As nearly half-a-dozen Nicholas Schorsch-controlled nontraded real estate investment trusts move to consolidate, the boards of two of those REITs are losing one of their directors.
Robert Froehlich, an independent director for two REITs, Realty Finance Trust Inc., with $1.28 billion in assets, and Healthcare Trust Inc., with $2.27 billion in assets, is departing from the boards of those two companies, according to proxy statements for each company filed last Friday.
The companies failed to give any reasons why Mr. Froehlich was not running for re-election to the boards in the companies' upcoming elections. The filings don't reveal whether Mr. Froehlich is being forced out or leaving of his own volition.
InvestmentNews reported last week that Mr. Schorsch's AR Global is attempting to consolidate seven REITs with almost $10.5 billion in assets. The two REITs that potentially could acquire the others, American Finance Trust Inc. and Global Net Lease Inc., have unusual, difficult-to-break 20-year advisory contracts with AR Global, creating a larger source of fee revenue over an unusually long period of time, according to industry sources.
Mr. Schorsch is one of the controlling partners at AR Global, which controls the adviser to the REITs in the potential roll up. William Kahane is the other controlling partner.
Healthcare Trust and American Realty Capital Healthcare Trust III issued press releases last week stating their boards had started strategic reviews to maximize long-term shareholder value. Such reviews are often an indication of a potential sale or merger.
The lack of detail regarding Mr. Froehlich leaving the boards of two companies could give rise to questions from investors, said Charles Elson, professor on corporate governance at the University of Delaware.
“You don't want people to speculate,” Mr. Elson said. “You want to know why a board member left. Was it based on a disagreement, timing or other circumstances? I think some color around that would be helpful. I think it would give investors comfort to know the reason why.”
A spokesman for AR Global, Matthew Furbish, did not return a call Monday seeking comment.
Mr. Froehlich on Monday morning said he could not give details for leaving the two boards in the middle of merger discussions.
“I'm not able to talk about it or shed any light on it,” he said. “I'm not at liberty to discuss.”
Both of the companies on whose boards he serves would become part of American Finance Trust Inc. The boards of each REIT must approve any acquisition.
The two proxy statements are vague as to the reasons for Mr. Froehlich's departure.
According to the Realty Finance Trust proxy from April 29, Mr. Froehlich, who is the company's lead independent director and chairman of the audit committee, “is not a nominee for election as a director at our annual meeting.” He is being replaced by Peter McDonough. In a previous proxy filing from April 19, Mr. Froehlich had been nominated as lead independent director.
And according to the proxy for Healthcare Trust from April 29, Mr. Froehlich, former chairman of the audit committee, “is not standing for re-election at the annual meeting.” He is not being replaced and the company intends to reduce the number of board members from its current six to five.
Both companies thanked Mr. Froehlich for his service on their boards.
Mr. Schorsch's nontraded REIT empire has hit rocky times of late.
(More:
How Nick Schorsch lost his mojo)
In December, the wholesaling broker-dealer of those REITs, Realty Capital Securities, closed after it had been charged by Massachusetts securities regulators with fraudulently rounding up proxy votes to support real estate deals sponsored by AR Global. Realty Capital Securities was owned by RCS Capital Corp, or RCAP, another firm founded by Mr. Schorsch and currently in bankruptcy.
Mr. Schorsch and other AR Global partners also have been named in investor complaints stemming from the steep decline in the value of Vereit Inc., formerly American Realty Capital Properties Inc., starting in October 2014. That's when the company revealed a $23 million accounting mistake that led to the shake-up of Mr. Schorsch's nontraded REIT empire.
