Elliman faces shareholder fight on shaky ground

Vote on Howard Lorber, executive compensation comes amid dimmed financials

Illustration of Douglas Elliman's Howard Lorber (Getty)

Sheridan Wall

Aug 21, 2024, 10:00 AM

Douglas Elliman’s disappointing financials and executive strife could come to a head at its annual shareholder meeting.

The brokerage is grappling with two years of quarterly losses and a cost-cutting push that has only marginally offset its declines. The company’s stock price spent the start of the year hovering just above $1 until a spree of executive buying lifted it into the $2 range. And the firm took on a $50 million cash loan that could dilute ownership by nearly 30 percent.

The backdrop to the recent financials is the firm’s long downward trajectory since spinning off from its parent company Vector Group in 2021.

But it remains to be seen if shareholders will push for change of the very structure at the top of the company that’s seen a losing streak and valuation drop. The key votes up for support at the meeting fall on chairman Howard Lorber’s compensation and the makeup of the board that has been criticized as insulating executives.

Shareholder Brad Tirpak in a July letter urged fellow investors to vote in response to the company’s poor financial performance and Lorber’s role atop of the company that has recently been pulled into sexual assault allegations against former top producers Oren and Tal Alexander. A call for shareholders to unseat Lorber, whose contract expires at the end of the year.

“Stockholders deserve to know how the assault and harassment claims were handled by management,” Tirpak wrote in the letter.

A company spokesperson said in a statement there were no formal complaints filed against the Alexanders, “nor was there any concealment or preferential treatment,” during their time at Elliman.

The investor also took issue with Lorber’s compensation package, which had him earning the maximum portion of bonus tied to Diversity, Equity and Inclusion, despite news of the allegations.

“The board rewards [Lorber] for losing money,” Tirpak said. “Your boss fires you if you lose money, that’s what happens in the real world.”

Advisory firm Institutional Shareholder Services backed his call for an end to Lorber’s reign, recommending shareholders withhold their votes on the chairman.

At the meeting, shareholders will also vote on a proposal to elect members of the board of directors on an annual basis, a recommendation also handed down from another proxy firm, Glass Lewis.

Elliman’s board of directors is siding with Lorber, recommending shareholders vote in favor of his re-election and his compensation package, according to its proxy statement. It’s also standing against the annual election of board members, arguing its current structure “promotes long term focus” and “fosters stability and institutional knowledge.”

Searching for wins in the second quarter

Elliman’s second quarter earnings fell short of analysts expectations, despite improvements from the previous period’s eight-figure loss, according to a report from BTIG.

The firm’s revenue and adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — were lower than anticipated, likely due to a lower volume of transaction units.

The company also cut administrative and technology expenses by 19 percent year-over-year, but the reduction wasn’t enough to bring its $2.3 million in adjusted EBITDA up to BTIG’s predicted $4.2 million.

Though Lorber took home a hefty bonus based on last year’s performance, the company’s 8 percent reduction in general and administrative expenses in the first half of the year were largely attributed to layoffs and cuts to bonus packages for other employees.

Executives on the earnings call earlier this month pointed to the Federal Reserve’s interest rate cut expected for September to boost activity. Across its core markets, inventory was up 23 percent, though the rise in homes on the market hasn’t yet translated to higher transaction units.

“[People] are still waiting for rate cuts,” Lorber said on the call. “You have inventory build, but there’s really less buyers at most levels.

Executives also set off a bumpy ride for Elliman’s share price ahead of the meeting. After spending months hovering around $1, Elliman’s stock was trading in July at $2.09 — thanks to a climb set off by company leaders, including Lorber and chief operating officer Richard Lampen, buying a combined 640,000 shares last month.

Though the stock price is on the rise, it remains volatile.

Kennedy Lewis Loan

About a month before Elliman released its second quarter results, the firm added to its cash with a $50 million loan from Kennedy Lewis. The deal came with a board seat for the asset manager’s co-founder and co-managing partner, and at the same time as the company appointed an independent director to the board.

Under the terms of the five-year loan, Kennedy Lewis can convert the debt into equity at $1.50 a share, which translates to about 33 million shares. Elliman has roughly 90 million shares outstanding.

Elliman touted the loan as an investment to “fuel its strategic growth and expansion.”

But some stockholders don’t share the positive sentiment. In his letter, Tirpak called the loan a “massive dilution recently inflicted on stockholders.” He told The Real Deal that Elliman “basically sold” more than 25 percent of the company.

If Elliman’s stock price recovers over the five-year period, the asset manager could double the loan balance by converting it to equity and selling it off. If not, they’ll still get their $50 million, with interest.

“[For Kennedy Lewis,] I would have done that deal in a heartbeat,” Tirpak said.