Activist Shareholder Calls Out NorthStar ‘Cronies’ Over REIT Merger

One activist shareholder is slamming the “management cronies” involved in the $17 billion merger of three major real estate companies, saying there is “woefully inadequate” value to shareholders in the transaction.   

Jonathan Litt, founder and chief investment officer of New York-based hedge fund Land & Buildings, slammed special committee members of NorthStar Asset Management (NYSE: NSAM) in a public letter Monday over the recently announced merger of NSAM, real estate investment trust (REITs) NorthStar Realty Finance (NSYE: NRF) and global real estate firm Colony Capital Inc. (NSYE: CLNY). 

The senior housing investment branch of NSAM, the public, non-traded REIT NorthStar Healthcare Income, will be managed under Colony NorthStar Inc., according to an investor presentation. NorthStar Healthcare Income had a total investment of $3.4 billion as of December 1, 2015, with 64% of its equity portfolio made up of senior housing facilities.

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NSAM, a global asset management firm that externally manages NRF, is the acquiring party of the transaction. According to Litt, the merger is “win for all parties involved, except NSAM shareholders,” the public letter stated. Colony shareholders will likely experience a 30% bump or more to their earnings per share, according to Litt. NRF will benefit from the dissolution of its external management structure in the merger. However, NSAM shareholders won’t see the same rewards, in spit of “NSAM being the crown jewel of the entire deal,” according to Litt. 

Land & Buildings held a 0.5% stake in NSAM as of March 31, according to Bloomberg. 

The latest letter from Litt follows a string of activism from the hedge fund founder, who has publicly urged a restructuring of NSAM and NRF and recently called the credibility of the NSAM board “bankrupt.” Litt urged NSAM to recombine with NRF at the beginning of 2016.

On a conference call Monday, executives from the new company, which will be known as Colony NorthStar Inc., said NSAM special committee members had considered a recombination, but ultimately concluded the merger with Colony was a “much better answer.”

However, Litt took issue with the special committee’s decision and the makeup of the committee itself.

“We question who was looking out for NSAM shareholders during the transaction process, as in our view, NSAM’s management team was clearly not, since management wins regardless of the valuation or consideration paid to NSAM shareholders,” he wrote. “Similarly, we have trouble believing that the NSAM Special Committee, which approved the transaction, was concerned with looking out for shareholders given our belief that it is comprised of management’s cronies.”

Litt also took a swing at recent compensation levels for NSAM executives, specifically calling out David Hamamoto, executive chairman of NSAM and chairman of NRF, and other members of the special committee who will receive a payment of approximately $180 million for change of control, according to the letter. The activist called this payment a “termination fee despite still [having] jobs!”

In a conference call Friday, Hamamoto and two other executives—Al Tylis, NSAM’s CEO and a member of NSAM and NRF board of directors, and Dan Gilbert, NSAM and NRF’s chief investment and operating officer—noted they will taking a base salary of $1 annually for 2017 and forego a bonus that year.

Litt urged the NSAM board to engage with shareholders over the structure of the merger and demanded a meeting with NSAM special committee members Stephen Cummings, Justin Metz and Oscar Junquera. 

NSAM did not respond to press inquiries from Senior Housing News as of press time. 

Written by Amy Baxter

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