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NY REIT shareholders concerned over company’s direction

Two separate letters cite downward stock price, recommend actions

Michael Happel and One Worldwide Plaza in Midtown West
Michael Happel and One Worldwide Plaza in Midtown West

Shareholders of New York REIT expressed concern this week about the company’s direction, with at least two separate groups writing to leadership and recommending measures including asset sales and increased independence from scandal-plagued American Realty Capital.

New York REIT, which is a spinoff from American Realty Capital and is led by CEO Michael Happel, received an open letter Tuesday from investment management firm and shareholder Sorin Capital Management, in which Sorin referred to “a continuing deterioration” of the company’s stock price “over the past six months.”

New York REIT shares opened trading June 17 at $9.41, down from a three-month high of $10.55 on April 6.

Sorin noted that New York REIT shares were “currently trading at a greater than 30 percent discount to our estimate of fair value.” The gap increased over the past several weeks, Sorin added, after the company’s decision to suspend a formal “strategic alternatives process” that could have potentially yielded a sale of the REIT.

The management firm stressed concerns that New York REIT “may not have adequately pursued bids or indications of interest presented” during the process, as well as doubts over whether its management team has “a realistic and comprehensive plan” for closing the company’s value gap.

Sorin also noted its belief that the REIT’s “close relationship” with American Realty Capital is “impeding management and the board from taking appropriate steps to address the issue,” and recommended that New York REIT “sever all ties” with the beleaguered company from which it spun off in 2010.

Happel distanced himself from American Realty Capital just last week – “It does feel like an accounting problem at a different company has wreaked havoc on my company,” he said at REIT Week on June 10, referring to the accounting scandal that rocked its former parent toward the end of last year. But Sorin cited New York REIT’s “extensive relationships” with American Realty Capital, including overlapping interests in management and on the board of directors.

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The “potential conflicts of interest inherent in these interconnected relationships” may hinder New York REIT’s ability to take decisions that would benefit shareholders, Sorin added.

New York REIT responded to the shareholder concerns with a statement of its own Tuesday, noting that it “welcomes open communications with its stockholders and values their input toward the shared goal of enhancing shareholder value.”

“Our board of directors and management team are actively pursuing several previously announced strategies that should allow the company to maximize long-term stockholder value,” the REIT added.

The Sorin letter was compounded by another correspondence sent Wednesday by Gregory Cohen’s Rambleside Holdings, which holds 1.2 million shares in New York REIT. Rambleside said it is “very disappointed with the current situation” at the REIT and believes the company “trades at a discount of at least 40 percent to true [net asset value].”

Rambleside described the company’s share price as “shocking” given that New York REIT has “assembled a world class portfolio of assets including Worldwide Plaza and 1440 Broadway at favorable prices over the past few years.” The firm also criticized the REIT’s “value creation initiatives” as “tepid” and expressed skepticism over plans to explore potential joint ventures.

Instead, Rambleside president Greg Cohen proposed that New York REIT explore the sale of Properties Like Worldwide Plaza, noting that it saw “no reason this asset could not fetch $2.5 billion (or $1,200 per square foot), if marketed to the right buyer.”

“The New York City commercial real estate market will not stay hot forever,” Cohen said in the letter. “Now is the ideal time to sell assets. The only way the board can demonstrate its commitment to shareholders is to commence a sale or liquidation process immediately.”

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