Francis P. Kavanaugh

About Francis P. Kavanaugh

Francis P. “Frank” Kavanaugh, age 65, is President, Chief Executive Officer, Secretary and Treasurer of Medalist Diversified REIT (MDRR) and serves as Chairman of the Board; he joined the Board on May 24, 2023 and was appointed CEO on July 18, 2023 . He holds a B.S. in Information and Computer Science from UC Irvine (1985) and an MBA from Pepperdine University (2003), and has 30+ years’ experience in real estate investment, business restructuring and operational leadership, having restructured 20+ businesses in public and private sectors . The Board’s 2025 proxy shows pay structured largely in equity/OP units with a modest cash retainer ($75,000 cash; $190,000 equity grant in 2024), no employment agreements, and a hedging ban—indicating an emphasis on equity alignment, albeit without explicit formulaic performance metrics or ownership guidelines for executives . In July 2023, MDRR internalized management and appointed Kavanaugh as interim CEO to streamline operations and reduce costs; he later became CEO, with the transition overseen by an independent special committee .

Past Roles

External Roles

Fixed Compensation

Performance Compensation

Notes:

• Compensation committee does not use a specific formula for equity award sizing; factors include Company performance, role, contribution, market practices, and prior awards, with historic input from external manager during management agreement term .
• MDRR states executives currently have no equity ownership requirements/guidelines; options are not currently granted .

Equity Ownership & Alignment

• Ownership waiver: Board granted Kavanaugh (and affiliates) a waiver of charter ownership limits to permit up to 20.0% aggregate ownership on Aug 8, 2023, subject to conditions . Redemptions of OP units for common stock are also constrained by charter ownership limits and require Company option; the 2025 proxy seeks approval to permit common stock issuance to Kavanaugh upon OP unit redemption .
• Hedging/derivatives: Insider Trading Policy prohibits short sales, options (puts/calls), and financial instruments designed to hedge or offset decreases in MDRR’s stock value; frequent trading is also restricted .
• Pledging: No explicit pledging prohibition is disclosed in the cited sections; MDRR states it has no executive ownership guidelines at present .

Employment Terms

Board Governance (Service, Committees, Dual-Role Implications)

• Board service and leadership: Kavanaugh joined the Board on May 24, 2023 and is Chairman; he is also CEO/President .
• Committees and independence: Audit (Chair: David Lunin), Compensation (Chair: Neil P. Farmer), Nominating (Chair: Emanuel D. Neuman), Acquisition (Chair: Emanuel D. Neuman) are composed of independent directors; Kavanaugh is not listed as a member of these committees .
• Lead Independent Director: Neil P. Farmer serves as Lead Independent Director, providing counterbalance to CEO/Chairman dual role .
• Attendance: Each incumbent director attended >75% of Board and committee meetings in 2024 .
• Independence status history: At appointment in May 2023, Board determined Kavanaugh was independent under Nasdaq/SEC standards; his subsequent role as CEO/Chairman renders him non-independent in practice .

Director/Executive Ownership Mechanics That Could Create Selling Pressure

• Significant OP unit/ LTIP unit blocks become eligible for redemption on rolling 12-month anniversaries and, in many cases, only after shareholder approval—potentially increasing float if redeemed for stock; charter ownership limits cap redemptions if they would breach allowed holdings .
• Specific blocks reaching redeemability (subject to conditions) include the 19,348 LTIP units (redeemable Jan 18, 2025) and larger OP unit grants from 2024–2025 becoming redeemable in 2025–2026, subject to shareholder approvals and ownership limit constraints .

Related Party Transactions (Governance Red Flags and Controls)

• Property contribution: MDRR’s OP acquired the “Scottsville Road Property” for $2,620,000 consideration, paid as 209,600 OP units valued at ~$12.50 per unit plus ~$47,429 cash for transaction costs; the general partner of the seller (CWS) is managed by Fort Ashford Funds, LLC, whose manager is Kavanaugh—constituting a related party transaction .
• Policy and oversight: Audit Committee oversees a written related person transaction policy requiring approval of transactions >$120,000 involving related persons; conflicted audit committee members recuse .

Performance & Track Record

• Management internalization and leadership transition in July 2023 aimed to streamline operations and reduce costs; changes were overseen by an independent Special Committee and accompanied by resignations of prior executives and a termination fee for the former external manager .
• As of appointment in 2023, MDRR highlighted portfolio occupancy and dividend continuity in the context of industry pressures; these statements were part of the internalization announcement and forward-looking positioning .

Compliance, Insider Trading, and Other Risk Indicators

• Hedging/derivatives banned per Insider Trading Policy (short sales, options, collars, swaps, exchange funds, frequent trading) .
• Section 16(a) reporting compliance: Kavanaugh filed four untimely Form 4s in 2024 due to administrative errors (covering LTIP grant and several common stock purchases); multiple directors also filed untimely reports for January 18, 2024 stock grants .

Compensation Structure Analysis (Pay-for-Performance Levers)

• Cash vs equity mix: 2024 total compensation of $265,000 comprised $75,000 cash and $190,000 equity (LTIP units), indicating an equity-heavy mix; no 2023 compensation accepted .
• Formula/metrics: Compensation committee does not use a specific formula; no explicit annual bonus plan, metric weightings, or target/payout tables for the CEO are disclosed in 2024 proxy—awards are discretionary and context-driven .
• Ownership alignment: Meaningful beneficial ownership (17.5% of common; 18.5% including redeemable OP units) and an ownership waiver to 20% signal skin-in-the-game; however, absence of formal executive ownership guidelines is a gap vs best practices .

Tables: Summary Compensation and Pay-Versus-Performance

Investment Implications

• Alignment and potential overhang: Kavanaugh’s ownership (17.5% shares; 18.5% including redeemable OP units) and ongoing OP/LTIP awards align incentives, but successive OP unit blocks becoming redeemable (subject to approvals/limits) could create episodic supply if converted to stock; monitor shareholder approvals and 20% charter cap interactions .
• Governance safeguards vs dual-role risk: CEO/Chairman combination raises independence concerns; presence of a Lead Independent Director and fully independent audit/comp/nominating/acquisition committees partially mitigate oversight risks; track committee independence and any related party transactions (e.g., Fort Ashford/CWS transaction) for continued robust controls .
• Retention and cost flexibility: No employment agreement, severance, or CoC cash obligations reduce fixed obligations and golden parachute risk but could elevate retention risk in tight talent markets; equity-heavy pay may counterbalance by tying value to long-term outcomes .
• Process/compliance watch items: Late Form 4 filings flagged in 2024 (admin errors) represent a minor governance blemish; ensure remedial controls are durable given increased ownership activity and OP unit redemption complexity .