Hostile Takeover Battle Between Kushner Cos and Veris Residential Continues

When Kushner Cos. sent a hostile bid letter dated October 20 to rival Veris Residential, claiming poor management resulting in a significant reduction of value, then offering to acquire all outstanding shares of the REIT for $16 per share, things seemed a bit vague.

Sharp criticisms in the letter lacked detailed substantiation and were impossible to immediately verify. A remark in the letter from chairman Charles Kushner about “attempts at fruitful engagement with the Board and management over the last several months” seems a reference to Kushner’s claim of a Veris board non-response to its wish to manage the REIT’s properties.

Now everyone has doubled down. Kushner released a follow-up last week to the letter, offering some additional details like the companies they said were a peer group. And now Veris replied after what it called “strong Q3 2022 earnings results” came out on Wednesday after market close.

First, to Kushner and the follow-up presentation. The eight companies listed as the peer group are all REITs that focus on multifamily, which is where Veris is moving toward as it disposes of its office holdings.

Veris had the smallest number of properties at 22. Only Elme was close with 27. All the others ranged from 75 (AIR Communities) to 310 (Equity Residential). That might help explain disparities in measuring G&A.

Kushner showed Veris as having 2021 total G&A of $57.20 (GlobeSt.com verified numbers directly with companies’ annual reports and SEC filings), which was 0.87% of assets, a measure that NAREIT uses. The other REITs ranged from 0.29% to 0.17%, except for Elme at 1.04%.

Similarly, Kushner’s use of a G&A dollars per residential unit put Veris at the top with $7,687. The company also had the lowest number of units at 7,441. Again, seven of the eight peer group members had much lower figures, from $535 to $986, though the number of units ranged from 25,363 to 98,778. The exception again was Elme, with 8,868 units and a per-unit measure of $3,105. It may be that there is an inherent issue of scale, and that the way to get true financial efficiencies is through scaling up the number of properties and number of units, not through smarter operations alone.

Veris emailed a rejection of the takeover bid to Kushner on Thursday. The company’s board wrote that the $16-per-share offer “grossly undervalues the Company in its current form and denies Veris Residential shareholders the substantial value expected to be unlocked from the pending completion of the Company’s strategic transformation.” The board also said that it had communicated its “unanimous rejection of your proposal” on October 4.

The company also rejected out of hand the idea of contracting with Kushner to manage the residential units as “Kushner Companies lacks third-party management expertise, has a well-documented history of questionable management practices, and is in direct competition with Veris Residential, creating inherent conflicts of interest.”

Veris reiterated the steps the company has taken to shed the largely commercial properties of one of its two companies, Mack-Cali Realty Corporation, and instead focus on the multifamily interests of Roseland Residential Trust. The two had “separate, largely duplicative cost structures which were, in part, a function of contractual arrangements instituted by legacy management.”

However, Veris did not directly address the comparisons Kushner made in its most recent public presentation.