT (ASX: CQO) in order to call an extraordinary general meeting (“EGM”) of CQO unitholders to remove Charter Hall Office Management Limited (CHOML) as the REIT’s responsible entity.
Letter Copy:
30 May 2011 (Sydney Time)
Orange Capital will today request a copy of the unit register of Charter Hall Office REIT (Fund or CQO) with the intention of calling an extraordinary general meeting of CQO unitholders (EGM) to remove Charter Hall Office Management Limited (CHOML) as responsible entity of the Fund. Orange Capital, LLC, Luxor Capital, LP, and Point Lobos Capital, LLC (Concerned Unitholders or We) own 18.15%, of the issued CQO units and are independent of, and unrelated to, CHOML and other unitholders of CQO. This investment is valued at in excess of $320 million and demonstrates our alignment with all non-conflicted unitholders.
Over the past six months, the Concerned Unitholders held discussions with the Charter Hall Group and CHOML (together Charter Hall) in an effort to maximise returns for all unitholders. These discussions intensified over the past week.
During our most recent discussions we sought a firm commitment from Charter Hall on improvements to corporate governance, a return of capital to unitholders from excess cash on hand and the proceeds from the US sale process, and a pursuit of a wide range of strategic alternatives for CQO. We believe our initiatives are the best way to close the gap between the Fund’s unit trading price and a unit price that accurately reflects the actual market value of the Fund’s assets. We believe that there is potential that the sale of the assets of CQO can be achieved at a significant premium to currently stated net tangible asset value (NTA).
Some of the initiatives put forward by the Concerned Unitholders included:
- Returning all net proceeds from a sale of the US portfolio;
- Returning excess cash currently held on CQO’s balance sheet;
- Changing CHOML's remuneration structure to align its interests with unitholder returns instead of the existing incentives tied to increasing assets under management;
- Encouraging a take private or a corporate transaction resulting in the sale of the Australian assets and return of capital to unitholders; and
- Urging independent directors to canvass other non-conflicted unitholders to determine their support for such actions
Having failed to reach an agreement with Charter Hall, we now believe that the most effective strategy to maximise returns for all unitholders is to replace CHOML with a new responsible entity which would pursue an open market sale of the Fund assets and return all net proceeds to unitholders (Proposed Strategy).
We are very concerned that consideration of the Proposed Strategy places CHOML in an inherent, irreconcilable conflict of interest between its duty to CQO unitholders and its interest in retaining funds under management and the associated fees. This is demonstrated by the following:
- CHOML has been unwilling to formally commit to returning the net proceeds from the US sale process and the cash in excess of A$200 million currently on the balance sheet to unitholders.
- CHOML is unwilling to pursue a sale of CQO’s Australian assets, despite what we believe is significant interest from prospective acquirers in individual assets and/or the entire CQO vehicle.
- Charter Hall informed the Concerned Unitholders that they would attempt to delay our initiatives.
We believe that Charter Hall and its affiliates are restricted from trading in CQO units whilst they are in the possession of non-public material price sensitive information. As the fiduciary of the Fund, CHOML is in a privileged position of knowing material non-public information regarding CQO and in particular the US asset sale process. This includes information about the number of prospective bidders, indicative pricing, and contemplated structures, conditions and timing that are currently unknown to non-insiders. Further, we believe that a premature disclosure of sensitive information, so as to permit Charter Hall or its affiliates to acquire additional CQO units at this time may have material adverse consequences for the US sale process and CQO unitholder value. We urge the independent directors to carefully consider any disclosure of information that could harm CQO unitholder interests.
We believe that CHOML’s actions to date are more consistent with a responsible entity seeking to further entrench itself rather than to achieve the best outcome for CQO unitholders. The Concerned Unitholders believe that such behaviour demonstrates that CHOML views the management of CQO as a right rather than a privilege.
We also believe that replacing CHOML as responsible entity of the Fund should not adversely impact the US sale process as any new responsible entity will have a clear mandate to sell the US office portfolio.
For the reasons outlined above, the Concerned Unitholders believe a new responsible entity should be appointed to carry out a simple mandate to sell the Fund’s assets and return the net proceeds to unitholders in a timely manner.
Issued by:
Daniel Lewis
Managing Partner
Orange Capital
LLC
On behalf of the Concerned Unitholders