Veris Residential Inc. is headquartered at Harborside in Jersey City — Courtesy: Veris Residential Inc.
(Editor’s note: This story was updated Nov.4 with additional information on Kushner Cos.’ response to Veris Residential’s vote on Nov. 3.)
By Joshua Burd
Veris Residential Inc. has officially rejected Kushner Cos.’ $4.3 billion takeover bid for the Jersey City-based real estate investment trust, the company announced Thursday.
Veris, which reported its third quarter earnings this week, said its board was unanimous in voting down the unsolicited offer to buy the company for $16 per share or to externally manage its portfolio of luxury apartments. The announcement came after evaluating the proposal in consultation with its financial and legal teams, the REIT said, which determined that neither move was in shareholders’ best interests and that it lacked detail on how Kushner would fund the acquisition.
It detailed its decision in a Nov. 3 letter to Kushner Chairman Charles Kushner, which said the proposal “grossly undervalues the company in its current form and denies Veris Residential shareholders the substantial value expected to be unlocked from the pending completion of the company’s strategic transformation.”
“Per our most recent communication to you on October 16th, the Board is committed to evaluating any proposal to realize the substantial value that has been created at Veris Residential,” the company wrote. “However, any such proposal must fully compensate shareholders for the intrinsic value of their shares and be accompanied by explicitly committed equity and debt financing. Given Veris Residential’s prior experience with Kushner Companies — during which Kushner Companies was unable to substantiate its equity or debt financing sources — we reiterate the Board’s expectation that any proposal pertaining to the Company must include confirmation of the specific sources for requisite debt and equity capital (including details of expected commitments and anticipated due diligence) to be considered.”
After Veris formally rejected the offer, Kushner shot back that the company’s response was “uninformed at best and disingenuous at worst.” The letter by Charles Kushner attacked several claims by the REIT, including that Kushner lacked a financing plan and that it abruptly withdrew an earlier bid to buy the Harborside 1, 2 and 3 office buildings about two weeks after making an offer.
“Kushner’s bid is fully capitalized and committed, which Kushner is happy to substantiate and disclose to the Board if the Board is actually interested in engaging with us,” Kushner wrote. “Lip service does not qualify as engagement. This leadership team has no clear long term plan to maximize the value of the portfolio, nor are they the right team to execute. Veris mischaracterizes the prior experience between our two organizations. Veris Board Members have consistently misled Kushner which has further eroded our confidence in current leadership. We made very clear to Board Members we had no interest in acquiring Harborside on its own and were instead prepared to acquire the company at a substantially higher price than today. After being misled for a month, we withdrew an offer for Harborside we were told by the Board to make, left with the unmistakable impression the Board doesn’t know what they’re doing.”
Kushner detailed its bid late last month after Veris rejected its offer to manage the REIT’s luxury apartment portfolio. The privately held, New York-based firm, which has amassed 4.5 million Veris Residential shares, said it was prepared to acquire 100 percent of the outstanding shares after the REIT ignored its “attempts at fruitful engagement,” starting over the summer, about working with the board and management to help address the company’s strategic and operational issues, including what it describes as a bloated cost structure, mismanagement and operational missteps at individual properties, most of which are in New Jersey.
A successful takeover of the Veris portfolio would add about 7,700 units to Kushner’s holdings.
“We would have preferred to engage in these discussions privately and directly with the Board but to date the Board has not shown a good faith willingness to discuss alternatives to the plan it has been attempting to execute for the last several years resulting in equity destruction of almost 46 percent,” Kushner wrote in the Oct. 20 letter. “Therefore, we have no choice but to make our proposals public so that we can make all Veris shareholders aware that there are more viable alternatives to the current and continuing path Veris is on.”
Veris Residential, formerly Mack-Cali Realty Corp., has faced increasing pressure and scrutiny in recent years after much of its once-sprawling suburban office portfolio became obsolete. The REIT has shed virtually all of its traditional commercial assets and now focuses exclusively on luxury apartments, but only after a proxy battle in 2019 that sparked a management shakeup and a company rebrand late last year.
Kushner, one of New Jersey’s best-known multigenerational real estate firms, currently operates 20,000 apartments and has 10,000 units under development, the company said, making it well positioned to help streamline Veris Residential’s operations. It said last month that it’s now one of the REIT’s six largest shareholders.
On Thursday, Veris noted said its board “remains resolute in its conviction that implementing an external management structure would be deleterious to the company’s intrinsic value and severely limit its strategic flexibility at a critical inflection point in its nearly complete transformation.” It added that the company’s “recent achievements are not reflected in the current stock price.”
“This is frustrating to the Board, Company management, and no doubt — to all of the Company’s long-term shareholders. Veris Residential’s strategic transformation (inclusive of our recent agreement to sell Harborside 1, 2 & 3 and completion of the sale of 101 Hudson Street) results in 98 percent of Veris Residential’s Net Operating Income (NOI) being derived from multifamily assets, up from 39 percent only 18 months ago,” the REIT said in its letter. “Additionally, as announced on Wednesday, the third quarter of 2022 represented Veris Residential’s fourth consecutive quarter of strong rental and NOI growth across our multifamily portfolio despite significant market volatility.
“We have confidence that the Company’s intrinsic value will be realized in the coming months as we continue to streamline our business and operations, and near the completion of our transformation.”