Huntingdon Capital Corp.
The Huntingdon Capital Corp. portfolio offers a dynamic blend of office, industrial, retail and aviation-related properties in major and middle market cities across Canada, servicing lessees from entrepreneurial startup businesses to federal government offices. The company’s strategy focuses on creating value through active property and asset management, and delivering formidable results to tenants and investors through strengthening company portfolio fundamentals.
This fledgling Canadian real estate mogul owns and manages a diversified commercial real estate portfolio with gross book value just under $500 million. Huntingdon owns 73 properties across five provinces and the Northwest Territories, with a gross leasable area of about 5.4 million square feet. Formed in 2005, in its short existence the company has already passed through tumultuous times and conquered grueling management challenges and tells a remarkable story.
Originally structured as a diversified commercial real estate investment trust [REIT] during the 2005-2010 period, Huntingdon used an external management model to run its operations. Unfortunately, management paid out more cash to unitholders [shareholders of the trust] than was generated by the company portfolio, using high-cost debt to fund its distribution policy and acquisitions and postponing routine property maintenance. This strategy awarded millions in fees to the external management, while early investors saw their units decline by as much as 80 per cent (from about $25 per share down to $5 per share).
At this crucial time in 2009, serving as CEO of IAT Air Cargo Facilities Income Fund, Zachary George proposed to save Huntingdon by merging it with IAT. With the support of both respective Boards, IAT was ultimately reverse merged into Huntingdon. Huntingdon remained the main shareholder, but internalized its management, terminating the relationship with the external manager and placing George as the President and CEO. In describing this period, George told The Canadian Business Journal, “After finalizing the merger, we faced a vacancy rate north of 13 per cent, a debt to gross book value ratio close to 70 per cent, and a staggering interest coverage ratio of one times. Over the past two years we have worked to improve operations, hire quality employees, invest in best-in-class technology and work closely with existing and prospective tenants to improve occupancy. We have also sold more than 10 per cent of our portfolio into a declining cap rate environment in order to pay down debt and strengthen our credit profile. This is contrary to the actions of our industry peers who have been aggressively raising debt and equity capital to buy as many properties as possible.”
Today’s Canadian real estate market can only be described as extremely robust. The current low interest rate environment continues to lead to compression in capitalization rates. The retail and institutional investor demand for yield has enabled real estate companies, funds and trusts to easily raise debt and equity capital to fund acquisitions.
Two years into the merger, Huntingdon’s management team has rebuilt value for shareholders by substantially improving occupancy, reducing the debt to gross book value ratio to about 50 per cent, repurchasing almost 25 per cent of the outstanding units, converting the REIT to a tax efficient corporation, and initiating a dividend to its shareholders. All of these actions turned the business around and have created substantial equity value, increasing stock value by around 120 per cent during this time period. To this George said, “For the last two years, Huntingdon’s management team has been focused on turning around the business and stabilizing its portfolio. We are now in a position and ready to start playing ‘offense’, and are looking at potential acquisitions that will create value for our shareholders. That being said, we are relentlessly focused on cash flow, and will not make acquisitions for the sake of being larger. Working to deliver significant value to our shareholders is always at the centre of our focus.”
Today Huntingdon keeps its core focus on the management of office and industrial real estate. While several larger market peers operate in this market, the Huntingdon management team is the only team in Canada to have internalized the management of two publicly traded real estate entities. This provides Huntingdon with a high level of organization and an uncommonly strong infrastructure, giving the company a great advantage, allowing the company to run a management-intensive portfolio with a large number of small leases.
“Huntingdon will most likely continue to avoid the herd and look for stressed and/or distressed opportunities that will move the needle in terms of value creation. Not only will we look to the private markets for potential acquisitions but we proved the ability to take advantage of situations such as the Toronto Stock Exchange, where at times real estate trades cheaper than it would in the private market. We are fortunate to have a strong and experienced board that can move quickly to execute on such opportunities as they arise.”
Shareholder Value First
“There is one main priority for our directors and senior executives which overshadows everything else — to never forget who we work for: the owners of Huntingdon. If we aren’t creating value for our shareholders, we cannot consider ourselves successful. In the past two years we have more than doubled the value of the company’s shares, creating significant value for our shareholder base. Further, to successfully operate in communities and markets as a trusted and credible participant, we stand up as accountable partners. We abide by the values of transparency and honesty and we strive to address all issues head on. My father once told me, ‘Leadership is a team sport’, and Huntingdon’s success is a credit to our team — the hard work of our employees and the support of our owners. We are excited by the challenges and opportunities that we see ahead of us and look forward to the future. What I see in our future is the development of a world class asset management organization, building a track record and reputation synonymous with transparency and value creation.”