Activsit targeted New York REIT
Don't forget - sign up for our free daily newsletter to stay in the activist investing know.
The real estate investment trust focused activist Land & Buildings has upped its pressure on New York REIT (NYRT), which was formerly part of the Nicholas Schorsch real estate empire.
NYRT is a $1.7 billion market cap New York City focused REIT, with various retail and office properties in Manhattan. It's being active in the deal market, recently closed a $325 million round of financing for a 25-story building near Times Square.
But the activist, L&B, wants the REIT to reshape its board so that at least 50% is comprised of new independent directors. The big thesis is that its stock is trading at a deep discount to the value of its properties.
The stock is basically flat for the year. NYRT has underperformed the Vanguard REIT Index Fund (VNQ) by seven percentage points over the last year.
In a letter to the NYRT board, L&B says the fair value for the REIT is above $14 a share. Of note, NYR trades at a significant discount to the value of its trophy Manhattan office buildings. L&B says that the value of the Manhattan office buildings alone is worth $14 per share.
This discount is largely a result of institutional investor concerns regarding the company's corporate governance, lack of appropriate board stewardship, and the legacy external management structure.
Recall that back in 2014, NYRT explored strategic alternatives
Last year, NYRT started exploring strategic alternatives. The REIT ended the process in May, but the entire process was flawed. The biggest issues being the fees paid to AR Capital (the NYRT external manager) if a buyout were to come to fruition.
Part of the issue is that all four of the NYRT board members are employed by AR Capital or serve on boards of companies that AR Capital manages.
L&B shows up
The activist owns just over 1% of NYRT and the REIT recently said it's exploring strategic alternatives again. In early October, it announced it had engaged with the investment bank, Eastdil Secured, to advise on strategic transactions.
L&B knows how to put pressure on companies, especially larger ones. It has been waging a battle at MGM (MGM). The fund also helped push get Associated Estates Realty Corp. bought out by Brookfield for $2.5 billion.
Why it's different this time?
The second time around for strategic alternatives for NYRT should be the charm. Even if we don't see a full buyout of the company, look for a selloff of non-core assets in the outer boroughs. NYRT runs office and retail properties in NYC - an enticing market with many buyers.
NYRT also has a new CEO, Michael Happel, who took over for Schorsch. The other key is that the board is getting much more friendly. To start, we now have Marc Rowan on the board. Rowan co-founded Apollo Global Management. This is key, Apollo entered recently entered into a deal to purchase some of the land from Schorsch, with Apollo overseeing NYRT via an agreement with the company. Rowan and Apollo has noted that it's willing to pursue a buyout effectively and quickly. NYRT also plans to add two new independent directors in the near-term.
NYRT owns real estate in a prized market and L&B's $14 a share net asset value calculation means 20% to 30% upside.