Current Trustees Continue to Protect the Interests of the Board, UDF Management, and the Largest Borrower at Shareholders’ ExpenseShareholders Should Not Be Misled by UDF IV’s Ongoing Attempts to Deflect from the Board’s Egregious Actions
DALLAS, Nov. 6, 2024 /PRNewswire/ — NexPoint Real Estate Opportunities, LLC (together with its affiliates “NexPoint”) today provided an update on United Development Funding IV (“UDF IV” or the “Company”). NexPoint notes that UDF IV’s current Board of Trustees continues to deflect attention from the Board’s egregious actions and the Company’s underperformance by pushing false and misleading narratives about NexPoint. Shareholders should instead focus on the ongoing conduct of this Board and recognize the need for wholesale change; otherwise, questionable actions by UDF IV management, the Board, and the Company’s largest borrower, Mehrdad Moayedi, are unlikely to be investigated and remedied.
NexPoint nominated four highly regarded real estate and finance industry professionals to replace the current independent Trustees on the UDF IV Board. These accomplished individuals bring relevant industry expertise and governance experience at both public and private companies to their candidacy. If elected, NexPoint’s nominees are committed to working on behalf of shareholders to enact critical change, establish accountability and transparency, and recover value and liquidity at UDF IV. This includes thoroughly investigating any improper transactions and, where available, pursuing recoveries of misused funds for the benefit of all shareholders.
Shareholders Should Note Major Red Flags from Current Board of Trustees:
UDF IV’s current Board of Trustees does not want you to know that the management fees it continues to approve for UDF’s advisor—over $10 million in the last two years—enrich former UDF executives who are currently in federal prison for committing fraud against UDF IV shareholders. Not only do the convicted felons inordinately profit from UDF IV’s advisory agreement, but the advisory fees appear even more unfounded considering the deficiencies in portfolio management (one of the advisor’s primary responsibilities) that were revealed in the Company’s latest financials. Meanwhile, shareholders suffer without liquidity, brought on by years of disclosure violations that led Nasdaq to delist the stock and the SEC to revoke the Company’s registration altogether. This all occurred under the oversight of three of the four trustees who are up for election.
UDF IV’s Board of Trustees has permitted the Company to use shareholder funds for former executives’ personal disgorgement and legal defenses. Upon information and belief, the Company advanced legal fees totaling more than $65 million, and a significant portion of those advancements may have been improper. For example, the current Trustees authorized the Company to pay millions in legal fees and indemnification expenses for former management’s criminal trial, despite the clear language in the advisory agreement prohibiting indemnification when the expense arises from “an alleged violation of federal or state securities law.” Prior to that, the Board allowed UDF IV to pay former executives’ SEC disgorgements (totaling $7.2 million with pre-judgment interest), which were obligations of the individuals, not the Company.
UDF IV, under the Board of Trustees’ oversight, has permitted the Company to amass over 98% of UDF’s unaffiliated debt with a single borrower, Mehrdad Moayedi and affiliates of Centurion American, a developer with a history of failed projects. Inexplicably, the Company appears to have released Mr. Moayedi from significant personal guarantee liability.
These red flags underscore the urgent need for shareholders to establish proper oversight at UDF IV by replacing the Board of Trustees with NexPoint’s highly qualified nominees: Paul S. Broaddus, Edward N. Constantino, John A. Good, and Julie Silcock.
Shareholders Should Not Be Fooled by UDF IV’s Expensive Misinformation Campaign, Which Defends and Protects the Board and Management at Shareholders’ Expense:
UDF continues to use shareholder funds to spread misleading information about NexPoint to divert shareholder attention from the Board and management’s own actions and abysmal performance.
In its attacks on NexPoint, UDF IV mischaracterizes the performance of one NexPoint-advised REIT, NexPoint Diversified Real Estate Trust (NYSE:NXDT), conveying returns over a self-serving timeframe without including dividends. NexPoint manages real estate assets in many different investment vehicles, including several public and private REITs, registered funds, and tax-advantaged vehicles, among other structures. As responsible stewards of invested capital, NexPoint has a track record of maintaining robust compliance practices and generating meaningful dividends and capital appreciation for its shareholders.
Other established public REITs at NexPoint include NexPoint Residential Trust, Inc. (NYSE:NXRT) and NexPoint Real Estate Finance, Inc. (NYSE:NREF), which delivered total returns of 62.3% and 18.2% respectively over the last year.1
Meanwhile, from the time of UDF IV’s initial listing to when SEC revoked its registration, UDF IV’s share price suffered a -93% decline. It is no wonder the Company wants to divert shareholders’ attention away from that performance. Ignoring this severe decline, UDF IV touts “shareholder returns” that management and the Board allegedly delivered. The cash distributions they cite in support of this are 100% return of capital and should be more cause for concern than celebration.
UDF IV’s communications also criticize management incentives at NXDT, exclusively referencing stock grants awarded under a long-term incentive plan that align the interests of management with shareholders. Such alignment has been markedly absent from UDF IV. Further, UDF IV makes this misleading claim without acknowledging how members of the former management team—who are currently in prison for defrauding shareholders—are getting richly rewarded though UDF IV’s own advisory agreement, which directed over $10 million in fees to the advisor over the last two years.
Finally, UDF IV’s attempts to link unrelated bankruptcy proceedings to this election underscore the lengths the Board and management will go to further entrench themselves and distract from primary issues.
The 2019 bankruptcy proceedings of former affiliate Highland Capital are completely unrelated to NexPoint’s investment in UDF IV and irrelevant to current efforts to drive accountability at the Company. NexPoint’s efforts are focused on electing qualified, independent candidates to the UDF IV Board of Trustees who would represent the interests of all shareholders.
Not only are the matters irrelevant, UDF IV’s account of them mischaracterizes the actions of NexPoint founder James Dondero in these proceedings, promoting misleading claims made by parties in the case who used the process to turn a reorganization of a solvent estate into a liquidation, wasting millions in professional fees and unduly benefitting certain insiders while harming other stakeholders. (In one instance, Highland bankruptcy professionals shirked commitments to pay routine bonuses to rank-and-file employees, prompting Mr. Dondero to use millions of his own personal funds to satisfy these payments.) The improper liquidation forced Mr. Dondero to pursue legal remedies to enforce his and other parties’ rights, minimize waste on unnecessary professional fees and expenses, and otherwise recover funds in the bankruptcy process. Knowledgeable parties involved in the bankruptcy calculate that as much as $600 million was squandered that could have been used to pay creditors in full and permit Highland to emerge as a going concern. As such, interested parties continue to raise concerns that the Chief Restructuring Officer in the case has presided over immense value destruction and enriched himself and undisclosed business relationships at the expense of stakeholders.
(Details of bad acts by: (i) James Seery; and (ii) GCM Grovesnor (NASDAQ:GCMG), Stonehill Capital Management, LLC, and Farallon Capital Management, LLC.)
Mr. Dondero’s actions are in pursuit of accountability for this mismanagement of the estate and enforcement of his and other stakeholders’ rights within the bankruptcy proceedings.
While NexPoint seeks to correct UDF’s misleading accounts of these matters, the bankruptcy proceedings and the legal actions surrounding them have no bearing on NexPoint’s efforts to restore accountability at UDF IV. NexPoint urges shareholders not to let the Company’s misinformation and deception tactics distract from the severe issues at UDF IV. Electing new Trustees to the UDF IV Board is the only way to enact change and effectively address those issues that truly matter for shareholders and directly affect their investment.
Vote for Change by Electing NexPoint’s Nominees to UDF IV’s Board of Trustees:
The UDF IV Board’s red flags highlight the need for change to prevent further value destruction. Today, in addition to the current Trustees’ track record, shareholders should be concerned about the amount of time and money the Board is spending to hide the truth and stay in power.
Shareholders can vote TODAY to replace the current Trustees, voting FOR NexPoint’s nominees using the GREEN proxy card. Follow the voting instructions on your green proxy materials to submit your vote.
If you have already submitted a white proxy card, it’s not too late to change your vote. Only the last date proxy card submitted will be counted.
For detailed voting instructions, visit: udfaccountability.com/voting-information
For voting assistance contact Okapi Partners at: info@okapipartners.com or (877) 869-0171
IMPORTANT INFORMATION
NexPoint Real Estate Opportunities, LLC (“NexPoint”) has delivered a proxy statement with respect to its solicitation of proxies for nominees to be elected to the United Development Funding IV (“UDF IV”) Board of Trustees at the Annual Meeting of Shareholders of UDF IV. The date for the Annual Meeting has not yet been set at this time.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE NEXPOINT PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) IN ITS ENTIRETY AS IT CONTAINS IMPORTANT INFORMATION ABOUT THE PROXY SOLICITATION.
Copies of the documents are available free of charge from NexPoint by accessing the website www.udfaccountability.com.
NexPoint, its affiliates, their directors and executive officers and other members of management and employees may be participants (collectively “Participants”) in the solicitation of proxies by NexPoint. Information about NexPoint’s nominees to the UDF IV Board of Trustees and information regarding the direct or indirect interests in UDF IV, by security holdings or otherwise, of NexPoint, the other Participants and NexPoint’s nominees will be available in the proxy statement. NexPoint’s disclosure of any security holdings will be based on information made available to NexPoint by such Participants and nominees. UDF IV is no longer subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Consequently, NexPoint’s knowledge of significant security holders of UDF IV and as to UDF IV itself is limited.
Past performance does not guarantee future results. Performance during time periods shown is limited and may not reflect the performance in different economic and market cycles. There can be no assurance that similar performance will be experienced.
CONTACT INFORMATION
Media Contact: nexpointteam@reevemark.com
Investor Relations: ir@nexpoint.com
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1 Based on cumulative dividends and stock price as of 10/31/2024. Based on stock price only, NXRT and NREF increased 54.3% and 2.0% during this period respectively.
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SOURCE NexPoint Advisors, L.P.
