NexPoint Sends Letter to UDF IV Board Expressing Interest in Managing the Company
NexPoint Advisors L.P. and its affiliates have submitted a letter to the board of publicly traded real estate investment trust United Development Funding IV (OTC PINK: UDFI) expressing interest in managing the company.
NexPoint Advisors L.P. and its affiliates have submitted a letter to the board of publicly traded real estate investment trust United Development Funding IV (OTC PINK: UDFI) expressing interest in managing the company.
NexPoint noted that a year has passed since it first communicated interest in potentially managing UDF IV and expressed concern over what it views as an apparent lack of a clear business plan or direction with respect to management of the REIT.
NexPoint believes that it is “in a unique position to maximize the value of the UDF IV’s assets and that any transaction…will be enthusiastically received by the investment community.”
“Over a year has passed since our discussions and yet [UDF IV] continues to languish without any clear business plan or direction,” NexPoint’s letter stated. “Of course, this conclusion is based on very limited information given [UDF IV’s] gross dereliction in its public reporting obligations. Notably, [its] failure to file a Form 10-K (and other required periodic Exchange Act reports) in over five years or hold an annual meeting of the shareholders in over five years violates not only SEC reporting requirements but is also a violation of [UDF IV’s] declaration of trust and the bylaws, each of which expressly contemplate that there shall be an annual meeting of the shareholders.”
“All the while, both management and the board has presumably continued to collect fees without taking account into the views of shareholders – the group to whom they owe fiduciary duties,” NexPoint added. “This failure to provide even the most basic oversight is clearly a significant factor in [UDF IV’s] underperformance over the past several years.”
NexPoint indicated that if it does not receive “meaningful engagement” from the UDF IV board, it intends to file a lawsuit in Maryland state court to compel the board to call the annual meeting of the shareholders.
“The shareholders’ right to elect trustees is a key tenant of both corporate and securities laws,” the letter stated. “The board’s refusal to hold an annual meeting deprives shareholders of this fundamental right and allows it to act without accountability to its shareholder base. We therefore feel that we may have no option but to pursue remedies available under law if we are unable to exercise our rights as shareholders…”
NexPoint also emphasized that while UDF IV remains engaged in litigation with Kyle Bass and Hayman Capital, its interest is unrelated to those claims, and it is open to any proposals UDF IV has regarding the preservation of the claims.
United Development Funding L.P. filed its lawsuit against Bass and Hayman Capital in November 2017, claiming the defendants engaged in a “short-and-distort” campaign by making false statements that damaged its business and interfered with its contracts and business relations.
The lawsuit stemmed from a series of anonymous online reports allegedly authored by Bass and posted to an investor networking website, detailing unsubstantiated claims that UDF operated as a Ponzi scheme – an accusation the company has vigorously denied.
As of July 13, 2020, NexPoint Strategic Opportunities Fund owned 1.76 million shares of UDF IV common stock, or 5.7 percent of the outstanding shares. NexPoint Advisors L.P owns 1.8 million shares, or approximately 5.9 percent of the outstanding; NexPoint GP LLC owns 1.8 million shares, or approximately 5.9 percent of the outstanding; and James Dondero owns 2.1 million shares, or approximately 6.8 percent of the outstanding shares.
NexPoint Strategic Opportunities Fund is an investment fund structured as a Delaware statutory trust. James Dondero is the president of NexPoint GP, which is the general partner of NexPoint Advisors. NexPoint Advisors serves as the investment adviser to the NexPoint Strategic Opportunities Fund and other NexPoint funds.
