Long-serving Houston REIT CEO fired for cause

Whitestone REIT has terminated, with cause, James Mastandrea from his position as Chairman and CEO of the company. David Holeman, the current CFO is appointed CEO. In turn, Scott Hogan, currently Vice President, Controller, becomes the CFO.



Whitestone has its head office in the Westchase area and is a shopping center REIT (real estate investment trust), with properties primarily in Houston and Phoenix. It has a market capitalization of $508 million.

The company said that an independent internal investigation found that Mr. Mastandrea’s conduct to be in violation of his employment agreement and inconsistent with Company standards and responsibilities of the CEO. They also stated that his termination is not related to Whitestone’s operating performance, financial condition or financial reporting.

Mr. Mastandrea, 77, has been the CEO since 2006 and has a base salary of $600,000. Because he was fired for cause, he will only receive accrued and unpaid base compensation.

Christine Mastandrea

Interestingly, the press release and SEC filing makes no mention of his wife, Christine, who is also an Executive Officer of the company. Presumably, she is still employed in her role as Executive VP of Corporate Strategy (base salary $300,000).

2016 Transaction

Back in 2016, Whitestone sold 14 non-core properties for $84 million to Pillarstone Capital REIT, which is a private company that James Mastandrea set up for the transaction. Mr. Mastandrea is still the beneficial owner of 78% of this REIT. John Dee, the COO of Whitestone, is also a beneficial owner of Pillarstone and acts as the latter’s CFO. The transaction was approved by a special committee of independent trustees. Even so, in my opinion, it is not a good look for a public company. Pillarstone has since disposed of six of the properties.

New officers

Mr. Holeman joined the company as its CFO in 2006 and was previously the CFO of Gexa Energy. Mr. Hogan joined in 2008 having previously been the Controller at Gexa Energy.

New compensation arrangements for Mr. Holeman and Mr. Hogan have yet to be determined.

SEC filing – Whitestone CEO

 

 

 

Woodlands real estate CFO leaves after nine months

Correne Loeffler is out as the CFO of Howard Hughes Corporation after only nine months in the position. She is replaced by Carlos Olea, who is currently the Chief Accounting Officer.



Howard Hughes is based in The Woodlands and is primarily a developer of residential master planned communities, though it also develops commercial real estate. In late December, the Wall Street Journal reported that the company had agreed to sell a new 55-story office tower in Chicago for more than $1 billion. The company has a market capitalization of $5.5 billion.

Ms. Loeffler was appointed the CFO in April 2021. She replaced David O’Reilly, who was promoted to CEO in December 2020. Prior to that, she spent 13 months as CFO of Whiting Petroleum (where she was paid $3.4 million all-in), leaving in September 2020 after Whiting exited bankruptcy.  Before joining Whiting, she worked at Callon Petroleum and J.P. Morgan Securities.

Severance

The press release issued by the company stated that the employment of Ms. Loeffler was terminated but did not state what severance payments would be made. Presuming she was terminated without cause, Ms. Loeffler will be entitled to a lump sum payment of one year’s salary ($500,000), plus a pro-rated portion of the target annual bonus ($900,000). That’s a small number for 2022, but presumably she will also receive her share of the 2021 bonus.

Ms. Loeffler did not receive any stock awards when she was hired. In the first quarter of 2022, she was scheduled to receive a performance-based grant that would have been worth approximately $1.2 million a year.

Olea compensation

Mr. Olea will receive a base salary of $500,000. He joined the company in 2017 and has been the Chief Accounting Officer since 2019. His target annual bonus is $750,000 and he will receive an annual long-term equity award worth up to $950,000.

SEC filing – Howard Hughes CFO replacement

Mattress Firm files for Initial Public Offering

Source: Social Woodlands

Mattress Firm has filed for an Initial Public Offering, five years after it was acquired by Steinoff International for $3.8 billion. The company has its head office in downtown Houston.

The company has not yet determined how much it plans to raise in its IPO.



Mattress Firm entered and exited Chapter 11 in late 2018 to shed itself of 640 unwanted stores. As part of the process, the lenders who provided the exit financing also acquired a 49.9% stake in the business from Steinhoff.

Steinhoff $7.4 billion fraud

Steinhoff was founded in Germany in 1964 and moved its head office to South Africa in 1998. In late 2017, the company announced accounting irregularities in its European operations. A PwC report ultimately published in 2019 found that a small group of Steinhoff executives had recorded fictitious transactions totaling $7.4 billion over a period between 2009 and 2017.

Steinhoff has proposed a global $1.6 billion settlement with investors harmed by the fraud. To help pay for this, in September 2021, Mattress Firm paid a special distribution to its shareholders of $1.2 billion. Steinhoff, as 50.1% owner, got $601 million. The special distribution was financed by new term loan of $1.25 billion. Of this, $523 million was used to pay off the old term loan taken out as part of the Chapter 11 proceedings.

Improved financial performance

Mattress Firm now has 2,353 stores, down from almost 3,500 when it was last a public company. Impressively, revenue per store has grown from $1 million in 2019 to $1.7 million in the year to September 2021. Adjusted EBITDA margins have grown from $153 million (5.2%) in 2019 to $669 million (15.2%) in 2021.

As o September 2021, the company has $1.0 billion of net debt and $77 million of stockholder equity. Included on the balance sheet is $1.5 billion of goodwill and intangibles.

Management paid $135 million

As part of the special distribution, in addition to the $1.2 billion paid to the shareholders, senior management received $135 million in cash bonuses in September 2021. John Eck, CEO since December 2019, received $39.2 million. Maarten Hager, CFO since February 2020, received $11.75 million. The top five executive officers received $75 million.

In addition, four non-exec directors of Mattress Firm also received $3.845 million each as part of the $135 million payout.

S-1 firm Mattress Firm

Restaurant operator appoints new CFO

Muscle Maker has appointed Jennifer Black as its new CFO. She replaces Ferdinand Groenewald, who will stay on with the company as the Chief Accounting Officer.

Muscle Maker is a franchisor and owner operator of Muscle Maker Grill, Healthy Joes and Pokemoto restaurants. It has 25 owned and 10 franchised restaurants. The company went public in February 2020 and has its head office in League City. It has a market capitalization of $15 million.

Prior to joining Muscle Maker, Ms. Black was the CFO for Eagle Pressure Control, based in the Fort Worth. She has also worked for AG Resource Management and Basic Energy Services. Ms. Black will be allowed to work from her home in the Fort Worth area and will receive a base salary of $190,000.

The head office of Muscle Maker was in Fort Worth before moving to League City last year.  CEO Mike Roper is also based in the Dallas-Fort Worth area.

Mr. Groenewald joined the company in June 2017 as its Controller. He left in May 2018 but was rehired as its CFO in September 2018.

S-1 filing Muscle Maker CFO

Diamond Offshore fails to attract satisfactory takeover offers

Diamond Offshore will remain independent after failing to attract any satisfactory takeover offers. The company had put itself up-for-sale back in August and hired Goldman Sachs as its financial advisor.



The offshore driller owns four drillships and nine semisubmersibles. It exited bankruptcy in April 2021, having converted $2 billion of debt into equity. Its stock is not currently publicly-traded.

As part of the sale process, the company approached four offshore drilling companies that had sufficient scale to acquire Diamond and were not in bankruptcy (isn’t that all of them?).

  • Company A submitted an indicative offer that was deemed inadequate. When asked to raise their bid, they walked away.
  • Companies B, C and D submitted indicative bids that were deemed worthy of further engagement. After commencing limited due diligence, companies B and C backed out.
  • In November, in light of various communications from Company D, the independent committee appointed by Diamond decided it would cease discussions with Company D.

Litigation with largest shareholder

Interestingly, back in July, Avenue Capital Management, a hedge fund that is the largest shareholder of Diamond with a 17% shareholding, sued the company. It was trying to force the company to hold an annual meeting, at which Avenue would put forward its own nominees for directors. The company and Avenue settled the lawsuit in August. As part of the settlement, the company disclosed details of the proposed takeover offers to Avenue.

In November 2021, Avenue delivered to the company a purported list of nominees for the next annual meeting. The company notified Avenue that the nominations were invalid because they were not in accordance with the bylaws. After a second settlement agreement with Avenue in December, the litigation and the nominees proposed by Avenue were withdrawn.

AGM in January

An annual meeting of stockholders will now take place on January 21,2022. There are three directors up for re-election, namely;

  • Adam Peakes – former CFO at Noble
  • Patrick Lowe – former COO at Ensco (now part of Valaris)
  • John Hollowell – former CEO of Shell Midstream.

All three were part of the four-person independent committee that was set up to explore strategic alternatives.

SEC filing – Diamond Offshore takeover discussions

 

 

BP Midstream Partners to be acquired by its former parent

BP Midstream Partners (BPMP), based in west Houston, is to be re-acquired by its parent, BP, in an all-stock transaction. Each unitholder will receive 0.575 of an American Depositary Share of BP for each public common unit owned. At the current price of the ADRs, that amounts to $14.89 per unit

Back in August, BP offered to buy BPMP common units at $13.01 per unit. BP currently owns 54.4% of the outstanding BPMP units.

BPMP owns the pipelines and other midstream assets that service BP’s Gulf of Mexico’s fields as well as the pipelines around the Whiting refinery in Indiana.

BP Midstream was spun off by BP only in October 2017 at $18 per unit. That was a few years later than many of its competitors. In fact, the trend to re-acquire them started shortly thereafter in 2018.

The deal is expected to close in the first quarter of 2022.

SEC filing – BP to acquire BPMP

 

 

Houston robotics company to be taken public by SPAC

Nauticus Robotics, a Houston-based marine robotics company, is to be taken public by a CleanTech Acquisition Corp, a SPAC (Special Purpose Acquisition Corporation). The deal values Nauticus at $377 million enterprise value. CleanTech completed its $150 million IPO in July 2021.



Until recently, the company was called Houston Mechatronics. It was founded in 2014 by Nicholaus Radford, who previously worked at NASA and Oceaneering. The company has its head office in Webster, two miles from the NASA Johnson Space Center and employs about 25 former NASA robot engineers . Existing investors in the business include Schlumberger and Transocean. Angie Berka, the Director of Finance and Administration, is also a shareholder.

Currently, manned service vessels are used to service the offshore energy sectors. Nauticus is developing tetherless, autonomous electric-powered robots that can be controlled by staff onshore. The company plans to rent out its Aquanaut robot for $25,000-$50,000 a day, less than half the cost of a deepwater rig.

Nauticus also believes the technology can be used for other industries and applications such as ports (to monitor ship traffic), aquaculture (fish farming), offshore wind and data centers, and defence.

For 2021, the company has revenues of $8 million. This is projected to grow to $90 million in 2023 (4x enterprise value) and $202 million by 2024.

Existing shareholders including Schlumberger and Transocean are rolling over their shares. After the deal closes (expected in the second quarter of 2022) the company will have $222 million of cash on hand. $50 million of this will be used to execute the business plan, the rest will be placed in trust for future growth opportunities, including acquisitions.

SEC filing – 8-K

 

Houston bank to pay $8 million for failing to counter money laundering activities.

CommunityBank of Texas has agreed to pay penalties of $8 million to settle charges that it failed to counter money laundering activities.

CommunityBank is part of CBTX, which is in the process of merging with Allegiance Bank, another Houston-based community bank. CBTX has 35 branches, mainly in the Houston and Beaumont areas.



The penalties were levied by two different regulatory bodies, the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network.

The Bank Secrecy Act (BSA) requires banks to implement and maintain an effective anti-money laundering (AML) program in order to guard against money laundering through financial institutions.

Weak controls

The bank had an AML program in place. However, as implemented, the program was not adequate to meet the minimum requirements of the BSA. The bank had an enterprise-wide automated monitoring system that reviewed transactions and generated alerts for review by analysts. However, the compliance office was understaffed. In practice, the three BSA analysts were reviewing an average of 100 alerts per day.

In addition, the BSA case officer applied exemptions for customers whose activities were thought to be ‘well-known’.  Exemptions were granted to customers who were later arrested or convicted of financial crimes.

The bank was also lax in fully completing questionnaires on new customer due diligence. In addition, there were many instances where it failed to file suspicious activity reports (SARs) on transactions over $5,000.

Illegal gambling and drug dealers

The regulators gave three examples where the bank should have reported suspicious activity.

  • Customer A operated a used car dealership and a financing company. The businesses had 19 accounts at the bank. The accounts received suspicious deposits of large round dollar amounts sent by persons known to be gamblers. Although the automated AML system created alerts, the bank did not act or report them. In 2019, the customer pleaded guilty to tax evasion and money laundering associated with operating an illegal sports gambling business for over 30 years.
  • Customer B was a former CPA who pled guilty in 2013 to a tax crime in relation to sports gambling. Despite that, the bank onboarded him as a new customer in 2017 and permitted him to open an account for a gambling establishment. The bank filed three incomplete SARs. Only after customer B was arrested in May 2019 for operating an illegal gambling ring, did the bank file an amended SAR reporting over $30 million in suspicious activity.
  • Customer C and his family was onboarded as a new customer in 2009 but the customer due diligence paperwork was incomplete. The accounts subsequently showed red flag indicators such as frequent deposit of checks, absence of typical business activities and a high volume of fees imposed for insufficient funds. Despite that, and knowing there was law enforcement interest in 2018, the bank failed filed to file any SARs. until January 2020. In July 2020, the customer and several members of the family were arrested on chemical trafficking charges. It was only in September 2020, did the bank file a more substantial SAR.

After the bank was notified of an investigation by the regulators in 2018, it hired a new Director of Financial Crimes and increased AML staffing.

SEC filing – 8-k

Former COO of Houston Independent School District indicted on bribery charges

Brian Busby, the former Chief Operating Officer of the Houston Independent School District (HISD) has been indicted on corruption charges. Also indicted was Anthony Hutchison, a vendor to HISD.



Five other former HISD officials have pleaded guilty for their role in the scheme, including Rhonda Skillern-Jones, who served as an HISD trustee between 2012-2019.

Hutchison owns a business called Southwest Wholesale that performed grounds maintenance and landscaping services to numerous HISD properties. Starting in 2011, he provided mowing services to HISD and also supplied ‘Kiddie Cushion’ mulch to playgrounds.

The indictment alleges that Hutchison would bill HISD for 35 ‘cuts’ a month, even though they only mowed 20 times. In addition, he inflated both the cost and the volume of mulch supplied to HISD. For some construction contracts awarded, work was billed, but not performed.

The indictment alleges that Southwest Wholesale systemically overbilled HISD by $7.1 million. In return, the indictment alleges that Hutchison paid bribes of $162,000 to Busby. Hutchison also paid contractors $366,000 for work performed at Busby’s personal residence. An earlier  complaint filed in a civil case against Busby alleged that there were cash deposits of $2,330,315 into accounts that Busby controlled that were not related to his HISD salary or his wife’s earnings.

Board Trustee bribed

Ms. Skillern-Jones was paid $12,000 by Hutchison (via Busby) in 2017. In return, she caused to be placed on a 2017 HISD Board agenda and voted to approve, an expenditure of funds for projects that were awarded to Hutchison.

Area Maintenance Managers

The other HISD officials who pleaded guilty were maintenance managers. Southwest Wholesale also used HISD labor for some of the properties where it had the mowing contract. Busby caused the maintenance managers to authorize and approve overtime to HISD grounds crew, even though Southwest Wholesale billed HISD for the work.

The maintenance managers received between $20,000 and $75,000 each in bribes.

Cash stash

Busby and Hutchison were originally arrested in February 2020. When the FBI searched Busby’s home, they found $90,150 in cash. For Hutchison, they found $73,474 cash in the house and $22,400 in a fanny pack under the seat of his care.

The indictment states that Hutchison maintained a bribe ledger, outlining all the details of the payments he made.

Witness Tampering

Busby and Hutchison also charged with witness tampering. When they realized the FBI were investigating, Busby instructed Hutchison to falsely state to the FBI that the payments in the ledger represented gambling winnings rather than bribes.

If convicted, they face up to 20 years in prison for some of the charges. Those that pleaded guilty face up to 5 years in prison.

Busby Indictment

Busby Civil complaint

Houston water logistics company to be acquired

Select Energy Services has agreed to acquire another Houston-based company, Nuverra Environmental Services for $45 million in an all-stock transaction. In addition, Select will also assume $20 million of debt that Nuverra has.



Both companies are involved in the water treatment, recycling and disposal of water and chemicals produced on onshore shale basins in the US. Nuverra primarily operates in Bakken, Haynesville and the Marcellus basins.

The signs have been there that Nuverra was preparing itself to be sold, namely;

  • The company moved its head office from Arizona to Houston in August 2021.
  • Eric Bauer was hired in April 2020 on a three-year contract as interim CFO. He has an investment banking background.
  • Two investment firms (Gates and Ascribe) own 85% of the equity following the company’s bankruptcy reorganization in 2017.

Pat Bond was appointed CEO in April 2021. He abruptly left in September. Current chairman and former CEO Charles Thompson took over as CEO again.

Nuverra has revenues of approximately $100 million and has only generated an operating profit once (in 2014) in the past 11 years. In its bankruptcy reorganization, the company converted more than $400 million of debt into equity. Since exiting bankruptcy, Nuverra has cumulative losses of $225 million.

The transaction is expected to close in the first quarter of 2022.

https://www.prnewswire.com/news-releases/select-energy-services-enters-into-definitive-agreement-to-acquire-nuverra-environmental-solutions-and-closes-on-the-acquisition-of-the-us-onshore-assets-of-hb-rentals-301443074.html