New Senior’s $640M Holiday Deal Sparks Shareholder Lawsuit

June 18, 2017, Tim Regan, Senior Housing News - A shareholder of New Senior Investment Group (NYSE: SNR) is alleging that some of the company’s executives and board members unfairly used a $640 million acquisition of Holiday Retirement properties to line their own pockets at the expense of the company’s investors.

That’s the gist of a lawsuit that New Senior shareholder John Cumming filed in Delaware Chancery Court last December and amended on June 8.  The suit names New Senior’s six-member board of directors as well as the REIT itself as defendants.

New Senior Investment Group is a publicly traded real estate investment trust (REIT) that was spun off of Newcastle Investment Corp. (NYSE: NCT) in 2014.  Both New Senior and Newcastle are part of private equity giant Fortress Investment Group (NYSE: FIG).

New Senior’s board of directors in 2015 announced the acquisition of a portfolio of 28 senior living properties known as the “Holiday Portfolio” from Holiday Retirement, which is majority-owned by one of Fortress’s private equity funds, according to the suit.  But that acquisition was made “on unfair terms and for an inflated price” that resulted in a payday for Fortress and a substantial loss for shareholders, the suit alleges.

New Senior declined to comment on the litigation, but addressed the suit in a public SEC filing in March.  The company intends to move to dismiss the complaint, according to the filing.

The complaint claims the Holiday transaction benefited the company’s leadership rather than its shareholders. 

“Fortress and [Fortress co-founder Wes] Edens controlled New Senior’s management and the process for the Holiday acquisition, stood on both sides of the Holiday acquisition … and were admittedly ‘materially interested’ in, and uniquely benefitted from, the Holiday acquisition,” the suit states.

Cumming also alleges that the acquisition caused stock prices to drop sharply, costing New Senior and its investors in excess of $100 million.

“All benefits flowed to Fortress and Edens, while all detriments fell on the shoulders of New Senior and its public stockholders,” the suit reads.  “There was no stockholder vote, and the entire six-member board as of June 2015 was interested or not independent.”

The suit adds: “Edens and [Fortress managing director and New Senior CEO Susan] Givens compounded the problem by causing New Senior to issue approximately $100 million in additional equity that New Senior did not need for the Holiday Acquisition, which further depressed the price per share in the offering while giving Fortress a further windfall.”

Cumming is asking for an order declaring that the Holiday acquisition is a breach of fiduciary duties and an order rescinding the acquisition “and/or awarding damages to New Senior,” among a list of other requests.