Daniel Goodwin, chief executive of Inland Real Estate Group of Cos. Inc., criticized the timing of an IPO of a nontraded real estate investment trust that Inland formerly controlled, Retail Properties of America Inc.
Once dubbed Inland Western Retail Real Estate Trust Inc., Retail Properties of America launched in 2003 and listed on the New York Stock Exchange in April.
The REIT was criticized at the time for the pricing of its listing. A reverse stock split boosted the stated value of the shares as they listed to trade, with shares being offered at $8 a share.
According to a new lawsuit, the REIT had told investors in January 2011 that they should expect shares to be valued at $17.25 before the offering.
Adjusted for the stock split, the REIT's shares had been diluted to $3.20 a share at the time of the offering. Investors bought most of those shares at $10 a share.
In an interview Thursday, Mr. Goodwin was quick to note that Inland has no control over Retail Properties of America.
“Although we are shareholders, we have not managed the REIT for the past four-and-a-half years,” he said.
Inland owns about 2 million shares of the REIT through various businesses, Mr. Goodwin said.
Some members of Inland's board “disagreed with the timing and execution” of the initial public offering, he said.
“Those opinions were largely ignored,” Mr. Goodwin said.
One investor, Larry Sadler, filed a complaint against Retail Properties of America on July 26 in U.S. District Court for the Northern District of Illinois. According to that complaint, which seeks class status, investors have seen “an astonishing loss of value” in Retail Properties of America — more than $3 billion.
“The board failed to correctly manage the 2012 offering and participated in other wrongful and improper conduct in violation of their fiduciary duties,” according to the complaint.
When asked whether Inland would join the class action against Retail Properties of America, Mr. Goodwin said: “We have discussed various potential actions but haven't reached a conclusion. Our interests are clearly aligned with the shareholders.”
Angela Aman, the chief financial officer of Retail Properties of America, didn't return calls Thursday evening and Friday morning seeking comment.
In a statement on its website, Retail Properties of America said: “The complaint alleges, among other things, that the company and (executives named in the suit) breached their fiduciary duties when the company listed its stock on the New York Stock Exchange and made a concurrent equity offering.
The REIT “believes the lawsuit to be without merit,” according to the statement.
Falling valuations of nontraded REITs have been plaguing investors, the independent broker-dealers that sell the product and the investment firms that manage the REITs. Inland is a leader in the nontraded REIT industry.
The REIT was struggling with debt at the time of its April listing, according to the investor complaint.
“Inland Western, struggling with debt and under pressure from the company's creditors (who were also functioning as the underwriters of the 2012 offering), looked to the listing as a means to avoid default and multiple foreclosures,” according to the complaint. “It was this motivation that influenced the defendants' decision to pursue the 2012 offering even when it became apparent that the recapitalization and offering price would be disastrous for the shareholders.”
Shares of Retail Properties of America were trading at $10.07 Friday morning.
[email protected]
