PGGM demands ARCP Board shake up

Accounting problems at American Realty Capital Property are linked to a weak corporate governance, explains Hans Op ‘t Veld to the Wall Street Journal.

In the media

 

​American Realty Capital Properties Shareholders Calling for Board Shake-Up 

 

Dutch pension fund manager sent a letter to the company’s board asking for four directors to resign

Shareholders of American Realty Capital Properties Inc., the real-estate investment trust founded by investor Nicholas Schorsch, are calling for a shake-up of the company’s board.

Dutch pension fund manager PGGM, which owns about 11.6 million shares, or about 1.3% of the REIT, on Thursday sent a letter to the company’s board calling for four directors connected with Mr. Schorsch to resign.
 

The letter asked the board to appoint a new director to represent shareholders before the company’s as-yet-unscheduled annual meeting.

Mr. Schorsch stepped down as chairman of American Realty Capital Properties in December, about six weeks after the company disclosed an accounting error in its first-quarter 2014 financial results that it said was intentionally concealed in the second quarter’s results.
 
The revelations sparked criminal and civil investigations, led to the resignations of at least five executives, including Mr. Schorsch and then-Chief Executive David Kay, and erased almost $3 billion of stock-market value.

Andy Merrill, a spokesman for American Realty Capital Properties, didn’t respond to several calls and emails seeking comment. “What we saw was that investor confidence was clearly lost” after the accounting issues came to light, said Jorrit Arissen, a senior investment manager for PGGM, in an interview. “They were tolerating a culture … in which it was acceptable to make intentional accounting errors.”

Hans Op ’t Veld, PGGM’s head of listed real estate, said the fund sent the letter because it was worried American Realty Capital Properties was “moving too fast” and without shareholder input in its search for a new chairman and CEO.
Some investors believe the company will name its new senior management team shortly after restating its financial results for 2014. It must refile by Monday to avoid defaulting on $3.2 billion in unsecured credit lines, but could ask for an extension. The company is currently deciding between several possible CEOs from a final round of candidates, according to a person briefed on the process.
 
PGGM wants William Stanley, the interim CEO and chairman, to step down form the board, along with Leslie Michelson, former Pennsylvania Governor Edward Rendell and interim lead independent director Thomas Andruskevich.
All four have close ties to Mr. Schorsch. Mr. Stanley served as a personal financial adviser to Mr. Schorsch’s late father. Mr. Rendell once was a tenant in a building owned by Mr. Schorsch and has visited Mr. Schorsch’s mansion in Newport, R.I. Messrs. Michelson and Andruskevich were appointed during Mr. Schorsch’s tenure as chairman and CEO.
 
PGGM’s letter comes on the heels of a letter from activist hedge fund investor Keith Meister, whose Corvex Management LP disclosed a 7.7% stake in the company earlier this month. Mr. Meister urged the REIT to replace its board with a slate of “truly independent directors” and immediately cease the payments of $150,000 a month and $100,000 a month it is making to Messrs. Stanley and Mr. Andruskevich, respectively, as compensation for their interim roles. Neither Corvex nor PGGM has suggested any candidates for the board.
 
It is unusual for an institutional investor to press for the appointment of a new board member in this fashion, said Charles Elson , head of the Weinberg Center for Corporate Governance at University of Delaware’s business school. But given American Realty Capital Properties’ troubles, the move doesn’t surprise the governance specialist.
 
Mr. Elson expects American Realty board members with close ties to Mr. Schorsch will have trouble getting re-elected at its next annual meeting.
American Realty Capital Properties shares closed down 32 cents or 3.4% at $9.23 on Thursday.

Source: The Wall Street Journal

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