As its share price lingers in penny-stock territory, some shareholders of a publicly traded Richmond-based real estate investment trust are fed up and pushing for change, including calling for the firm’s top management to be ousted.
Medalist Diversified REIT, which went public on Nasdaq in 2018 and owns eight properties across Virginia, North Carolina and South Carolina, has seen its stock price steadily plummet ever since. The shares, traded under the symbol MDRR, closed Friday at $0.83 apiece, down 91 percent since its IPO nearly five years ago.
Its stock has closed above $1 only twice since last May and its market cap sits at around $14 million.
Faced with a looming stock delisting notice, the company disclosed last month that it will “explore potential strategic alternatives focusing on maximizing stockholder value.”
It said those alternatives could include a sale of all or part of the company’s assets, a joint venture, restructuring, or other transactions.
News of that announcement prompted concerned and frustrated shareholders to reach out and speak with BizSense in recent weeks.
Their ire is directed both at the firm’s board of directors and executives, but primarily at Tim Messier and Bill Elliott, who founded the first iteration of Medalist in 2003 and run the now-public REIT as CEO and president, respectively.
“The way to fix it is for those two to get out of the way,” said one shareholder, who spoke on condition of anonymity. “You can’t turn it around without replacing those people and they’re not going to replace themselves.
“There are a bunch of us that are totally fed up with it and somehow or another the board needs to be replaced and somebody needs to sit with these guys and say ‘what’s going on?’”
The shareholders BizSense spoke with say that in addition to much of their investment having been wiped out by the declining stock price, their pain is magnified by the fact that Medalist management continues to pay itself lucrative fees despite the REIT’s poor performance.
“The way they’re paying themselves… it seems like they’re triple dipping,” said another shareholder requesting anonymity for fear of reprisal from Medalist.
They say that triple dipping comes in the form of compensation Messier and Elliott receive, especially that paid through their Medalist Fund Manager, a third-party firm they control 50-50.
SEC filings explain the power that entity has over the REIT: “The Manager oversees the Company’s overall business and affairs and has broad discretion to make operating decisions on behalf of the Company and to make investment decisions.”
For its efforts, the management firm – and Messier and Elliott by extension – are compensated by the REIT in several ways. The management firm charges the REIT management fees on all the properties owned by the REIT, and acquisition fees associated with any property acquisitions the REIT makes.
Dating back to 2018, the year the REIT went public, the firm has paid out $3.12 million in management fees to Messier and Elliott’s management arm, SEC filings show. Those fees started out at $340,000 in 2018 and peaked in 2022 at $876,000.
The REIT has incurred an additional $1.6 million in acquisition fees paid or owed to the management firm, according to filings. About $600,000 of that total is accrued and owed to the management firm based on a deferral agreement adopted in 2021.
Those fees are based on Medalist’s portfolio of properties, which are a mix of shopping centers and flex/industrial buildings, totaling around 850,000 square feet. Its lone Richmond-area holding is Hanover Square North shopping center in Mechanicsville, which is anchored by retailers Marshalls and Old Navy.
The insiders also benefit from stock awards received each year. Just in 2022, the REIT granted stock awards for 136,000 shares apiece for Messier and Elliott, and grants of 204,000 shares to the three directors. Those shares vested immediately.
Such a setup is not unusual in the REIT world. Many do pay fees to entities controlled by their executives. However, Medalist shareholders say the fees and stock awards are far out of balance with the performance of the REIT. They point not only to the share price but also annual losses by the company totaling $17.18 million over the last three years alone. And they argue the stock grants are further diluting an already beleaguered shareholder base.
“They are extremely cavalier that they’ve lost this much equity for their shareholders,” one of the anonymous shareholders said. “There are zero consequences to them. In most businesses when you’re not performing you don’t get your bonus.”
An activist emerges
The most vocal and critical Medalist shareholder to speak with BizSense in recent weeks is Jon Wheeler, who knows a thing or two about REITs. He also knows of the pitfalls publicly traded REITs can face.
Wheeler is the founder and former chairman and CEO of Wheeler Real Estate Investment Trust, which he took public in 2012.
While managing the Virginia Beach-based firm, he was faced with a similar problem of a declining stock price. The firm’s stock went public at around $48 per share and began to steadily decline soon after.
In 2018, Wheeler was ousted from his namesake firm after a prolonged battle with an activist shareholder, who gained a controlling interest in the firm and brought in new leadership.
“We had an activist that came in and took two shots and got control and fired management including me,” Wheeler said.
Now, a few years after being on the receiving end, Wheeler is himself donning an activist investor cap.
He said he started investing in Medalist in the second quarter of 2020 and today owns less than 1 percent of the company’s 17 million outstanding shares.
While he declined to say specifically how many shares he owns, he’s not shy in declaring that he, like other disgruntled shareholders, is taking aim at Messier and Elliott.
“The reason the REIT is in the shape it’s in today is because of the way they’ve managed it, their acquisitions and their financial decisions,” Wheeler said. “Every year they’ve lost money and every year they’re paying themselves excessive, exorbitant fees to the management company, wholly owned by Bill and Tim. They have literally decimated this company.”
Wheeler has been diligent in poking and prodding Messier and Elliott. Since May 2022 he said he’s sent regular letters to the two executives, as well as the three directors, pointing out the weaknesses of the REIT and his grievances in their leadership. He shared copies of the letters with BizSense.
He says his concerns and criticisms have fallen on deaf ears.
“I’ve sent them 25 letters and not one of them has been answered,” Wheeler said. “When you don’t return phone calls, when you’re not transparent and don’t communicate with your shareholders… there are certain rules of etiquette and professionalism and rules of decorum, and they are above reproach.”
Wheeler and other shareholders also question the objectivity of Medalist’s three remaining non-executive directors – Neil Farmer, Charles Pearson and Timothy O’Brien.
Those three directors are all that remain of a board that at one point totaled six outside members. The other three resigned over the last three years. Two of them – Mark Mullinix and Dianna Raedle – left the board in protest, according to SEC filings.
“Mr. Mullinix and Ms. Raedle resigned from the Board as a result of a disagreement with the Company’s management and other members on the Board related to certain financial and investment decisions of the Company’s management,” a filing from August 2020 states.
The third departing member, veteran Richmond commercial real estate broker Charlie Polk, resigned from the Medalist board in mid-2021 for unspecified reasons.
Raedle did not respond to a request for comment. Mullinix and Polk both declined to comment for this story.
Wheeler said their reasons for resigning are simple: “The directors didn’t want to be a part of it any longer.”
Shareholders ponder next steps
Aside from speaking out publicly, Wheeler and other shareholders say they are pondering what else they can do to turn around Medalist’s performance and get the share price moving in a positive direction.
Some say the company needs to be taken private, arguing that with just eight properties owned and with such a small market cap, the costs associated with running a public company aren’t worth it.
“It’s not efficient to run as a public REIT,” one of the anonymous shareholders said.
Wheeler takes a stronger tact.
“The decisions they’ve made are not appropriate for a publicly traded company, particularly a REIT,” he said.
Wheeler said that if Elliott and Messier don’t begin to address shareholder concerns, he’s plotting a course to give shareholders a chance to vote in new leadership at the company’s shareholder meeting later this year.
“If this company is not sold or taken private, I will have a competing slate (of directors),” he said.
His plan is to start by displacing Farmer, O’Brien and Pearson. A newly constituted board, he argues, could then better govern Messier and Elliott’s decision making or replace them if needed.
One of the first steps suggested by several shareholders for new leadership to take would be to eliminate Messier and Elliott’s third-party management firm and bring management of Medalist’s properties more in-house, thereby eliminating the fees.
Medalist is due to release its proxy card later this year and Wheeler said he has a list of potential directors to introduce for a vote, adding that it’s possible his name would be on that list.
BizSense reached out to Messier, Elliott and the other Medalist directors for comment on these shareholder concerns. The company responded through its attorney, Betty Linkenauger Segaar of Troutman Pepper, the law firm that’s helping it explore strategic alternatives.
Segaar said only that the company does not intend to comment further about the strategic alternative process “unless and until it determines that further disclosure is appropriate or required.”
For some shareholders, even the prospect of a potential sale announcement doesn’t quell their frustrations. Some say they’re not convinced of management’s conviction to actually go through with a sale.
“This thing is just a bluff,” one of the anonymous shareholders said.
“This announcement of ‘seeking strategic alternatives” is really lip service for their shareholders,” he said. “They have no intention of selling this company. Why would they sell the golden goose?”