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New Senior CEO extols management change, but $50M fee draws shareholder's ire


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New Senior CEO extols management change, but $50M fee draws shareholder's ire

New Senior Investment Group's CEO said a planned management internalization will help the real estate investment trust increase its value, but a major investor criticized the size of the fee that the company is planning to pay its external manager to end its relationship.

New Senior, which has been exploring strategic alternatives in recent months amid a long share-price slide, said in its second-quarter earnings release that it plans to cut its dividend, refinance a key loan and terminate its external management agreement with an affiliate of Fortress Investment Group LLC.

In a conference call, CEO Susan Givens, a managing director at Fortress, declined to say whether New Senior received acquisition offers during the strategic review.

"What we've announced, obviously, is what the board evaluated and determined to be kind of the best course for the company," Givens said, in response to an analyst's question. She added that the board believed a now-terminated lease with Holiday Retirement and a $720 million bridge loan the REIT secured when it ended the Holiday lease, were hurting the company's value, as was its external management structure.

The board concluded that refinancing the loan and internalizing management "would go a long way in facilitating ... a path to maximizing shareholder value," Givens said.

Later in the call, investor Leon Cooperman, a major shareholder in the company, criticized the $50 million in fees that New Senior plans to pay to the Fortress affiliate to end their management agreement.

"The external manager compensation, in theory, should be tied to performance," Cooperman said, adding that the company's share price, as of the time of the call, was below $7.00, down about 50% from its price in a June 2015 equity offering, while the broader market rose significantly over the same period.

Cooperman also questioned whether New Senior's leadership is continuing to try to sell the company.

"I'm just trying to understand, what do you mean by 'ongoing strategic review to maximize value'?" he said. "It's a nice phrase, 'maximizing value.' So far, everything has been going in the opposite direction."

Givens responded that she was not involved in the negotiations surrounding the termination fee and offered to put Cooperman in touch with members of the special committee who were. The management internalization is incomplete pending a definitive agreement but "could lead to better results," Givens added. She did not dispute a suggestion by Cooperman that uncertainty before the new announcements about the company's management structure could have hurt its potential sale price.

Cooperman closed his remarks by reiterating his desire to speak with the head of the board's special committee about the termination fee.

"I get paid if I make money," he said. "And Fortress is in that kind of business. So to get $50 million for the results that have been delivered thus far strikes me as inappropriate."

If New Senior were to be sold "for anything remotely approaching where we sold it to the public," then perhaps Fortress should be paid, he added. "But they shouldn't get the $50 million for what results have been delivered thus far."