The Parking REIT Inc., a non-traded REIT formed by the December 2017 merger of MVP REIT and MVP REIT II, has internalized its management platform by acquiring and assuming substantially all of the assets and liabilities from its former external manager, The Parking REIT Advisors. The internalization became effective on April 1, 2019.
“With the internalization of our management platform, we have better aligned the interests of the company, our management and our shareholders, thereby positioning us well for long-term success,” said Mike Shustek, chief executive officer of The Parking REIT. “With a simplified, well-aligned structure, the Parking REIT is well-prepared for its next phase of growth.”
According to the company, other potential benefits of the internalization include reducing the overall operating expenses as the company grows, primarily from terminating management fees paid to the manager, and mitigating perceived conflicts of interest inherent in the external management structure. The company believes that the internalization may facilitate its ability to raise capital and potentially list on a national securities exchange.
As consideration for the internalization, The Parking REIT will issue 1.6 million shares of common stock in four equal installments to its former manager. The first installment of 400,000 shares was issued on April 1st, and the remaining installments will be issued on December 31, 2019, December 31, 2020, and December 31, 2021.
At any time prior to December 31, 2022, the REIT may repurchase up to 1.1 million shares that were issued as consideration for $17.50 per share. The Parking REIT had an estimated net asset value per share of $24.61, as of May 29, 2018.
The Parking REIT Advisors has waived its rights to receive subordinated compensation of approximately $1.5 million that has been accrued under the existing management agreement and any accrued but unpaid management fees. The company noted that the former manager had incurred more than $25 million in unreimbursed expenses.
Negative factors of the internalization disclosed by the company in an SEC filing include existing potential conflicts of interest between the company and the manager, including the respective positions of the company’s management team and Shustek, and the compensation paid as a result of the internalization transactions. Additionally, Shustek will have interest in the consideration.
Also, there are significant costs involved with completing the transactions contemplated by the contribution agreement, as well the substantial time and effort required to complete the internalization, and the related disruption to the company’s operations.
Consideration paid in the form of common stock will have a dilutive effect and will reduce the voting power and relative ownership percentage interests of current stockholders.
Another potentially negative factor is a class action lawsuit filed by a stockholder last month in a Nevada federal court in connection with the proxy statements filed with the SEC to obtain shareholder approval for the merger with MVP REIT.
“The complaint alleges, among other things, that the proxy statements failed to disclose that two major reasons for the merger and certain charter amendments implemented in connection therewith were (i) to facilitate the execution of an amended advisory agreement that allegedly is designed to benefit Shustek financially in the event of an internalization and to give Shustek the ability to cause the company to internalize based on terms set forth in the amended advisory agreement,” the filing states.
The complaint alleges the company disseminated proxy statements that contained false and misleading statements, that the director defendants breached their fiduciary duties, and the proposed internalization transaction will unjustly enrich certain directors and officers of the company.
The complaint seeks a trial by jury; unspecified monetary damages, an order halting the company’s listing on NASDAQ, and the payment of reasonable attorneys’ fees and other expenses.
The REIT and its board have reviewed the allegations in the complaint and believe the claims asserted against them are without merit and intend to vigorously defend the action.
The Parking REIT, which invests primarily in parking lots and garages in the United States, oversees a portfolio of 42 parking facilities located in 17 states with a total of more than 11,000 parking spaces. In October 2018, the company filed a preliminary prospectus with the SEC to raise up to $100 million in an initial public offering. The company intended to list its shares on the NASDAQ Global Market under the symbol “PARK.”