NexPoint Raises Red Flag on UDF IV Merger With ReadyCapital

NexPoint is throwing sand in the gears of a possible merger between REIT United Development Funding IV and Ready Capital.

NexPoint, a Dallas-based REIT, is a major shareholder of UDF IV. After vocally opposing the merger, it will submit a competing proposal, according to a news release. NexPoint is deferring its vote on Ready Capital’s proposal and encouraged other shareholders to do the same.

NexPoint also asked UDF IV’s board to postpone a March 4 meeting on the merger.

Ready Capital made a deal in December to acquire UDF IV for $5.89 a share. UDF IV has encouraged shareholders to vote to approve the merger.

NexPoint and UDF IV were engaged in a proxy battle before Ready Capital made moves to buy UDF IV. NexPoint nominated four trustees to UDF IV’s board, which had been in place for nine years. It claimed the board failed to take action to protect shareholders, leading to “chronic underperformance.”

Specifically, it pointed to the January 2022 criminal convictions of the REIT’s management team. Four executives — including CEO Hollis Morrison Greenlaw and CFO Cara Delin Obert — were sentenced to a combined 20 years in prison for fraud.

Federal prosecutors said the firm issued loans to developers from five funds and borrowed between funds to pay out investors when developers failed to repay. The company’s largest borrower was Mehrdad Moayedi and his firm Centurion American.

NexPoint claims UDF IV’s board hasn’t implemented changes to prevent future misconduct and continues to allow imprisoned executives to earn management fees.

Meanwhile, UDF IV has responded to NexPoint’s claims with allegations of NexPoint’s poor performance. It also characterized NexPoint’s role in the proxy battle as a “nefarious and self-interested campaign.”

NexPoint accused UDF IV of trying to avoid holding its first trustee election in nine years when it cancelled its annual meeting in December.