Another day, another chapter in the book of "Underperformance: The NorthStar Trilogy". Today, NorthStar Asset Management (NYSE:NSAM) announced that a special committee has been formed. From the company's announcement:
NorthStar Asset Management Group Inc. ("NorthStar" or "NSAM") today announced its Board of Directors has formed a Special Committee comprised of the three NSAM independent directors, who are not on the board of directors of NorthStar Realty Finance Corp., to continue the previously announced strategic alternatives process.
The Special Committee has hired Evercore Partners Inc. as a financial advisor. The three NSAM independent directors previously engaged Fried, Frank, Harris, Shriver & Jacobson LLP as their legal advisor, in connection with the strategic review process, prior to the formal formation of the committee.
As you know, I'm no "Activist" and I'm simply a "Suggestivist," and today I want to "suggest" two things I feel need to be immediately addressed with this situation:
- "NSAM independent directors, who are not on the board of directors of NorthStar Realty Finance Corp." What about NorthStar Realty Europe (NYSE:NRE)? People see to forget that they make up part of the "NorthStar Identity". Recall that they pay management fees on the same terms as NorthStar Realty Finance (NYSE:NRF), just lower dollar amounts given their size and the amount of equity outstanding. Honestly, NRE is often forgotten in this drama, but absolutely shouldn't be. I will be looking at them soon, as I never seem to hear the voice of their shareholders.
- "NSAM independent directors, who are not on the board of directors of NorthStar Realty Finance Corp." Not currently on the board, right? Let's take a look at non-management "independent" directors (emphasis mine):
- Mr. Stephen E. Cummings has been an independent director of NorthStar Asset Management Group Inc. since June 2014. Mr. Cummings currently serves as President and Chief Executive Officer of MUFG Union Bank, N.A., the banking subsidiary of MUFG Americas Holdings Corporation, where he has authority over all The Bank of Tokyo-Mitsubishi UFJ's (BTMU) U.S. businesses, including its New York branch and other branch offices. Mr. Cummings previously served as an independent director of NorthStar Realty Finance Corp. from December 2009 until July 2014.
- Ms. Judith A. Hannaway has been an independent director of NorthStar Asset Management Group Inc. since June 2014. Ms. Hannaway has also served as an independent director of NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp. since September 2004 and October 2015, respectively.
- Mr. Oscar Junquera has been an independent director of NorthStar Asset Management Group Inc. since June 2014. Mr. Junquera also serves as an independent director of NorthStar Realty Europe Corp., a position he has held since October 2015.
- Mr. Justin Metz has been an independent director of NorthStar Asset Management Group Inc. since June 2014. Mr. Metz is also the Managing Principal of the Related Companies' real estate fund management team, which he founded in April 2009, operating from offices in New York, Chicago, Boston, Dallas and Los Angeles and staffed with industry veterans. Prior to joining Related Companies, Mr. Metz served as a Managing Director and Global Head of Real Estate Alternatives at Goldman Sachs (for 12 years, or since 1997). (Recall that from 1983 to 1997, David Hamamoto worked for Goldman, Sachs & Co. where he was co-head of the Real Estate Principal Investment Area and general partner of the firm between 1994 and 1997).
- Mr. Louis J. Paglia has been an independent director of NorthStar Asset Management Group Inc. since June 2014. Mr. Paglia also serves as a member of the board of directors of NorthStar Realty Finance Corp. since February 2006. Mr. Paglia also serves as a director of Arch Capital Group Ltd. (NASDAQ: ACGL), a position he has held since July 2014.
So technically, the independent directors that "fit the bill" are:
- Mr. Stephen E. Cummings (asterisked for being on the board that allowed NRF to get raked over the coals),
- Mr. Oscar Junquera (asterisked for currently being on the board of NRE),
- Mr. Justin Metz (Does working at Goldman in Real Estate the same time as David Hamamoto count as asterisk worthy?)
That appears to be all there is. They used three because that is all there technically is -- and two have outright asterisks.
Is it any wonder then that the thorn in NorthStar's side, Mr. Jonathan Litt from Land and Buildings, felt he had to issue yet another press release stating:
The credibility of the NSAM board is bankrupt. The announcement this morning that the existing board has now formed a different special committee of "three independent directors" is farcical. Were any or all of these directors part of the boards of NRF and NSAM that saw fit to pay you north of $70mm in FY 2014? Were these "independent directors" supportive of the egregious change of control and termination payments of up to $390 million for senior management?
Mr. Litt, please see above.
He further states:
It is imperative that NSAM create a true Strategic Alternatives Committee (the "SAC") that is officially chartered. This committee needs to be populated with two new independent board members whom we would agree upon with the NSAM Governance and Nominating Committee and two existing nonoverlapping independent board members.
You want "two existing nonoverlapping independent board members," Mr. Litt? That weren't board members of NRF (and forget neglected NRE)? Seriously, good luck with that.
As I see it, there will be no winners here besides the following:
- Goldman Sachs - Advisor to NSAM
- Evercore Partners Inc - Advisor to NSAM "independent" directors
- Fried, Frank, Harris, Shriver & Jacobson LLP - Counsel to NSAM "independent" directors
- UBS Investment Bank - Advisor to NRF "independent" directors
Okay, maybe no winners is a little strong. I continue to believe that NRF equity and preferreds are attractive (although they have run up pretty strong). I will be looking at NRE to see if it represents value (keep in mind, they get third party appraisals of their properties, which makes it a little clearer), and I continue to believe NSAM is where it should be as it has performed in-line with asset management peers.
One of these days I can perhaps finish the final chapter of my book, The Trump Factor. Until then, I must continue to expose the valuable clues that investors insist on to make intelligent decisions to sleep well at night. If I seem cranky today, I am sure you know why.
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