Advisory firm Glass Lewis joins ISS in recommending against H&R REIT takeover deal

The multibillion-dollar deal to sell one of Canada’s largest property portfolios was dealt another blow on Monday as proxy adviser Glass, Lewis & Co. urged H&R Real Estate Investment Trust HR-UN-T unitholders to oppose a planned sale.

Glass Lewis joined its chief rival, Institutional Shareholder Services Inc., in recommending H&R investors vote against the $3.4-billion acquisition led by GO Residential Real Estate Investment Trust GO-U-T. ISS issued its own recommendation last week. The two firms advise institutional investors on voting their shares and hold tremendous sway over whether corporate takeovers ultimately succeed or fail.

“The GO transaction should be seen as a firm non-starter for unaffiliated H&R investors,” Glass Lewis said in its report. “The overriding impression here is negative.”

Glass Lewis pointedly criticized H&R’s sale process for having “scuppered basic guardrails, with a largely passive board effectively permitting an interested party to govern critical procedural elements without any effort to sense check then-current interest among other credible and capable counterparties.”

“Unaffiliated investors have thus been offered exceptionally limited cause to conclude the current terms clearly and convincingly approximate the greatest value and most attractive alternative available to H&R investors at this juncture,” Glass Lewis said.

H&R did not respond to a request for comment on both Glass Lewis and ISS recommending unitholders oppose the transaction. At least two-thirds of votes cast at a special shareholder meeting scheduled for Nov. 13 must be in favour of the proposal in order for the deal to proceed.

The company had been up for sale for the better part of two years before the proposed transaction was announced in August, almost exactly three decades after Tom Hofstedter founded H&R in 1996. Reaction to the deal was immediately negative, with Scotia Capital analyst Mario Saric describing the terms as “underwhelming” and multiple institutional investors criticizing its complex structure.

H&R initially launched a strategic review in February, 2025, after receiving an unsolicited takeover offer from a potential buyer, but the process ended in failure later that year. The company instead pledged to sell $2.6-billion worth of its assets.

REITs generally focus on owning a single type of property. H&R, however, holds assets spanning residential, industrial, office and retail, making a sale of the entire portfolio to a single buyer more complicated.

GO, which mostly owns luxury residential properties in New York, has agreed to buy the largest piece of H&R’s portfolio. That includes 23 properties held by Lantower Residential – H&R’s Dallas-based U.S. multifamily division – as well as two premier assets in Queens, New York: the Gotham Center office building and a 50-per-cent interest in the Jackson Park high-rise apartment complex.

U.S. private equity giant Blackstone Inc., one of the world’s largest real estate investors, has agreed to buy some of H&R’s industrial properties. Crestpoint Real Estate Investments Ltd. and the Public Sector Pension Investment Board will buy out H&R’s 50-per-cent stake in other industrial assets as part of the deal, based on a partnership that was first struck between all three parties in 2014.

That leaves H&R’s office properties, which account for roughly 11 per cent of its total portfolio. The Hofstedter family will buy most of those, including Bell Canada’s office in Dorval, Que., and a 50-per-cent stake in the nearly million-square-foot TC Energy tower in downtown Calgary.

According to the H&R takeover circular, the Hofstedter family is inquiring assets worth roughly $2-billion for $1.56-billion.

Those seemingly preferential terms have led several of H&R’s institutional investors to publicly oppose the transaction. Mill Pond Capital LLC, RBC Global Asset Management, Sandpiper Group and Scheer Rowlett & Associates Investment Management Ltd. have all said they intend to vote against the deal.

“The headline optics here are evidently poor, though they are notably worsened with further context,” Glass Lewis said, adding that part of the Hofstedter family’s purchase will be based on valuing their H&R units at $12.01 each, “significantly exceeding the value H&R investors are slated to receive.”

When the deal was first announced, it was also valued at roughly $12 per H&R unit. But Glass Lewis said the roughly 24-per-cent decline in the value of GO’s units between Aug. 10 and Oct. 30 have dragged the implied value down to $10.19 per H&R unit. The offer is $4.28 in cash and 0.5688 GO units for each H&R unit.