Under shareholder scrutiny, local real estate firm adds new outside director to its board

Hanover Square North shopping center is Medalist’s lone local holding. (BizSense file)

Bowing to pressure from its shareholders, a Richmond-based real estate firm has added an extra seat at its boardroom table.

Medalist Diversified REIT on Wednesday announced the appointment of California investor Frank Kavanaugh, already one of the publicly traded company’s largest shareholders, as a new member of its board of directors.

Kavanaugh’s new role comes weeks after he and other fellow shareholders began to publicly scrutinize Medalist’s operations and management in light of years of losses and a steadily declining stock price.

Earlier this month, before the company decided to give Kavanaugh a board seat, he publicly called for the addition of two new independent directors. Kavanaugh also called for Medalist CEO Tim Messier to be removed from his post and replaced by Medalist COO and President Bill Elliott.

The company has yet to heed that call.

Kavanaugh’s appointment also shakes things up as the company is in the midst of exploring “strategic alternatives,” namely a potential sale of the firm as a whole or its assets individually.

Frank Kavanaugh

Kavanaugh, who owns 9.7 percent of Medalist’s shares, previously said the company should reconsider the sale strategy or at least put it on hold until new leadership could be installed.

He’ll now have a direct role in that process, as he also was appointed to the special board committee that’s steering it.

Elliott, in a prepared statement issued Wednesday after the stock market closed, said Kavanaugh brings expertise and a new perspective to the Medalist board.

“We are pleased to add a leader of Frank’s caliber to our Board,” Elliott said. “The addition of Mr. Kavanaugh reflects our commitment to enhancing value for our stockholders. We look forward to optimizing the Company’s exploration of potential strategic alternatives with Mr. Kavanaugh’s strong operational leadership background and vision for strategic changes.”

The prepared statement did not include a quote from Messier.

Kavanaugh, in a quote from the release, said the company’s decision “emphasizes their efforts for transparency and thorough evaluation of all strategic options, all while maintaining a core focus on prioritizing the best interests of the stockholders.”

In an interview with BizSense last week, prior to the company’s decision to appoint him to the board, Kavanaugh described himself as a “cooperative activist” shareholder.

“I’m not a big fan of having to go the other way,” he said.

The “other way” is a path taken by another outspoken Medalist shareholder, Jon Wheeler, who has taken a more aggressive approach in calling for change at the company. Wheeler’s ongoing series of billboards along Interstate 195 in Richmond have called attention to Medalist’s poor stock performance.

One of the four billboard messages calling attention to Medalist’s performance. (BizSense file photo)

Wheeler on Wednesday said he was thrilled with the decision to add Kavanaugh to the board.

“I think they realize, finally, the sentiment… how unhappy the shareholders are,” Wheeler said. “From my perspective, it is really the best thing that could have happened to have a truly independent director.”

Kavanaugh, 63, lives in California and through his company Fort Ashford Funds invests in small public companies such as Medalist that in his view have promise but need advice and outside perspective.

He said he began buying Medalist shares over the past year. His 9.7 percent stake equals roughly 213,400 shares of Medalist’s 2.2 million shares outstanding. Based on Wednesday’s closing price of $5.36, his stake has a market value of more than $1.14 million.

Medalist shares trade on Nasdaq and until recently had been in penny stock territory, trading at under $1 per share for nearly a year. At risk of a delisting from Nasdaq, the company executed a reverse stock split, which shrunk the number of outstanding shares and thereby increased its share price. The shares traded at $0.70 just before the split and opened at more than $5 per share post-split.

The split went into effect May 3 and helped Medalist regain compliance with Nasdaq requirements. The stock is still down for the month by 6 percent. It’s down nearly 3 percent year-to-date and nearly 93 percent since going public in 2018.

Kavanaugh, like Wheeler, also wants the company to consider restructuring its current external management agreement, which gives a separate entity owned by Messier and Elliott the bulk of the power in the company’s real estate decisions. The setup also pays them third-party management fees that have totaled more than $4 million dollars since the company went public.

“I think the external management contract is at the heart of a lot of the problems here,” Kavanaugh said.

Kavanaugh repeatedly emphasized his belief in the efforts of the company’s other independent directors: Neil Farmer, Charles Pearson and Tim O’Brien.

“It’s hard to be an independent director,” he said. “I don’t think those guys have done a bad job. Those three people I have quite a bit of respect for.”

Kavanaugh said he hadn’t previously had the chance to speak with Messier or the three independent directors. He said he had spoken directly with Elliott and the investment banker Medalist hired to handle the strategic alternative process.

Kavanaugh said that while it’s possible a sale of the company or its assets may ultimately be the best avenue for Medalist, he wanted shareholders to have more of a say and clearer communication from the company’s leadership.

“I’m opposed to the way it appeared to be happening,” he said of the sale. “I would like to see trust and dialogue re-established. Trust has been lost and it didn’t happen overnight, but it’s been exacerbated. When people don’t know what’s going on they assume the worst.

“There’s more good than bad here,” he said.

Medalist was founded as a private real estate fund in 2013 before going public five years later. The company owns eight properties across Virginia, North Carolina and South Carolina. Its headquarters are in the James Center in downtown Richmond.

Its lone Richmond-area holding is Hanover Square North shopping center in Mechanicsville, which is anchored by retailers Marshalls and Old Navy.

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Jon Wheeler
Jon Wheeler
4 days ago

Great article & great new beginnings.

May Frank Kavanaugh bring governance, transparency & trust back for the shareholders.

REMEMBER – The word “Trust” is embedded in the definition of the basic tenement and main element of a Real Estate Investment Trust.

Today is literally a hallelujah moment!

Victoria Woodhull
Victoria Woodhull
4 days ago
Reply to  Jon Wheeler

I know nothing about how REITs work, so that is probably why I lost my shirt when I invested in one a few years ago. My spidey sense is telling me the new CA board member is going to raid this REIT just like the old members who setup a way to pay themselves third-party management fees that pulled more than $4 million dollars out of the REIT since the company went public. As demonstrated by this article, it appears too many people are trying to pull money out of this REIT, and no one is really concerned about the… Read more »

Bill Foster
Bill Foster
4 days ago

“Victoria” — I don’t even know where to begin other than to say you lack a complete understanding of the purpose and functions of an independent director. No wonder why you lost your shirt so to speak. I can always count on reading your uninformed and asinine comments on Bizsense articles.

Victoria Woodhull
Victoria Woodhull
4 days ago
Reply to  Bill Foster

Bill, thank you so much for attacking the PERSON, instead of just posting an opposing opinion. So please “inform” me on how this new independent director – who is actually not independent since he owns almost 10% and he ‘invests in small public companies such as Medalist….” So again I ask, how does any of this benefit the tenant or shareholder? It sounds like Kavanaugh wants to sell the company or the assets. If this is the plan, shareholders usually get squat, behind the bond holders who may get 30 cents on the dollar, or whatever the bankruptcy judge decides.… Read more »