A major investor in City Office REIT is urging shareholders to reject a $1.1B takeover bid set for a vote next week.

Oksenholt Capital Management called the $7-per-share offer from a subsidiary of Elliott Investment Management a lowball deal in a letter to the REIT’s board chairman. Oksenholt, which said it owns "several hundred thousand shares" of City Office, is instead calling for a management shake-up and a business restructuring to maximize shareholder value.

“Despite the horrid performance of the stock over the years, we are convinced that there is a significant opportunity at hand for City to unlock its intrinsic value for the benefit of all its shareholders,” the letter says, according to a Tuesday news release from the Arizona-based investment firm.

Oksenholt values the REIT, which has seen its share price fall from an all-time high above $21 in 2022 to less than $6 in July, at roughly $15 per share. It was trading for just under Elliott’s $7 takeover bid price Wednesday.

The deal to take the REIT private was announced in July, and shareholders are scheduled to vote on the offer on Oct. 16. The deal has unanimous approval from the REIT’s board of directors.

Oksenholt accused management of mishandling the company's strategy while taking large payouts.

“While the shareholders have suffered significant loss due to the drastic decline in stock price, the CEO based in Canada, James Farrar, has continued to receive millions of dollars in salary, bonuses & stock awards notwithstanding the significant underperformance of City,” the letter says.

Oksenholt didn’t disclose the exact size of its ownership stake, and the company said in an email Wednesday that it held less than 5% of the stock's more than 40 million outstanding shares. Several major investors, including BlackRock, Vanguard, State Street and Morgan Stanley, are among the REIT’s largest shareholders, according to MarketScreener.

The investment firm accuses City’s management of keeping shareholders in the dark about a potential sale and negotiating the deal behind closed doors instead of in a competitive bidding process. Rather than selling the REIT, the letter lays out an aggressive turnaround strategy.

Vancouver-based City Office REIT owns a 5.4M SF portfolio of U.S. office space that was 85% leased at the end of March with a weighted average base rent of $30.85 per SF, according to a May investor presentation.

The REIT had $42M in revenue in the second quarter and $11.8M in funds from operations, with same-store net operating income up 1.8% year-over-year.

City Office didn't respond to a request for comment Wednesday morning.

In its letter, Oksenholt calls for the REIT to focus on restoring “its enviable Sun Belt market position … rather than entering into what for all intents and purposes is a quick liquidation sale.”

It says City Office has between $2M and $7M in wasteful spending on its balance sheet that should be cut and reinvested into operations and property improvements. It also calls for leadership to open a competitive bidding process for potential acquisitions.

It calls for the appointment of new independent directors and cutting executive bonuses while the stock is declining. Oksenholt also wants the REIT to relocate its headquarters to the U.S. and stop hiring in Canada.

“This is a US based company with a heavy presence in Sun Belt Markets & it is wasteful & inefficient to be operating out of foreign office space not owned by City,” the letter says.

UPDATE, OCT. 8, 3:30 P.M. ET: This story has been updated to add background on the size of Oksenholt Capital Management's stake in City Office REIT.