Monmouth Real Estate Investment is at the center of not one but two dissident campaigns. Blackwells Capital and Land & Buildings Investment Management both intend to seek four board seats each at the next annual meeting.

The potential board campaigns were announced amid a takeover approach for the $1.7 billion market-cap company from Blackwells, and the company announced the launch of a strategic review of alternatives headed by the board only two weeks later.

The review could be a strategic buying-of-time for the board, which has made no effort to create an independent committee for the process. With only 4% of shares owned by directors and executive officers, members of the C-suite do not stand to gain much in the sale of the company. It is unclear whether the review could even bring in a higher bid than Blackwells’ $18 per share, as the “REIT industry has been tough,” as pointed out by Alliance Advisors Senior Vice President Thomas Ball.

Both investors have remained concerned about the board’s setup, despite the strategic review, and Blackwells noted that “for the strategic alternatives process to be credible and reach an objective conclusion, the Monmouth board must not allow the [founding] Landy family members and their friends to have undue influence.” Land & Buildings called for a committee of Monmouth’s independent directors as well as four of Land & Buildings own board nominees to lead the strategic review process but was rebuffed by the board, potentially heightening its intention to launch a proxy contest.

The activists’ worries about board independence are not unfounded. According to Activist Insight Governance records, Monmouth’s board is due a refresh, with its 17-year average tenure more than double that of the eight-year S&P 500 average. The records show that Chairman Eugene Landy, aged 86, has held his seat for 53 years, while directors Samuel Landy and Daniel Cronheim have held theirs for 32 years. One of Land & Buildings’ biggest concerns is that the president, chairman, and chief executive roles are filled by members of the founding Landy family.

The activists’ arguments regarding the board’s poor corporate governance could gain traction with other shareholders. Ball told Activist Insight Online that “the board’s makeup could be viewed as negative in the eyes of corporate governance-minded institutions.” Indeed, the last time the Landy’s were up for re-election in 2018, they only gained between 72%-80% of the votes in their favor, according to Proxy Insight Online records. According to Activist Insight Vulnerability, the median vote in favor of directors within Monmouth’s peer group is 95.7%, considerably higher than the 61.2% minimum vote in favor of a Monmouth director.

Regaining trust

In order to regain investors’ trust in the face of the dissident campaigns, Ball told Activist Insight Online that the board needs to show shareholders some progress. He explained that it will need to prove that it is making an effort to improve by maybe bringing one or two new directors on board and disclosing a board refreshment process moving forward. “It doesn’t all have to happen at once. If they form a committee for a sale and disclose how that’s going, that’s also important,” Ball added. “If they don’t show progress, that will hurt them.”

So far, the board has not made this type of effort but has instead claimed that it has “meaningfully strengthened the independence and diversity” of the board over the past three years by adding three new independent directors “who bring fresh perspectives and relevant backgrounds in REITs, risk management, global commerce, security matters and real estate finance and investment.”

Monmouth touted the performance of its board management team and deemed itself “the single best performing” industrial REIT by total shareholder return in 2019. Indeed, the company has returned 36.4% in TSRs in the past 12 months compared to peers’ negative 0.5%, according to Activist Insight Vulnerability. Monmouth’s 3-year and 5-year TSRs stand at 39.5% and 15.8% respectively, compared to peers’ 0.8% and negative 1%, respectively.

Fly a kite

The claims of positive performance have not slowed the activist arguments but while they are both fighting for similar representation on the board, Blackwells seems to believe that it is more deserving of the seats. In a recent email to Land & Buildings’ Jonathan Litt, Blackwells founder and Chief Investment Officer Jason Aintabi argued that the firm is not sufficiently invested in the REIT to seek board representation. Aintabi’s firm holds about 3.7 million shares while Litt only controls 690,000 shares, or about 0.7% of the REIT’s share capital.

“If someone who owned a minuscule amount of stock, as you apparently do, nominated himself to the board, I would also tell that person to go fly a kite,” Aintabi added. “You should spend less time tweeting and more time buying shares.” Ball explained to Activist Insight Online that while failing to have a large investment could carry some weight in regard to how many directors shareholders are willing to give to a dissident, a shareholder, long or short-term is still a shareholder – they still have the same rights. “At the end of the day it’ll come down to who shareholders think will make them the most money, move the stock price, and make the company more valuable,” he added.