NEW YORK, June 18, 2015 /PRNewswire/ --
June 18, 2015
Mr. Michael A. Happel
Chief Executive Officer
New York REIT, Inc.
405 Park Avenue
New York, New York 10022
Dear Mr. Happel,
We read with interest Sorin Capital's letter to you on Tuesday. As among your largest shareholders with 1.2 million shares of NYRT, Rambleside Holdings (and Cohen family affiliates) is also very disappointed with the current situation. At this time, it is appropriate to discuss how you and the Board can ensure shareholders realize full value for our company.
As indicated in our letter to you of June 10th, Rambleside believes NYRT trades at a discount of at least 40% to true NAV. This is shocking given you have assembled a world class portfolio of assets including Worldwide Plaza and 1440 Broadway at favorable prices over the past few years.
Management's "value creation initiatives" as outlined in the June 9th presentation are tepid at best. NYRT's portfolio-wide rents are 15% below market with obvious upside by reinvesting in its properties. Management has indicated it wishes to sell outer-borough non-core assets and redeploy capital. As experienced real estate and financial market investors, we fail to see how using proceeds to buy assets in a heated NYC property market is a prudent use of our funds.
We are also skeptical of plans to "unlock excess value" of our properties through joint ventures. While we don't disagree with you the equity value of the portfolio's top 5 assets has increased by $500 million (or $3 per share) since their acquisition by NYRT, selling minority interests in our properties will ultimately make these assets less valuable.
Ultimately the valuation math is pretty simple. After touring 1440 Broadway, Worldwide Plaza, and the Viceroy Hotel with management last week, we feel achieving $150 million of stabilized company NOI within the existing portfolio is not an overly aggressive target. The repositioning of the retail at 1440 Broadway and the lease-up at Worldwide Plaza are positive steps, and the recent progress at Viceroy is encouraging.
Assuming we achieve $150 million of NOI (including highly valuable retail assets) and our properties trade at a blended 4.5% cap rate (conservative given significant upside in rents, superior locations and building quality), the gross asset value of our portfolio is $3.3 billion (or $19.9 per share). If we deduct $1.2 billion of attributable company net debt and near-term capex (or $7.3 per share), less associated selling expenses we would achieve $12.5 per share in net proceeds in a sale. Using our base case of $1,100 per square foot, the option value to acquire the remaining 51% interest in Worldwide Plaza is worth $445 million, or $2.7 per share. We believe achieving $15+ per share in an orderly liquidation is not out of the realm of possibility – the stock closed yesterday at $9.56.
As you know, NYRT owns an iconic New York City building in Worldwide Plaza. While rents are significantly below market due to unfavorable leases consummated in the depth of the recession, we see no reason this asset could not fetch $2.5 billion (or $1,200 per square foot), if marketed to the right buyer – a patient, long-term investor. Management has highlighted the impressive leases recently signed with such tenants as Rubenstein and CBS, taking occupancy to 98%. 1095 Avenue of the Americas recently sold for $2,122 per square foot, and a 45% interest in 11 Times Square sold for $1,377 per square foot. We believe Worldwide Plaza's location – occupying an entire city block on 50th Street between 8th and 9th Avenue – is not only superior, but getting better with the shift of commercial and social activity towards Hudson Yards. At $2.5 billion, our option is worth $3.3 per share.
We don't think this simplified valuation is lost on the analyst or investor community. The reason the stock trades at such a meaningful discount to intrinsic value is the market has a low level of confidence in the willingness of the Board to best serve the interests of its stakeholders. While internalizing management services would help, it would not solve the issue that as a public company NYRT is significantly under-sized, meaningfully under-valued, and cannot issue accretive equity to grow.
It's almost embarrassing NYRT trades at a 5% dividend yield (and an implied stabilized cap rate of 5.5%) when comparable Class A Office REITs trade closer to a 2% dividend yield and significantly closer to NAV. As NYRT cannot issue capital of any kind that wouldn't either dilute or endanger equity holders, the only credible solution to the situation we find ourselves in is to sell the entire company immediately, or liquidate its portfolio over the next 6-9 months to achieve the highest value.
The New York City commercial real estate market will not stay hot forever. Cap rates are bound to expand from current levels and our presently valuable portfolio may become less so if we wait too long. Now is the ideal time to sell assets. We own the right assets in the right market at the right time. The only way the Board can demonstrate its commitment to shareholders is to commence a sale or liquidation process immediately.
We are available to meet to discuss strategic options at your convenience.
Sincerely,
Gregory Cohen
President
Rambleside Holdings
