The board of The Parking REIT Inc., a publicly registered non-traded real estate investment trust, disclosed that Erik Hart has resigned as an independent director and member of the board’s audit committee, effective immediately.
Hart was notified in August by the board of director’s nominating committee that he would not be nominated for re-election in October, a decision that he believes was motivated by a “desire to exclude an independent voice from any discussion.”
Hart claims that he was removed from weekly board emails and was asked not to participate in a mandatory board meeting held earlier this month. The company denies these claims and said the decision to reduce the size of the board was made to cut costs and to make it more efficient.
The board also pointed out that Hart’s background as an entertainment attorney provided little value to the company, particularly compared to other independent board members with more relevant backgrounds in regards to the business of The Parking REIT.
In his letter to the board, Hart also said that his resignation was driven by a “significant amendment” to the company’s advisory agreement with MVP Realty Advisors LLC, where the advisor would receive between $16 million and $21 million if the advisor and CEO Mike Shustek were terminated without cause. Previously, the board could terminate with 60 days’ notice at no automatic costs to shareholders, Hart said.
The company pointed out that Hart approved the formation of the committee to draft the amendment to the advisory agreement and seconded the motion to approve the term sheet that formed the basis of the amendment.
After voting to approve the term sheet, the nominating committee notified Hart that his seat was being eliminated. He then voted against the final amendment, which the company says includes more favorable terms than the term sheet that he previously approved. Specifically, the termination fee was potentially reduced, the company was given the option to pay the fee in assets rather than cash, and the grounds for termination with cause of the company’s CEO were expanded.
“I believe the decision by the nominating committee not to allow me to stand for re-election was a deliberate decision precipitated by the lack of control the CEO Michael Shustek and the chairman of the board had over my participation in board meetings,” said Hart. “I believe that my true independence and my participation in the investigation into whistleblower allegations made against Mr. Shustek was the reason that the nominating committee took such action.”
In February 2018, the board’s audit committee conducted an internal investigation after an employee of the advisor brought to their attention potentially inaccurate disclosures made to FINRA by affiliated broker-dealer MVP American Securities, as well as inaccuracies in Shustek’s personal financial statements that were provided to the company’s lenders.
The committee determined that Shustek “did not exercise proper judgment and appropriate oversight…which resulted in the submission of inaccurate information to FINRA and the company’s lenders.” A spokesperson for the company said the incorrect FINRA disclosures were corrected prior to a whistleblower coming forward and that the inaccuracies in the financial statements were corrected upon discovery of the errors. The company has since adopted enhanced policies and procedures to improve corporate governance, according to the spokesperson.
Days after the committee’s decision, another independent director, Allen Wolff, resigned from the board due to differences in “philosophy and vision for the company.”
The Parking REIT primarily invests in parking lots and garages in the United States and oversees a portfolio of 42 parking facilities located in 17 states. The Parking REIT is managed by MVP Realty Advisors. The Parking REIT board suspended distributions and share repurchases earlier this year.