Konover Property Trust’s preferred shareholders are up in arms. Holders of the Cary, N.C.-based REIT’s series A convertible preferred stock are speaking out against the proposed absorption of Konover into a Kimco/Prometheus Southeast Retail Trust joint venture.

"We believe the Board of Directors of Konover by approving the proposed merger have continued to completely fail in their fiduciary duties to the minority common shareholders and Series A Convertible Preferred Shareholders," said Christopher H. B. Mills, CEO of North Atlantic Smaller Companies Investment Trust plc and a spokesmen for the group of shareholders, in a prepared statement.

"Since the Independent Directors have refused to meet with our financial and legal advisors to hear our positions prior to taking this ill-advised action, we are forced to make our concerns and point of view public today by releasing a copy of our letter to the Special Committee of the Board."

In a lengthy letter to the Konover board, shareholders represented by Greenwich, Conn.-based Mercury Partners LLC complain that the transaction is a bargain basement deal designed to the benefit of Paris-based Lazard, the parent company of Prometheus, and to the detriment of Konover’s preferred and common stockholders.

"Our first point of issue regards the potential purchase price for a share of common stock of the company (Konover), at least as indicated by the public bids of Prometheus Southeast Retail Trust, and its affiliates, including Lazard Freres Real Estate Investors, LLC," the letter reads.

"Based upon the public filings and the Arthur Andersen audited financial statements of the company for the year 2001 and the first quarter of 2002 as well as the 8(k) filing on May 15, 2002, the book value per share of common stock of the company is approximately $3.87 (even including a cash out of the Lazard Contingent Value Right), or roughly twice the amount per share offered by Lazard, your 66% controlling shareholder.

Undepreciated value per common share, usually a more accurate indicator of true real estate value, since well-managed real estate tends to appreciate in value, not decrease in value, is approximately $4.89 per common share.

This stark discrepancy appears to suggest only two possible conclusions: first, that Lazard is purchasing the company at a bargain price, and/or second, that the company's financial statements are inaccurate. The first outcome speaks for itself and is the primary reason we believe that liquidation is the only fair strategic direction for the company. As to the second conclusion, while we note that you have stated the possibility of further impairment of value in your recent public filings, we are outraged by the suggestion of this possibility."

In addition to voicing several other protests in the letter, the shareholders requested a meeting with Konover’s financial advisor, Credit Suisse First Boston, which approved the deal.

The proposed transaction entails New Hyde Park, NY.-based Kimco and New York-based Prometheus forming a joint venture to acquire Konover for $303 million, or $2.10 per share. The deal, which represents a cap rate of 10.9%, would give Kimco a 45% stake in the new joint venture. Kimco will contribute $35.5 million in cash and will take over management and leasing of the 4.8 million-sq.-ft. Konover portfolio, which includes 37 centers in 7 Southeastern states.