New York REIT Director Resigns Due to “Poor Governance”
New York REIT Inc. (NYSE: NYRT), a former non-traded real estate investment trust known as American Realty Capital New York Recovery REIT, announced that Gregory Hughes has resigned from the company’s board of directors due to disagreements with the board and corporate governance.
The board recently agreed to dissolve and liquidate the company after terminating a proposed merger with JBG Companies late last year following public opposition by investors Michael Ashner, Steven Witkoff, and their jointly owned entity, WW Investors LLC.
New York REIT later settled with the two dissident investors and agreed to expand its board of directors to include Hughes, James Hoffmann, and Craig Bouchard. Hoffmann resigned from the board at the end of January.
After dismissing AR Global-affiliate New York Recovery Advisors as the REIT’s external advisor, the company issued a proposal request for a replacement and selected Winthrop REIT Advisors LLC. Ashner serves as the chairman and chief executive officer of Winthrop Realty Trust.
In a letter to board chairman Randolph Read, Hughes detailed his grievances and noted that the process to replace New York Recovery Advisors was “significantly delayed” when the board learned that the new advisor failed to disclose its plans to own a majority position of the company’s corporate debt. The board voted to extend the AR Global advisory agreement by three months, which Hughes voted against due to “its excessive fee structure.”
“Recall that [New York Recovery Advisors] presided over multiple failed M&A transactions, a default on our corporate debt during the fourth quarter, and a write down of over $50 million on the Viceroy Hotel asset,” said Hughes. “Given the number of related party relationships that have existed between the company and AR Global, I believe that continuing the company’s relationship with the old advisor on any basis for any period of time smacks of a conflict of interest.”
Hughes remarked that the board has held approximately 40 board meetings since he joined in October 2016, many with minimal notice and no formal agenda.
“I believe these poor governance practices have made it virtually impossible for the directors to be well-informed or hold meaningful and interactive discussions about the matters we are asked to approve,” said Hughes. “In addition, the inefficiency of calling so many meetings gives the appearance that the board process is being run to generate fees for the directors.”
In closing, Hughes said he was “dumbfounded” when asked to approve a resolution accelerating the vesting of $50,000 worth of restricted shares issued to board member Bob Burns less than three weeks prior to his resignation. Hughes cited Burns’ “spotty attendance record” and lack of contribution “other than seconding motions and voting in favor of actions taken.”
New York REIT said that it disagrees with the assertions made by Hughes and takes exception to his characterizations of certain facts and conclusions.
The company said the purpose of the request for proposal was not to replace the AR Global affiliate, but to allow the company to execute its plan of liquidation in “the most efficient and cost effective manner possible.” In addition, the company said its decision to extend the former advisory agreement was to ensure a smooth transition and the timely filing of the company’s annual report.
In regards to the Viceroy Hotel property, the company explained that after the board approved the plan of liquidation, the company decreased the holding period assumptions of its assets, which resulted in an impairment charge for the property.
With regards to the superfluous board meetings remark, the company stated that every meeting related to matters that required immediate attention and were compliant with the company’s by-laws.
The company also noted that director Burns attended 75 percent of the board meetings, and the board’s compensation committee considered accelerating his unvested restricted shares but took no action on the matter and all unvested shares were forfeited upon his resignation.
NYRT is a publicly traded real estate investment trust that owns 19 commercial real estate properties, including office and retail properties, located in New York City. Shares of NYRT closed at $9.96 on Tuesday.
