ARC’s New York REIT Still Under Fire from Institutional Investor

First Winthrop Corporation, a private real estate management and investment company whose executive management team has served as external advisor to multiple real estate investment trusts, and The Witkoff Group released a letter sent to the board of directors of AR Capital-managed New York REIT Inc. (NYSE: NYRT) expressing their views on recent actions taken by the company.

The letter, the third correspondence to New York REIT released in a month, was signed by Steve Witkoff, chairman and chief executive officer of The Witkoff Group, and Michael Ashner, the chief executive officer of First Winthrop Corporation. In June, the executives issued letters offering to replace AR Capital as the external advisor to New York REIT, and to buy 8.33 million shares of company stock at $12 per share, which was a 32 percent premium to the then current trading price. The offer was rejected outright by the REIT. To read more, click here.

In the most recent letter, Witkoff and Ashner, after having time to mull over the proposals discussed at the REIT’s Annual Shareholders Meeting, expressed their concerns with various business decisions including the appointment of Randolph Read as non-executive chairman of the board. They described it as “a change in form only – there is no real corporate governance substance to it.” They also cited conflicts of interest with various “independent directors,” including two that currently or previously served on five or more AR Capital-sponsored entities. They also suggest that “a fourth director still serves on more than twenty sponsored entities including, most disturbingly, at least one that competes directly with NYRT. To us it feels more like cousins marrying than improved corporate governance.”

The letter also questions the proposed sale of non-core outer borough assets at a time when the leases have 10 percent rent increases and renewal options, an “almost irreplaceable income stream in today’s market,” as well as “substantial” future redevelopment potential. The executives suggest that these asset sales are needed to “maintain a dividend which is certainly not covered by the company’s current operating cash flow.”

Witkoff and Ashner also expressed concerns relating to proposed joint ventures, noting that, “we question whether the board understands that a sale of an equity interest in an asset reduces disproportionately the value of the retained interest. Rather than being able to sell the building in the future, NYRT would be selling a retained interest in the building then subject to the rights of a third party partner. Has this been considered?”

Questioning the repurchase of stock by the company, the letter states, “the real motivation appears to us as an attempt to support near term stock price at the expense of long term shareholder value. Something that seems so far unsuccessful.”

The letter also asked that New York REIT reconsider its rejection of open discussions with the Winthrop/Witkoff Group. A follow-up on their previous external advisement proposal, they reiterated, offering a “best in class experienced management team willing to provide the company with both exclusivity and a substantial cash infusion insuring its future growth.”

Witkoff and Ashner suggested that they are not alone. “Since the annual meeting, we have met with and talked to a number of institutional investors who have shared with us their deep concerns relating to the company, its management, its choices and its direction. We also have listened to how we might improve the prior proposal. Consequently, the board can expect a revised proposal from us shortly. We certainly hope the company will be more open minded in its review and restrain itself from those steps which would be destructive of shareholder value in the interim.”