News Column

Inland Diversified shareholders: Ask questions about insiders and self-dealing, says UNITE HERE

June 16, 2014



CHICAGO--(BUSINESS WIRE)-- UNITE HERE issued the following letter to Inland Diversified Real Estate Trust shareholders:

Dear Inland Diversified Investor:

Inland Diversified’s performance has been criticized in Crain’s Chicago Business’ coverage of the Kite Realty merger. After being charged $166 Million in fees and expenses by entities controlled by Inland insiders, you are now being asked to pay millions of additional fees to transact the merger. You were recommended this deal by the Board of Directors, which includes Barry Lazarus.

Mr. Lazarus wears several, potentially conflicting, hats and will personally gain from the transaction. We took a closer look at his bio, given his roles as Diversified’s top executive and director, as well as president of Diversified’s Business Manager. We found what appear to be undisclosed ties to The Inland Group’s top principal and unexplained related party transactions, so we pose the following questions for shareholders:

  • Has all material information been disclosed to shareholders?
  • Have Diversified shareholders benefitted from related party transactions?
  • Did Diversified’s leadership explore all options for liquidity?
  • Could you be making more if Inland insiders were being paid less?

    Lazarus: “I feel pretty good.”

    Crain’s Chicago Business reported that the return for shareholders who bought into Diversified in 2009 will fall well short of the return for the Bloomberg REIT index, based upon Kite’s share price on February 7. According to the same article, Lazarus commented: “I feel pretty good.” He will personally receive an $800,000 “Golden Parachute” as part of the deal.

    While an IPO was considered, Lazarus decided against it, according to Crain’s, in part because it would have cost a lot of money in investment banking fees and other expenses. The merger’s transaction costs are estimated to be more than $45 Million. Over a quarter of this amount will be paid by you and existing Kite investors to Inland insiders. This is in addition to the $100+ Million in offering costs, $50 Million in fees and expenses to the Business Manager and Property Managers, and $10 Million in other fees charged by entities controlled by Inland insiders.

    Unexplained related party transactions

    In addition to his numerous positions at Diversified, Lazarus became chief executive officer of Inland Atlantic Development Corporation in 2007. This entity was described as “a private company providing development services,” according to his bio in Diversified’s SEC filings. A review of public records revealed that Inland Atlantic and its affiliates are business ventures that involved The Inland Group top principals and received millions in construction loans from Inland Bank.

    What benefit did Diversified shareholders receive from putting millions into Inland Bank?

    Like Diversified’s sponsor and its external managers—whom you have paid handsomely—Inland Bank is majority controlled by a principal of The Inland Group. In 2012, Inland Bank caught the attention of regulators for shifting losses to affiliates of “common ownership.” Within months of Inland Bank inking its unique loss-shifting arrangement with these undisclosed affiliates, Diversified opened an escrow account at the bank and deposited millions of dollars. Twelve days after regulators issued a Consent Order against the bank, Diversified’s account was closed.

    SEC investigation & lawsuit

    Affiliates of The Inland Group are no strangers to controversy over related party transactions. The SEC has been investigating related party fees and transactions at Inland American Real Estate Trust. Inland’s last REIT to go through a liquidity event—Inland Western—faced a class-action lawsuit from its investors over a significant related party transaction.

    To read more, go to:

    http://www.inlandinvestoralert.org/2014/06/lettertodiversifiedinvestors/

    UNITE HERE is a union representing over 275,000 employees in the hotel, food service, and gaming industries. Its members are beneficiaries of pension funds with over $60 billion in assets. We believe investors and employees alike are better served by strong corporate governance practices. UNITE HERE Local 19 has a labor dispute at a hotel owned by Inland American.




    UNITE HERE

    Mike French, 510-967-1673

    www.inlandinvestoralert.org

    Source: UNITE HERE


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