The Real Deal New York

New York REIT should overhaul board of directors: shareholder

Company facing more criticism after latest open letter

September 30, 2015 01:30PM

New York REIT

From left: Michael Happel and William Kahane

New York REIT is facing more criticism from activist shareholders after an open letter by investor Jonathan Litt questioned the real estate investment trust’s share price and called for the company to replace half of its board with new independent directors.

Writing on behalf of Land and Buildings Investment Management LLC, the company he founded and serves as chief investment officer, Litt said expressed concern that New York REIT “has consistently traded at a significant discount to the value of its trophy Manhattan office buildings,” which he pegged at around $14 a share.

Behind the story:
New York REIT
Michael Happel

The letter – addressed to Apollo Global Management senior managing director Marc Rowan, whose firm acquired New York REIT adviser American Realty Capital for $378 million in August – pointed to “institutional investor concerns” regarding New York REIT’s corporate governance as cause for the company’s underperformance.

Litt noted that all four members of New York REIT’s board of directors “are employed by the adviser and/or are currently serving on other boards of entities advised by AR Capital,” and said investors are concerned with credibility of the company’s board and management.

Specifically, the letter cited how AR Capital earned a $33.5 million incentive fee from New York REIT based on “a potentially inflated stock price,” as well as the company’s suspension of a “strategic alternatives” initiative that could have included a possible sale of the REIT.

Litt asked Apollo to consider a proposal to reform New York REIT’s leadership “so that at least 50 percent of the board is comprised of new independent directors,” as well as suggesting that the new board “should include shareholder representation.”

New York REIT, which opened trading Wednesday at $10.26 per share, received open letters from two shareholders – investment firm Sorin Capital Management the Gregory Cohen-led Rambleside Holdings – earlier this year expressing similar concerns about the company’s direction.

In response, the Michael Happel-led REIT announced it would launch a $150 million share buyback and had tapped Cushman & Wakefield and HFF to market several “non-core assets” – one being a Clinton Hill rental building that it recently sold for $38 million.

New York REIT also announced that it had appointed Randolph Read as non-executive chairman of its board of directors — succeeding AR Capital co-founder William Kahane, who would continue to serve as a director. [Release]Rey Mashayekhi