A Big, Bad Deal?

At $8.4 billion, the proposed acquisition announced in May by both companies is quite huge. For the Washington DC market, in particular, it is a showstopper. The two companies proposed creating a public REIT called JBG Realty Trust, with JBG owning 65.2% of the company, according to the initial terms. The portfolio would total some 9.7 million square feet of office assets, one-million-square feet of retail assets, and 4,500 residential units. JBG is contributing the majority of the properties to the trust with 78% of the portfolio to be located in the Washington DC area and the remaining 22% in New York City.

Analysts raised questions about the deal almost immediately. Sheila McGrath, an Evercore ISI analyst, wrote in a client note, that “….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.”

Shareholders need to know how they are “being compensated over and above the net asset value for its public shell,” she wrote.

Separately, SunTrust Robinson Humphrey analyst Michael Lewis wrote that after a “very rough analysis” it appeared that there would be a material dilution in net asset value for New York REIT shareholders.

“Put an End to This Ongoing Lunacy”

Shortly after the proposed deal was announced, Ashner and Witkoff made clear how they felt in a biting letter made public. “We believe that the announced all-stock combination with JBG is one of the worst strategic transactions proposed to stockholders by a REIT board in recent memory, and will be extremely detrimental to NYRT stockholders' interests,” they said.

Ashner and Witkoff said they would propose a slate of directors to repopulate the board and called on shareholders to reject the proposed transaction “and put an end to this ongoing lunacy.”

In their most recent call for shareholders to elect their slate of directors, Ashner and Witkoff were as upfront as before. They wrote:

As a result of NYRT management's many misjudgments, including its disastrous decision to approve the JBG transaction, we have absolutely no confidence in the ability of this Board to unlock the significant value that remains trapped in NYRT's shares. Unfortunately, rather than complete a successful and robust strategic review process in order to maximize value for stockholders, NYRT's current Board chose to enter into a transaction with JBG which, in the view of WW Investors, demonstrably destroys stockholder value for the benefit of NYRT management and Nick Schorsch.

Opting Out of the Maryland Unsolicited Takeover Act

Ashner took issue, in particular, with New York REIT's agreement that it would opt out of the Maryland Unsolicited Takeover Act. Briefly, MUTA allows REITs incorporated in Maryland to stagger its board without shareholder approval. It is viewed by many, including obviously Ashner, as very shareholder unfriendly.

“Indeed, in what could reasonably be considered a “taunt” to its stockholders,” Ashner said, New York REIT said it would opt out of MUTA but hasn't done so.

Attempts to reach New York REIT and JBG Cos. for comment were unsuccessful.

WASHINGTON, DC--Disgruntled shareholders in New York REIT were not kidding around earlier this month when they published a letter protesting the REIT's proposed $8.4 billion acquisition by JBG Cos.

Michael L. Ashner and Steven Witkoff, joint owners of WW Investors LLC, have notified New York REIT that they plan to seek the election of a slate of five directors to the REIT's board at the upcoming 2016 annual shareholder meeting scheduled in October, according to a filing with the Securities and Exchange Commission and a public statement.

They are proposing five directors to replace the ones that approved the deal, two of which are Ashner and Witkoff. The other three are James P. Hoffmann, a former partner and SVP of Wellington Management Co., Gregory Hughes, principal for Roscommon Capital, and Neil H. Koenig, co-founder and co-managing partner of Imowitz Koenig & Co.

“We believe it is imperative that the board be reconstituted, at the upcoming annual meeting, with new independent directors who will instill an emphasis on maximizing stockholder value and whose independence affords them an ability to properly evaluate and address strategic and transformative opportunities,” Ashner said. “Our proposed board would, among other needed improvements, initiate an open and transparent strategic sale process unlike the failed and secretive current and prior sales processes conducted by NYRT management.”

A Big, Bad Deal?

At $8.4 billion, the proposed acquisition announced in May by both companies is quite huge. For the Washington DC market, in particular, it is a showstopper. The two companies proposed creating a public REIT called JBG Realty Trust, with JBG owning 65.2% of the company, according to the initial terms. The portfolio would total some 9.7 million square feet of office assets, one-million-square feet of retail assets, and 4,500 residential units. JBG is contributing the majority of the properties to the trust with 78% of the portfolio to be located in the Washington DC area and the remaining 22% in New York City.

Analysts raised questions about the deal almost immediately. Sheila McGrath, an Evercore ISI analyst, wrote in a client note, that “….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.”

Shareholders need to know how they are “being compensated over and above the net asset value for its public shell,” she wrote.

Separately, SunTrust Robinson Humphrey analyst Michael Lewis wrote that after a “very rough analysis” it appeared that there would be a material dilution in net asset value for New York REIT shareholders.

“Put an End to This Ongoing Lunacy”

Shortly after the proposed deal was announced, Ashner and Witkoff made clear how they felt in a biting letter made public. “We believe that the announced all-stock combination with JBG is one of the worst strategic transactions proposed to stockholders by a REIT board in recent memory, and will be extremely detrimental to NYRT stockholders' interests,” they said.

Ashner and Witkoff said they would propose a slate of directors to repopulate the board and called on shareholders to reject the proposed transaction “and put an end to this ongoing lunacy.”

In their most recent call for shareholders to elect their slate of directors, Ashner and Witkoff were as upfront as before. They wrote:

As a result of NYRT management's many misjudgments, including its disastrous decision to approve the JBG transaction, we have absolutely no confidence in the ability of this Board to unlock the significant value that remains trapped in NYRT's shares. Unfortunately, rather than complete a successful and robust strategic review process in order to maximize value for stockholders, NYRT's current Board chose to enter into a transaction with JBG which, in the view of WW Investors, demonstrably destroys stockholder value for the benefit of NYRT management and Nick Schorsch.

Opting Out of the Maryland Unsolicited Takeover Act

Ashner took issue, in particular, with New York REIT's agreement that it would opt out of the Maryland Unsolicited Takeover Act. Briefly, MUTA allows REITs incorporated in Maryland to stagger its board without shareholder approval. It is viewed by many, including obviously Ashner, as very shareholder unfriendly.

“Indeed, in what could reasonably be considered a “taunt” to its stockholders,” Ashner said, New York REIT said it would opt out of MUTA but hasn't done so.

Attempts to reach New York REIT and JBG Cos. for comment were unsuccessful.