Wednesday, May 03, 2006

CNL Retirement Properties agreed to be purchased by Health Care Properties (HCP). CNL Retirement Properties is a non-traded public REIT. Investors paid $10 per share and the HCP bid is $13.50 per share. It looks like the purchase price is about 14.5 times CNL's 2005 FFO. This high compared to historic FFO multiples but lower than recent transactions. Investors will receive $11.13 per share in cash and .08 shares of HCP for every CNL share owned. So, an investor that made a $5,000 investment will be stuck with 43 shares of HCP. Oddlot nightmare. Hopefully, CNL will make some sort of accommodation for the small investor.

I was at a CNL due diligence meeting in early April and asked CNL whether it was exploring the sale of its REITs to another REIT or private equity investor. The question was pointed towards CNL's hospitality REIT but would cover the health care REIT as well. (CNL obviously could not discuss the HCP transaction.) I was told that this type of transaction was not in the prospectus. Since when does shareholder wealth maximization not become part of the prospectus?

I guess CNL wealth maximization trumps whatever is in the prospectus. HCP will pay CNL $120 million for its management company / advisor which was separate from the CNL Hospitality REIT. CNL has a reputation as trying to maximize its own wealth and finally found a participant. (One failed IPO and one failed rollup of limited partnership, which both included large valuations for the external management company.) To paraphrase my dad, "CNL loves investors but loves itself best."

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