NexPoint Comments on Proposed Acquisition of UDF IV by Ready Capital

Rhea-AI Summary

NexPoint Real Estate Opportunities has commented on the proposed acquisition of UDF IV by Ready Capital . The deal offers a potential $5.89 per share, which includes up to $75 million in contingent cash distributions, significantly below UDF IV's reported book value of $9.47 per share.

NexPoint expresses concerns about the transaction's terms and the current Board's transparency, particularly regarding withheld Disclosure Schedules material to the merger agreement. The company continues to advocate for shareholders to support NexPoint's nominees at the upcoming December 10, 2024 annual meeting, which represents the first court-ordered election of independent Trustees in over eight years.

Positive

• Court order secured for first shareholder meeting in 8 years
• Potential acquisition deal providing shareholder liquidity
• Proposed transaction values shares at $5.89

Negative

• Offer price 37.8% below book value ($5.89 vs $9.47)
• 40% of deal value depends on uncertain contingent distributions
• Material terms in Disclosure Schedules withheld from shareholders
• Board oversight concerns including fraud and disclosure violations

Insights

Financial Analyst

The proposed Ready Capital acquisition of UDF IV represents a significant development, though with notable concerns. The $5.89 per share offer falls substantially below UDF IV's stated book value of $9.47 per share, representing a 37.8% discount. Of particular concern is the structure of the deal, where 40% of the value ($75 million) consists of contingent cash distributions that aren't guaranteed. The merger agreement's language using 'up to' that amount raises red flags about the likelihood of full distribution realization.

The transaction's timing, coinciding with NexPoint's proxy contest and the first board election in eight years, suggests reactive rather than proactive management. The withholding of material terms in the Disclosure Schedules limits shareholders' ability to properly evaluate the deal's true value proposition. These factors, combined with the significant discount to book value, indicate potential governance issues that could impact shareholder value realization.

Legal Expert

This situation presents significant corporate governance implications. The court-mandated annual meeting after an eight-year hiatus highlights serious oversight deficiencies. The intentional withholding of Disclosure Schedules from the merger agreement raises material transparency concerns and could potentially violate securities regulations regarding full and fair disclosure to shareholders.

The backdrop of previous fraud allegations and disclosure violations against the current board members adds another layer of complexity to the proposed transaction's evaluation. The timing of this acquisition proposal, just before the court-ordered board election, warrants scrutiny regarding whether it serves as a defensive measure against the proxy contest rather than maximizing shareholder value.

Proposed Transaction Demonstrates NexPoint's Ongoing Impact at UDF IV

If Elected, NexPoint Nominees Would Review and Pursue Transaction to Maximize Shareholder Value

DALLAS, Dec. 3, 2024 /PRNewswire/ -- NexPoint Real Estate Opportunities, LLC (together with its affiliates "NexPoint") today commented on the proposed transaction between United Development Funding IV ("UDF IV" or the "Company"), a real estate investment trust, and Ready Capital Corporation ("Ready Capital"), a multi-strategy real estate finance company:

"NexPoint is pleased that our multi-year advocacy and litigation continues to benefit UDF IV shareholders by bringing forward a potential transaction that could deliver much-needed liquidity. While we evaluate this proposal further, shareholders should note upfront that the potential $5.89 per share capped value offered under the acquisition is significantly below the $9.47 per share book value that UDF IV provided in its latest financials.

Over 40% of that potential value is comprised of $75 million in contingent cash distributions, which would represent a continued return of capital rather than meaningful value creation. Even so, the merger agreement does not guarantee this distribution; it merely allows UDF IV to make distributions 'up to' that amount. Given the latest financials and other cash obligations outlined in the agreement, the feasibility and likelihood of achieving the full distribution appears questionable.

Though the proposed transaction shows that our efforts are making an impact, we remain concerned about the lack of accountability and transparency at UDF IV under the current Board, which includes Trustees who presided over years of fraud, disclosure violations, poor performance, and persistent illiquidity. Notably, our concerns are reinforced by the intentional withholding of the material terms set forth in the Disclosure Schedules to the merger agreement, without which shareholders cannot accurately evaluate the proposed merger.

If elected, NexPoint's nominees would thoroughly review the proposed terms of the transaction and pursue the best possible outcome for shareholders.  We therefore continue to urge UDF IV shareholders to support NexPoint's nominees at the upcoming annual meeting."

NexPoint's ongoing efforts to drive accountability at UDF IV have already led to a court order compelling the Company to hold an annual meeting and fair election of all independent Trustees for the first time in over eight years. These efforts now continue to benefit shareholders by spurring this potential acquisition.

The Company has announced the court-ordered annual meeting will take place on December 10, 2024, which will be the last opportunity for shareholders to vote in the critical Board election. NexPoint urges shareholders to vote for its nominees: Paul S. Broaddus, Edward N. Constantino, John A. Good, and Julie Silcock, and reject UDF IV's current Board, which has overseen criminal and fraudulent behavior and significant losses in shareholder value and liquidity.

If elected, NexPoint's nominees are dedicated to working on behalf of all shareholders to drive accountability and maximize value at UDF IV, including by reviewing and pursuing transactions that align with shareholders' interests.

• Shareholders are encouraged to vote FOR NexPoint's nominees using the GREEN proxy materials.

For more information, visit udfaccountability.com or email NexPoint at udfinvestors@nexpoint.com.

About NexPoint

NexPoint Real Estate Opportunities, LLC is a wholly owned subsidiary of NexPoint Diversified Real Estate Trust, Inc. (NYSE: NXDT), an affiliate of NexPoint Advisors, L.P.

NexPoint Advisors, L.P. is an SEC-registered adviser on the NexPoint alternative investment platform. It serves as the adviser to a suite of funds and investment vehicles, including a closed-end fund, interval fund, business development company, and various real estate vehicles. For more information visit www.nexpoint.com

IMPORTANT INFORMATION

NexPoint Real Estate Opportunities, LLC ("NexPoint") intends to deliver 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 and NexPoint is not soliciting proxies at this time. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE NEXPOINT PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) WHEN AVAILABLE IN ITS ENTIRETY BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT ANY SOLICITATION. Copies of the documents will be made 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.

CONTACT INFORMATION

UDF IV Investor Contacts

Chuck Garske / Jeremy Provost / Theo Caminiti (Okapi Partners):

Email: info@okapipartners.com

Phone: (212) 297-0720

For Additional Information/Updates on UDF IV

Website: www.udfaccountability.com

Email: udfinvestors@nexpoint.com

Media Contacts

Lucy Bannon (NexPoint): lbannon@nexpoint.com

Paul Caminiti/Pamela Greene (Reevemark): nexpointteam@reevemark.com

NexPoint Investor Relations

Kristen Thomas: ir@nexpoint.com

View original content:https://www.prnewswire.com/news-releases/nexpoint-comments-on-proposed-acquisition-of-udf-iv-by-ready-capital-302321644.html

SOURCE NexPoint Advisors, L.P.

FAQ

What is the proposed acquisition price for UDF IV?

Ready Capital has proposed to acquire UDF IV at $5.89 per share, which includes contingent cash distributions of up to $75 million.

When is UDF IV's annual shareholder meeting scheduled?

UDF IV's court-ordered annual meeting is scheduled for December 10, 2024.

How does the proposed acquisition price compare to UDF IV's book value?

The proposed acquisition price of $5.89 per share is significantly below UDF IV's reported book value of $9.47 per share.

Who are NexPoint's proposed nominees for UDF IV's board?

NexPoint's nominees are Paul S. Broaddus, Edward N. Constantino, John A. Good, and Julie Silcock.