Activist investor wants ARCP board to resign

Activist investor Keith Meister on Monday morning called for the resignation of most of the board members for embattled real estate investment trust American Realty Capital Properties Inc., claiming a lack of shareholder representation on the REIT’s board as it continues its search for a new chief executive and chairman.
American Realty Capital Properties, or ARCP, was the jewel in the crown of the real estate empire of REIT czar Nicholas Schorsch, who was chairman and CEO of the REIT from its launch in September 2011 to the start of October 2014. That’s when Mr. Schorsch, who led the company’s breakneck pace of growth, stepped aside and David Kay took over as CEO.
At the end of October, the company announced it had discovered a $23 million accounting error over the first half of 2014 that was intentionally uncorrected. Two senior executives resigned at the time; in the middle of December, Mr. Schorsch resigned as chairman and Mr. Kay resigned as CEO.
The lead independent director, William Stanley, has been appointed as interim chairman and CEO. The company has not yet released earnings for the quarter that ended September 30.
Mr. Meister is managing director of Corvex Management, a hedge fund. Corvex and its affiliated funds collectively own an aggregate of over 70 million shares of ARCP, representing about $650 million in ownership and 7.7% of the company’s common stock, according to a letter to the REIT’s board that Mr. Meister released this morning. That makes Corvex ARCP’s second largest shareholder, according to the letter.
At the end of December, Corvex Management, said it had acquired 64.7 million ARCP shares, or 7.1% of the company’s shares.
“We have repeatedly stressed to you the importance of adding shareholder representatives to the board at a time when the most far reaching decisions of any company’s existence are being made,” Mr. Meister wrote in his letter.
One intent of the letter to the board was “to communicate to you what we expect in future leadership since your track record in hiring CEOs (both of whom resigned under sub-optimal conditions, to say the least) is, we believe, undeniably unacceptable.”
“The board of directors welcomes input from the company’s shareholders on all matters and has had numerous conversations and meetings with Corvex Management since December,” said John Bacon, vice president, corporate & real estate marketing, in an email to InvestmentNews. “The board appropriately is focused on the completion and release of the company’s restated financial statements and the third quarter 2014 quarterly report, the recruitment of a new CEO and non-executive board chair. We will turn to the composition of the board once this very important work is completed.”
In a section of the letter titled “To candidates for chairman and chief executive officer of ARCP,” Mr. Meister outlines five key areas for a future chairman or CEO to focus on.
ARCP needs to “purge any remaining ties with past affiliated entities and leadership” and also “commit to having a board of truly independent directors including elimination of the current board members from all positions with the company,” according to the letter. “If a higher level of continuity is desired, then the retention of (independent director) Bruce Frank would be welcome.”
The company should also “implement best-in-class corporate governance” and “immediately cease windfall payments to board members (Mr.) Stanley and (independent director) Thomas Andruskevich, which fly in the face of modern corporate governance,” according to the letter.
Finally, ARCP should “hold the 2015 annual meeting as promptly as possible, so shareholders have the opportunity to vote for the new board that (the new CEO and chairman) have helped to select,” according to the letter.