Kushner Cos Launch Hostile Takeover Bid for Veris Residential

The Kushner Companies sent a hostile bid letter to rival Veris Residential, claiming poor management resulting in a significant reduction of value, then offering to acquire all outstanding shares of the REIT for $16 per share. According to Kusher, that was a 30% premium over the previous closing price, although shares were trading higher after disclosure of the letter.

The criticisms in the letter are sharp, but some lack detailed substantiation and are impossible to verify. A remark in the letter from chairman Charles Kushner about “attempts at fruitful engagement with the Board and management over the last several months” seems a reference to the Veris board’s non-response to Kushner Cos wish to manage the REIT’s properties.

“Kushner is prepared to engage directly and seriously in good faith negotiations for a joint venture arrangement whereby Veris would retain internal management, but Kushner would help bring down Veris’ market-high operating expenses immediately and reposition Veris’ core assets so that they can start generating distributable income for all Veris shareholders,” the letter said. “As stated many times to the Veris Board, Kushner would only receive compensation for such efforts when Kushner achieves material shareholder value for all Veris shareholders. Moreover, to the extent that Veris has any concern regarding potential conflicts of interest between Kushner properties and Veris properties, we are prepared to implement robust procedures to address any potential conflict.”

Kushner Cos called itself “a long term focused, multigenerational real estate investor, not a short-term hedge fund or activist.” In the same sentence, the company said it had acquired 4.5 million shares in Veris during the last five months before the takeover bid. If that were pressure to push to manage the properties or get changes in operations, it would be an approach an activist investor or short-term hedge fund might well use.

One major criticism of Kusher is that Veris overhead spending is too high. “Despite being a relatively small, geographically concentrated, regional REIT, Veris’ management team ran up $57 million of G&A [overhead known as general and administrative] costs in 2021, which is 10X the average G&A per unit of Veris’ peer group.”

Kushner never defines the peer group, making a direct examination of its claim impossible, and more generally overhead expenses are often examined as a percentage of revenue. Excessive G&A could mean one of several things: for example, a company is overspending, it has additional concerns or interests like ESG that take additional attention, or that the company has built capacity for future expansion.

In 2021, according to public data, Veris had total revenue of $325.2 million. SG&A of $49.6 million was 12.6% of revenue. S&P Global Market Intelligence lists some Veris competitors, among which are a number working primarily in multifamily. Bluerock Residential Growth REIT had revenue of $232.7 million and G&A of $27.8 million for a ratio of 11.9%. For Elme Communities, the numbers were $169.2 million, $27.9 million, and 16.5%. Preferred Apartment Communities 2021 revenue of $450.2 million and G&A of $33.4 million yields a ratio of 7.4%. A comparable tenth of Veris G&A spending would be approximately 1.3% of revenue.

One G&A measurement that NAREIT uses is G&A as a percentage of total assets. For Veris and its 2021 total asset value of $4,527.3 million, that would be 1.1%. Bluerock has $2,018.1 million in total assets for a ratio of 1.4%. Elme: assets of $1,876 million, ratio of 1.5%. As for Preferred Apartment Communities, which runs lean as a percentage of revenue, total assets are $3563.4 million and G&A percentage, 0.94%. Still low for the field, but nothing approaching the one-tenth measurement Kushner claims.

Perhaps Kushner can point to a particular “peer group” that exhibits such an operational advantage, showing numbers and units (although that seems to be an unusual investment approach).

Supporting Kushner’s overall view, though, is the history of Veris funds from operations, or FFO. Again, according to S&P Global Market Intelligence, the metric was a $22.8 million loss in 2021 with no payout. FFO was $68.1 million in 2020, $116.1 million in 2019, $170.4 million in 2018, and $224.2 million in 2017. But then, Veris has been ridding itself of office properties in New Jersey to become a residential pure play—a result of activist investors targeting the company in past years and leading to a complete turnover of the board and executive officers. Veris changed its name from Mack-Cali Realty in December 2021.