Says New York REIT has too much executive and board overlap with AR Capital.
An investment advisory firm that focuses on real estate has called for changes at New York REIT Inc., including severing links to Nicholas Schorsch's privately held real estate sponsor and manager, AR Capital, or ARC.
Formerly a nontraded REIT with a current market capitalization of $1.5 billion, New York REIT listed on the NYSE in April 2014, one of a series of “liquidity events” for nontraded ARC REITs. Those events have been key to Mr. Schorsch's strategy of marketing and selling nontraded REITs through hundreds of independent broker-dealers.
The advisory firm, Sorin Capital Management, cited New York REIT's “suspension of the strategic alternative process, the lack of a clear plan for value creation, and the resignation of the company's CFO” as reasons for concern.
Gregory Sullivan, the REIT's former CFO, resigned June 4 “to pursue other interests,” according to the company. Nick Redesca, the company's former CFO, will take his position while the company searches for a full-time CFO.
Since its debut, New York REIT's share price has fallen $1.22, or 11.5%. On Wednesday morning, shares of the REIT were trading at $9.38, up almost 4% since Sorin Capital made its letter public.
Sorin Capital was critical of New York REIT's ties to ARC, citing management's and the board's connections. William Kahane is co-founder of ARC and is currently the executive chairman of New York REIT.
“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,” according to the letter, which was signed by James Higgins, managing member of Sorin Capital. “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.
In a statement, New York REIT said: “The company welcomes open communications with its stockholders and values their input toward the shared goal of enhancing stockholder value. Our board of directors and management team are actively pursuing several previously announced strategies that should allow the company to maximize long-term stockholder value.” In a recent investor presentation, the REIT outlined its strategy for building shareholder value, including selling noncore assets, but did not mention changes in its board or upper management.
Sorin Capital's letter does not mention a $23 million accounting mistake over the first half of 2014 that was intentionally uncorrected at another REIT Mr. Schorsch formerly headed, American Realty Capital Properties Inc. That accounting error triggered widespread scrutiny of Mr. Schorsch's wide variety of real estate operations. For example, the Securities and Exchange Commission, the Massachusetts Securities Division and the Financial Industry Regulatory Authority Inc. are investigating Mr. Schorsch's broker-dealer holding company, RCS Capital Corp., or RCAP.
With $700 million in assets, Sorin Capital owned about three million shares of New York REIT at the end of March, or close to 1.9% of the REIT's outstanding shares. A spokesman for Sorin Capital, Chris Rae, said the firm had no comment beyond its letter.
