FTE Networks, Inc. (NYSE American: FTNW) (“FTE” or the “Company”),
today issued a letter to FTE shareholders regarding the Company’s
efforts and the completion of its acquisition of the assets of
Vision Property Management LLC (“Vision,” now part of the US Home
Rentals LLC subsidiary of FTE) on December 30, 2019.
The full text of the letter from interim CEO Michael Beys
follows.
Dear Shareholders:
FTE announced the acquisition of Vision Property
Management LLC for $350MM by its US Home Rentals subsidiary
yesterday. US Home Rentals is now a major owner and operator of a
portfolio of US rental home properties consisting of 3,184
properties across the United States. FTE intends to further expand
and grow US Home Rentals organically and through additional
acquisitions.
US Home Rentals will be run by Vision’s
management team which assembled its portfolio of houses over the
past 10 years and will continue as FTE shareholders. They will
develop their strategy to acquire and build affordable housing
properties for sale or rent. FTE has assumed approximately $80MM in
debt held by Vision and plans to refinance it into a lower cost
credit facility which will fund significant investments in property
renovations and significantly increase cash flow from the
portfolio. Vision has exited its previous “rent-to-own”
business model and no longer offers new rent-to-own contracts. It
has also settled or is in advanced settlement talks on all pending
litigation.
Since October 2019, a new board of directors and
management team with deep real estate industry experience has
worked tirelessly to guide the Company in a new strategic direction
for the benefit of all stakeholders. I was asked by the board two
weeks ago to step in from my role as an independent director to be
the interim CEO. I am leading the company’s efforts to regain
compliance with its regulatory filings and to recruit a permanent
management team. I have extensive legal experience, among other
things, as a former federal prosecutor, having served as an
Assistant US Attorney for the Eastern District of New York, as well
as experience investing in and managing commercial real estate
properties. My goal, along with our reinvigorated board, is to
instill strong corporate governance and internal and disclosure
controls for the company, to address the alleged malfeasance of
prior management, and to recover value for FTE shareholders.
FTE became the victim of a series of
unauthorized financings in 2017 and 2018 perpetrated by prior
management who borrowed in excess of $50MM consisting of
short-term, high-interest loans and toxic convertible notes. In
accordance with regulations and good governance protocols, the
Company has disclosed these unauthorized borrowings as well as
dilutive unauthorized share issuances by prior management and
reported these acts to the relevant regulators and legal
authorities.
FTE’s challenges in 2019 culminated with the
notice of delisting by the NYSE American exchange (the “Exchange”)
and the suspension of trading of our common stock on the Exchange
on December 17, which was originally suspended on December 11
following the Company’s notice to the Exchange of the events
described below. The pending delisting and suspension remains
subject to the Exchange’s appeal procedures. In November, in
connection with an agreement to settle a substantial amount of
corporate debt, the board agreed to issue 19.9% of our
then-outstanding common stock to the debt holder. Because of a
misunderstanding of how the percentage was required to be
calculated, we mistakenly caused shares to be issued in excess of
20% of the Company’s issued and outstanding common stock to the
debt holder without shareholder approval and did not submit an
additional listing application to the Exchange as required. When
the Company learned of what had occurred, it quickly rescinded the
transaction and cancelled the shares, and entered into a new
agreement to issue the proper number of shares. In accordance with
stronger governance, the circumstances were self-reported to the
Exchange by the Company. FTE has corrected this mistake and we
expect the situation to be resolved fairly, in full consideration
of the facts. We have appealed the delisting and are seeking to
have our common stock resume trading on the NYSE American exchange
or relisted on another exchange or recognized stock market.
The shareholders we have heard from (of all
sizes) remain hopeful that FTE will be allowed to regain its
listing on the Exchange or will find a new home as a public
company, especially now that it has embarked on an ambitious new
business line. We appreciate their patience and share their
confidence.
The growth strategy for US Home Rentals relies
on three main elements.
First, the market for single family home rentals
(SFR) is large, growing and attractive. Nationally, home rentals
are growing faster than home ownership. SFR has become recognized
as an established and counter-cyclical segment of the real estate
industry with publicly traded incumbents such as Invitation Homes
and American Homes 4 Rent, who dominate tier 1 major metropolitan
markets.
Second, there are significant barriers for new
entrants. Home portfolios overall have become prohibitively
expensive to acquire as the housing market enters its 10th year of
price appreciation. Managing a national portfolio requires scale,
technology investments, project management and purchasing
capabilities to rehabilitate and service local properties. The tier
3 and tier 4 markets, which is the market for US Home Rentals, are
still under-developed. US Home Rentals is one of the few players in
these markets equipped to handle these challenges. Additionally,
there are numerous smaller and sub-scale portfolios in tier 3 and
tier 4 markets that can be acquired, upgraded and better utilized.
There is much less competition and a great opportunity to
consolidate these smaller and more fragmented markets.
Third, US Home Rentals will benefit from the
discipline and transparency of its new management structure. FTE is
recruiting veteran managers who will help the company to achieve
the next level of operational execution. The Company has begun the
process of refinancing the credit facility to lower its cost of
capital and raise additional capital for growth and
rehabilitations. FTE’s leadership team and board of directors will
also implement the levels of transparency and oversight required to
ensure that US Home Rentals delivers a service-oriented solution to
all of its customers and complies with legal and regulatory
requirements at both a local and a national level.
The Company plans to begin updating its required
filings with the SEC in Q1 and to become current no later than the
end of Q2 2020. It is continuing to explore various strategic
alternatives that would improve the Company's long-term financial
health and operational effectiveness and address important legal
issues resulting from certain actions taken by prior management,
including but not limited to additional financial and operational
restructurings, sale or disposition of assets, and reviewing legal
remedies to recover funds and assets. The Company will also explore
the possibility of becoming a real estate investment company
(REIT), either on its own or through a business combination with an
existing REIT.
We appreciate the support and patience of all of
the Company’s stakeholders. We will continue to share pertinent
information as we work towards creating value for FTE shareholders
and improving our business operations to promote sustainable growth
in our revenues and profitability.
Sincerely,
Michael P. BeysInterim
CEO
Forward Looking Statements
This letter may contain “forward-looking
statements” within the meaning of the safe harbor provisions of the
United States Private Securities Litigation Reform Act of 1995.
Generally, forward‐looking statements can be identified by the use
of forward‐looking terminology such as “believe,” “will,”
“intends,” “expects,” and may include statements regarding matters
that involve known or unknown risks, uncertainties and other
factors that may cause our results, levels of activity, performance
or achievements to differ materially from results expressed or
implied by this release. Forward-looking statements are neither
historical facts nor assurances of future performance. Instead,
they are based only on our current beliefs, expectations, and
assumptions regarding the future of our business, future plans and
strategies, projections, anticipated events and market trends, the
economy and other future conditions. Because forward-looking
statements relate to the future, they are subject to inherent
uncertainties, risks and changes in circumstances that are
difficult to predict and many of which are outside of our
control. These risk factors and others are included from time
to time in documents we file with the Securities and Exchange
Commission, including but not limited to, our Form 10-K’s, Form
10-Q’s and Form 8-K’s. Our actual results and financial condition
may differ materially from those indicated in the forward-looking
statements. Accordingly, you should not place undue reliance on
these forward-looking statements. Any forward-looking statement
made by us in this release is based only on information currently
available to us and speaks only as of the date on which it is made.
We undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future
developments or otherwise.
About FTE Networks, Inc.
FTE Networks, Inc. (“FTE”) through its
subsidiary US Home Rentals, owns, operates and invests in
affordable rental housing in tier 3 and 4 markets. Single family
home rentals (SFR) is large, growing and attractive market.
Nationally, home rentals are growing faster than home ownership.
With a portfolio of 3,184 affordable rental homes across the United
States, FTE is one of the few companies that has a strong and
established portfolio of assets for the affordable rental housing
market.
For more information, please
contact:
Corporate Contact:FTE
Networks, Inc.237 W. 35th Street, Suite 601New York, NY
10001(877) 850-4308ir@ftenet.com
Media Contact:
FTE@makovsky.com(212) 508-9777
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