Has all material information been disclosed to shareholders?
Have Diversified shareholders benefitted from related party
Did Diversified’s leadership explore all options for liquidity?
Could you be making more if Inland insiders were being paid less?
UNITE HERE issued the following letter to Inland Diversified Real Estate
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
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:
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.
Mike French, 510-967-1673
Source: UNITE HERE