New York REIT Shares Plunge After Analysts Question Merger

  • ‘Jury is out’ on deal being best option: Evercore’s McGrath
  • Landlord has been under pressure from activist investors

New York REIT Inc. shares had their biggest drop since they began trading more than two years ago after analysts questioned whether the planned sale of the company to closely held JBG Cos. is in the best interest of investors.

“The jury is out and New York REIT’s board owes its shareholders a lot more transparency quantitatively why this transaction is better than all viable alternatives in the short, medium and long term,” Sheila McGrath, an Evercore ISI analyst, wrote in a note late Wednesday, after the deal was announced and JBG and New York REIT executives held a conference call. The board needs to disclose how their stockholders are “being compensated over and above the net asset value for its public shell.”

New York REIT, which has been under pressure to raise its shareholder value, dropped 8.1 percent to close at $9. That was the biggest decline since the shares started trading publicly in April 2014.

The New York-based real estate investment trust said it plans to be acquired by Chevy Chase, Maryland-based JBG in a reverse merger that would create an $8.4 billion company with New York and Washington-area properties. The announcement came after the close of regular trading Wednesday.

A “very rough analysis” suggests a material dilution in net asset value for New York REIT shareholders, Michael Lewis, an analyst with SunTrust Robinson Humphrey, said in a note to investors yesterday.

‘Ugly Discourtesy’

Activist shareholders, such as Land & Buildings Investment Management LLC’s Jonathan Litt and Winthrop Realty Trust’s Michael Ashner, have been urging the REIT to overhaul its board and boost shareholder value, including by seeking a buyer for the company or selling off its properties. In a letter to New York REIT’s directors on May 12, an entity controlled by Ashner and developer Steven Witkoff said the company didn’t respond to a proposal from a potential suitor, showing a “clear disdain of duty and ugly discourtesy.”

According to a December statement by the REIT, investors have 30 days starting May 27 in which they can file to nominate candidates to the board. An alternative slate would set the stage for a potential proxy fight for control of the company.

The REIT’s 19 New York assets -- 18 in Manhattan and one in Brooklyn -- include a 49 percent stake in Worldwide Plaza, a 1.8 million-square-foot (167,000-square-meter) skyscraper on Eighth Avenue that contains the Americas headquarters of Nomura Holdings Inc.

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