Comrit Investments 1 LP, a stockholder of New York City REIT Inc. (NYSE: NYC) that currently owns 267,520 shares, has issued a public letter to REIT stockholders pushing for a boardroom change, along with a related website dubbed “Rebuild NYC REIT.”
Last month, Comrit announced its decision to nominate Sharon Stern as an independent candidate for election to the board at the 2022 annual meeting of stockholders. Stern is the founder and president of Eastmore Management and Metro Investments, two organizations focused on multi-residential and commercial properties in downtown Montreal. She serves on the board of Cedar Realty Trust Inc. (NYSE: CDR), a publicly traded REIT specializing in grocery-anchored retail properties, as well as on its audit and compensation committees.
New York City REIT is a former non-traded real estate investment trust sponsored by AR Global Investments that listed its Class A shares on the New York Stock Exchange in August 2020.
NYC REIT shares have jumped 13.8 percent on Tuesday to $12.29, and in the last five days, the stock price has nearly doubled. The REIT’s most recent net asset value was $49.23, disclosed by the company on August 13, 2020. Prior to a 2.43-1 reverse stock split, the NAV per share was $20.26, as of June 30, 2019. Shares were originally priced at $25.00 each.
Comrit, which purchases shares of non-traded REITs through unsolicited tender offers, believes that the current NYC REIT board is “riddled with conflicts of interest” and has awarded excessive compensation to the company’s external advisor despite “staggering underperformance.”
“In the days following our [director] nomination, leadership’s response to our significant concerns and Ms. Stern’s qualifications was to direct the company’s lawyers to tell us that they intend to resist our efforts and oppose Ms. Stern’s candidacy,” Comrit stated in the letter. “NYC REIT’s response to our good faith efforts to engage and discuss Ms. Stern’s credentials reinforces our view that adding an independent director – selected with input from stockholders – will help reset the company’s entrenched boardroom culture. Any objective review of the current board’s track record will show that the status quo cannot persist.”
In addition to trading at a deep discount to NAV, currently at 79 percent, Comrit pointed to the “significant losses” incurred by the company. According to its fiscal year 2020 earnings results, NYC REIT posted an operating loss of more than $22.5 million. Comrit claims that the REIT’s peers earned an average of $68.9 million in operating income.
“While NYC REIT only generated approximately $62.9 million in revenue in 2020, its peers produced an average of $976 million in revenue over the same period,” Comrit said.
Comrit also reiterated its concerns with chairman and chief executive officer Michael Weil, who also serves as CEO of AR Global and the CEO of NYC REIT’s external advisor and property manager.
“We question how a fully engaged and truly independent board could allow Mr. Weil to ink a generous advisory deal in favor of AR Global, which automatically renews for successive five-year terms and entitles the advisor to a $15 million+ early termination fee, at the expense of the company’s stockholders,” the letter said.
In addition, Comrit contends that NYC REIT has paid approximately $21.7 million in management fees and reimbursements to its external advisors and property manager, both owned by AR Global, since 2019.
Comrit further points to “numerous anti-investor maneuvers” that the NYC REIT board has taken. These include a classified board, a “poison pill” that “punishes” stockholders for purchasing more than 4.9 percent of the company’s stock, and limitations on stockholders’ ability to amend the company’s bylaws.
This is not the first letter issued by a dissident shareholder against the REIT and its management team. Back in 2017, Cove Partners III urged fellow shareholders to vote against nine proposed charter amendments that they called a “basket of outrageous self-serving and entrenchment-minded proposals.” In the end, none of the proposals were approved by shareholders, leading the then non-traded REIT to challenge the preliminary results and eventually settle with Cove Partners.