Investment Firm Sorin Capital Sends Open Letter to NYRT Management Calling For Positive Action to Close Value Gap
STAMFORD, Conn., June 16, 2015 /PRNewswire/ -- Today, Sorin Capital Management, an investment management firm specializing in U.S. real estate related securities, released a public letter to Michael A. Happel, Chief Executive Officer and President of New York REIT, Inc. (NYSE: NYRT), recommending four measures to improve shareholder value.
The full text of the letter can be found below:
June 16, 2015
Michael A. Happel
Chief Executive Officer and President
New York REIT, Inc.
405 Park Avenue
New York, New York 10022
cc: Board of Directors
Dear Michael:
Thank you for meeting with Sorin Capital Management to discuss our concerns regarding the substantial gap that has developed between the common stock share price of New York REIT Inc. (the "Company") and the underlying value of the Company's assets. Unfortunately, we have seen a continuing deterioration of the stock price over the past six months, with the Company's shares currently trading at a greater than 30% discount to our estimate of fair value. This gap has increased in the past 45 days with the Company's announcement of two news items: first, the decision of the Board of Directors (the "Board") to suspend the formal process to evaluate strategic options for the Company (the "strategic alternatives process") and, second, the resignation of the Company's Chief Financial Officer and Chief Operating Officer, Gregory W. Sullivan.
As one of the Company's larger shareholders, we are unhappy with the current situation. We are concerned that (i) the Board may not have adequately pursued bids or indications of interest presented during the strategic alternatives process, (ii) the Company's management team does not have a realistic and comprehensive plan for closing the value gap, and (iii) the Company's close relationship with AR Capital is impeding management and the Board from taking appropriate steps to address the issue. At the very least, we cannot help but think the Company's association with AR Capital is exacerbating the poor share price performance and that completely disassociating from AR Capital would make sense.
We question the Board's decision to suspend the strategic alternatives process and, if the alternatives presented were unacceptable, why management has yet to put forth a robust plan to deliver comparable, if not greater, value to shareholders in a comparable timeframe. In announcing the suspension of the strategic alternatives process, management stated the Company would "actively pursue strategies to enhance long-term shareholder value as part of [its] ordinary course of business" but provided no specifics at that time. Although the Company has proposed four initiatives in its June 2015 investor presentation, none of them, in our view, is likely to provide the catalyst needed to spark real, measurable value creation. Together, these announced initiatives do not constitute a thorough and well-thought-out plan but rather a list of half-steps and normal business activities.
We believe New York City commercial real estate assets are trading at historic highs and that there is ample liquidity in the market. Yet despite these favorable conditions, and the Company's attractive portfolio of New York City properties, the Company's stock price does not represent their fair value and is lagging its peers by a wide margin. We believe that there is no better way to accurately value the Company than through a widely marketed sales process and there is no better time to do that than now.
In our view, the market's negative reaction to the suspension of the strategic alternatives process, the lack of a clear plan for value creation, and the resignation of the Company's CFO/COO has been compounded by management's and the Board's extensive relationships with AR Capital. Not only is the Executive Chairman of the Company also the co-founder of AR Capital, but the Company's public filings indicate that the Board's three independent members currently hold and/or have previously held several other directorships with AR Capital related entities. We have concerns that the potential conflicts of interest inherent in these interconnected relationships at the Board level, in addition to the overlapping management among various AR Capital entities, may be hindering the Board and management from taking positive action in the best interests of Company shareholders.
As we have discussed, we believe that continuing to actively pursue strategic alternatives (such as a sale of the Company or material assets) is the most direct path to unlocking value for the shareholders. To that end, we recommend the following:
- Re-engage Barclays Capital, along with another well-recognized firm that specializes in real estate capital markets, to jointly pursue strategic alternatives for the Company.
- Increase the independence of the Board by adding members that are truly independent of Company management and the AR Capital organization.
- Sever all ties with AR Capital and its affiliates, including American Realty Capital New York City REIT, Inc.
- Sell the Company's non-core assets as outlined in the June 2015 investor presentation and distribute proceeds to shareholders as a stock buyback or special dividend. Of course, asset sales should be broadly marketed and transactions should exclude all entities affiliated with AR Capital or its principals, officers or directors.
We intend this letter as a constructive communication, but "more of the same" from the Board and management is neither a strategic alternative nor what shareholders should expect or deserve. We urge you to pursue the initiatives outlined above and, as always, stand ready to meet with the Board and its representatives to discuss our concerns.
Sincerely,
James J. Higgins
Managing Member
Sorin Capital Management, LLC
About Sorin Capital Management:
Sorin Capital Management, LLC is a registered investment management firm focused on securities related to U.S. commercial real estate, including commercial mortgage-backed securities (CMBS), REIT debt and REIT equity. Sorin seeks to deliver attractive risk adjusted returns by executing an opportunistic, value driven strategy in the CMBS and REIT sectors.
Important Disclosures:
Any views expressed in the above letter represent the opinion of Sorin Capital Management, LLC, whose analysis is based solely on publicly available information. No representation or warranty, express or implied, is made as to the accuracy or completeness of any information contained in the letter, and Sorin Capital Management expressly disclaims any and all liability based, in whole or in part, on such information or any errors therein or omissions therefrom. The letter is not intended to be, and should not be construed as, investment, legal or tax advice. Sorin Capital Management reserves the right to modify or change its views, conclusions and/or investment positions for any reason or no reason at any time, without notice.
Contact:
Chris Rae
Sorin Capital Management, LLC
203-274-9301
SOURCE Sorin Capital Management, LLC
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