New York City REIT, which which is part of a network of companies that was rocked by an accounting scandal seven years ago, is in the crosshairs of an activist shareholder who says the company’s leadership is a tangled mess of conflicts.
Comrit Investments 1 LP, a Tel Aviv-based investment fund, is threatening to launch a proxy battle to exert some control over NYC REIT. The company sent a letter to the REIT’s board Wednesday morning saying it plans to nominate real estate and corporate governance expert Sharon Stern as an independent member of the board, according to a copy of the letter obtained by The Real Deal.
If the board doesn’t agree with the nomination, Comrit warned it would wage a “costly contested election” at the annual shareholder meeting in the spring.
Comrit’s grievances center around New York City REIT CEO Michael Weil, who it argues is not acting in the company’s best interests.
The REIT paid nearly $22 million in management fees in 2019 and 2020 to companies owned and controlled by AR Global Investments, where Weil is also the CEO, according to Comrit.
“We question how a fully engaged and truly independent board could allow Mr. Weil to ink a generous advisory deal in favor of AR Global, which automatically renews for successive five-year terms and entitles the advisor to a more than $15 million early termination fee, at the expense of the company’s stockholders,” Comrit wrote.
The activist investor went on to write that governance features at New York REIT function like a poison pill, that board members serve terms of different lengths and that stockholders cannot amend bylaws — suggesting that the board is “more focused on its own entrenchment than unlocking value for its investors.”
A spokesperson for NYC REIT could not be immediately reached for comment.
The company’s stock price has fallen nearly 60 percent over the past 15 months, and Comrit says it now trades at a discount of 86 percent to net asset value. New York City REIT has been trying to fend off Comrit since 2018, when the activist tried to buy shares of the then non-traded REIT. When Comrit made an unsolicited tender offer, NYC REIT launched a counter tender and the two bid up the price.
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New York City REIT is part of a web of interconnected companies under the AR Global Investments umbrella. In 2015 one of those companies – the Nicholas Schorsch-led American Realty Capital Properties – announced that its previous year’s financial quarterly reports had overstated its revenue and understated its losses. Some of the errors, the company said, were intentionally left uncorrected.
That led to the unravelling of New York REIT, which burst onto the scene in 2010 as a vehicle to snap up properties as New York City came out of the financial crisis. The company bought $1.8 billion worth of real state in 2013 alone. Two years later, it had a portfolio valued at $3 billion, including a stake in One Worldwide Plaza and 1440 Broadway.
The accounting scandal resulted in Schorch’s resignation from American Realty Capital and New York REIT.
Correction: A previous version of this story incorrectly attributed some details about New York REIT – which was founded in 2010 and managed by American Realty Capital Properties – to New York City REIT.