Non-traded REIT valuations – transparency or opacity?

A number of non-traded REITs recently reported estimated share values in their annual reports on Form 10-K, and a perusal of the related disclosure leaves us wondering how the values were computed.  Continue reading

GIPS performance standards for REITs?

Because of the general lack of regular asset or portfolio valuations (and the mystery surrounding many of those that have been completed) it is very difficult to analyze non-traded REIT performance on programs that have not “gone full cycle.”  Although the SEC’s Guide 5 provides some basic guidelines for performance disclosure, because of the lack of any updating or additional formal guidance from the SEC, the usefulness of Guide 5 prior performance disclosure is limited – often the resulting disclosure is a mishmash of financial data without any helpful summary information.

An interesting contrast to the fog that surrounds non-traded REIT performance is the real estate performance disclosures endorsed by the CFA Institute through its voluntary GIPS (Global Investment Performance Standards) initiative. See 2010 standards here.

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Steadfast change in CFO – update

This post updates our previous post regarding the resignation of Steadfast’s CFO, James Kasim.  Steadfast subsequently reported that the Audit Committee of its board of directors initiated an investigation in response to announcements related to Mr. Kasim.  According to the report, the Audit Committee engaged an outside law firm and a “large, national independent accounting and auditing firm” to assist in the investigation.  At the direction of the Audit Committee, the procedures of the investigation included conducting interviews, analyzing certain transactions and assessing the related internal controls that were in place during Mr. Kasim’s tenure as CFO.  This investigation was completed on April 7, 2011, and the Audit Committee was advised that nothing was discovered that would adversely impact the integrity of Steadfast’s financial statements.  The Audit Committee discussed the results of the investigation with Ernst & Young LLP whose report on its financial statements for the year ended December 31, 2010 is included in Steadfast’s prospectus supplement No. 8 and Form 10-K.

Empire re-emerges as Independence

Independence Realty Trust, Inc. filed a Form S-11 on April 8 relating to an offering of up to $1 billion of common stock.  Independence’s name was changed from Empire American Realty Trust, Inc. following the acquisition of its advisor and dealer manager by RAIT Financial Trust, a publicly traded REIT (NYSE:RAS), earlier this year.  As you may recall, Empire previously registered an offering that was declared effective in 2010, but never broke escrow.   Martel Day, formerly executive vice president of Inland Securities Corporation, serves as executive vice president of Independence and president of its dealer manager.

Independence’s investment strategy is to acquire a diverse portfolio of multifamily properties located in the United States.  The REIT expects to target primarily core and stabilized multifamily properties that are well leased and produce predictable income, but will also consider properties that require limited capital expenditures, have existing cash flow and offer opportunities for enhanced returns.  It will be seeded with six properties being contributed by affiliates of the sponsor in exchange for operating partnership units and the assumption of debt.

Skin in the game at Grubb & Ellis Healthcare REIT II

Grubb & Ellis Healthcare REIT II, Inc. announced that Jeff Hanson, its Chairman and CEO, and Danny Prosky, its President and COO, have entered into executive stock purchase plans under which they will invest 100% and 50%, respectively, of their cash compensation (which they earn as employees of Grubb & Ellis Co.) in shares of common stock of Grubb & Ellis Healthcare REIT II.  The plan is irrevocable and will remain in effect until the earlier of Grubb & Ellis Healthcare REIT II closing its equity raise or the end of 2011.  The purchase price will be $9.00 per share, which is equal to the $10.00 per share public offering price less commissions and the dealer manager fee.  According the announcement, both Prosky and Hanson intend to renew the plans on an annual basis beginning January 1, 2012.

CNL Lifestyle completes private note placement; indenture places restrictions on dividend payments

On April 6, CNL Lifestyle Properties, Inc. filed a Form 8-K disclosing that it had completed the sale of $400 million of 7.25% senior notes due 2019 resulting in net proceeds of approximately $388 million.    The company indicated that it intended to use the proceeds of the offering to repay existing indebtedness, fund future acquisitions of properties, loans and other permitted investments, and for general corporate purposes.  

The indenture under which the notes were sold, among other things, limits the company’s ability to pay dividends or make certain distributions.  The formula for determining the amount of dividends that can be paid is highly technical and includes a number of defined terms, but generally provides that the amount of dividends, plus certain other “restricted payments,” must be less than the sum of (1) 95% of CNL Lifestyle’s funds from operations for the period from January 1, 2011 to the end of the most recently completed fiscal quarter, (2) aggregate net cash proceeds received from the issuance of additional equity interests, (3) proceeds from sale of any restricted investment made after the date of the Indenture, and (4) the fair market value of certain entities designated as a restricted subsidiary.  However, CNL Lifestyle may pay any distribution necessary to maintain its status as a REIT under the Internal Revenue Code if its aggregate debt on a consolidated basis is less than 60% of its adjusted total assets and no event of default has occurred.

To our knowledge, CNL has not made a public announcement of the anticipated impact of this restriction on its dividend rate, which is currently 6.25% based upon a $10 share price.