KBS Strategic Opportunity REIT Inc., a publicly registered non-traded real estate investment trust and one of the largest shareholders in Whitestone REIT (NYSE: WSR), released an open letter to its fellow Whitestone REIT shareholders calling on them to vote for its independent nominees Kenneth Fearn Jr. and David Snyder, and the advisory vote to declassify the staggered board, at this year’s annual meeting.
KBS’s letter, which can be read in its entirety here, details that “despite Whitestone’s claims that it has reigned in executive compensation and costs, provided extraordinary shareholder returns and reformed its governance, its claims do not stand up to scrutiny.” KBS is seeking two of the seven seats on Whitestone’s board.
KBS Strategic Opportunity REIT, which holds approximately 9.61 percent of the outstanding shares in Whitestone REIT, said that the company “has an attractive business and is worthy of a substantial investment, but also believes that its executive compensation, general and administrative costs, and governance is seriously misaligned with shareholder interests.”
KBS believes that “Whitestone’s executive compensation and G&A costs remain significantly above its peers, its performance is mediocre, and its governance scores remain as poor as ever. Whitestone needs strong shareholder voices on its board. It needs trustees who have neither been picked by nor owe their jobs to approval by the current board.”
Compensation for the top three executives at Whitestone constitutes about 35 percent of their overall G&A expenses, which sits at the higher-end of the peer sets. Viewing the CEO’s compensation as a percentage of net operating income shows that his relative compensation has been far in excess of all its peers over the last four years, the KBS REIT noted.
KBS Strategic Opportunity REIT also claims that Whitestone’s dividend is not supported by its operations, its long-term incentive plan is excessive and overly dilutive, and its management severance packages are unreasonable.
Last year, Institutional Shareholder Services rated Whitestone’s governance score as a “10” on a scale from 1 to 10, with 10 being the worst. In particular, Whitestone scored a worst score “10” on the subcategories of compensation and shareholder rights.
KBS Strategic Opportunity REIT launched its initial public offering in November 2009 and raised approximately $574 million in investor equity before closing the offering three years later. As of the fourth quarter 2017, the company owned nine properties with an investment cost of $737.2 million, according to Summit Investment Research.