Opposition mounts to Inland merger

Union says shareholders will end up footing the bill for $45 million in transaction fees from merger with Kite Realty

Jun 3, 2014 @ 2:51 pm

By Mason Braswell

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Opposition is beginning to mount three weeks before a planned $2.1 billion merger of nontraded REIT, Inland Diversified Real Estate Trust Inc., and publicly traded real estate investment trust, Kite Realty.

Unite Here, a union representing employees in the hospitality industry, is encouraging shareholders to vote against the proposal, saying the merger could carry a transaction cost of $45 million, a quarter of which will be paid by investors in the two REITs.

Some of those fees would go toward an $800,000 “golden parachute” for Diversified's top executive, Barry Lazarus, as well as consulting and management fees for other Inland insiders, Unite Here said. Approximately $12 million of the $45 million will go toward terminating external management agreements.

Unite Here said Inland had waived those fees in liquidity events for other REITs, including Inland American., which sold in March.

Unite Here said fees on Inland Diversified Real Estate Trust have already totaled approximately $166 million.

If approved, the merger is expected to value Inland Diversified Real Estate Trust at $10.50 a share. Most investors originally had purchased shares for $10. Investors could see a return of 14%, assuming they had invested in August 2012, and 31% for those who invested in September 2009, according to the company.

Inland spokeswoman Nicole Spreck defended the merger, saying that the information that Unite Here used was “taken out of context.”

Additionally, she said that Inland Diversified was not doing an internalization of its business manager and has never paid an internalization fee. The fee referenced by Unite Here was instead a “liquidity event fee payable to Inland Diversified’s business manager upon the consummation of the merger…” she said.

Ms. Spreck disputed the other fees comprising the $45 million.

“Unite Here's reference to the various offering costs, fees and expenses paid by Inland Diversifed is also misleading,” she said. “In accordance with industry standards, Inland Diversified collected offering costs, most of which included selling commissions, which were then paid to third party unaffiliated broker/dealer firms per industry protocol.”

“Inland Diversified recommends that its stockholders review the joint proxy statement/prospectus to learn the facts related to the proposed merger and ignore the uninformed and misguided press release/letter issued by Unite Here,” Ms. Spreck said.

Unite Here Labor 19 has a labor dispute at a hotel owned by Inland American.

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