A shareholder who has been calling for a management restructure at NorthStar Asset Management (NYSE: NSAM) has taken another stance in wake of the forthcoming merger between NSAM, NorthStar Realty Finance (NYSE: NRF) and Colony Capital Inc. (NYSE: CLNY), which was announced in June. The NorthStar entities have a major presence in senior housing, with NRF owning $13.1 billion in commercial real estate assets, 38% of which are health care assets.
The merger has the potential to unlock value as a “must-own REIT,” but still raises some major concerns for shareholders, Land & Buildings Founder and Chief Investment Officer Jonathan Litt wrote in a letter to NSAM shareholders on Wednesday.
The all-stock merger would create a new real estate investment trust (REIT) with a total capitalization of $17 billion, with more than $58 billion of assets under management. The creation of the new REIT, named Colony NorthStar Inc., came after several months of the activist shareholder Litt publicly urging NSAM to restructure or sell to recapture shareholder value. Since NSAM spun off from NorthStar Realty Finance, both businesses saw their stock prices suffer. Land & Buildings, an investment manager, owned a 0.5% share of NSAM as of March 31, Bloomberg reported in June.
In the latest public outburst from Litt, the shareholder noted that the proposed merger could have a high dividend yield if some vital business strategy concerns are met.
“We are concerned that they are reluctant to let go of the more complicated real estate investments of their past, and at the same time embrace changes which would maximize value for all shareholders,” Litt wrote.
Litt previously argued in a public letter that NSAM shareholders would not be gaining as much as other shareholders involved in the merger. He also called NSAM board members credibility “bankrupt” when merger talks first emerged earlier this spring.
The corporate governance was a top concern for Litt as the new company is formed, and he offered several suggestions that he said would benefit sharholders.
“Given the NorthStar complex’s checkered history, in our view, with respect to executive compensation, conflicts of interest and other critical governance matters, starting off on the right foot in this area will be critical for the merged company,” Litt wrote.
Among his recommendations, Litt proposed reducing the size of the board of directors, citing that 13 members “could be unwieldy and expensive.” The new board should also include a “highly regarded shareholder representative” to help craft shareholder strategy. Should a person’s investment in the company also dip below a predetermined threshold, Litt suggested a requirement that board member step down from the board.
The new company should also opt out of the Maryland Unsolicited Takeover Act (MUTA) and have a de-staggered board, which would give shareholders more value, Litt said.
The letter also said the new REIT take several steps, including clearly articulate its strategy, which management has failed to do thus far. In addition, the new entity should undertake steps that are more in line with traditional REIT activities, such as committing “$1 billion to a private fund to own traditional real estate” by raising capital.
NorthStar Asset Management did not respond to requests for comment from Senior Housing News as of press time.
Written by Amy Baxter