Wells REIT II - Channeling Joe Biden
To paraphrase the vice president, it's a big freaking deal. Wells REIT II made two filings today, one not unexpected and another that just jumped off the page. Wells REIT II announced that it was cutting its dividend from 6% to 5%. The REIT had been telegraphing this for sometime, disclosing in at least its last two 10-Qs that its distribution was not fully covered by operational cash flow and the board was monitoring whether the REIT could maintain the dividend. Wells REIT II follows the trend of non-traded REITs - Hines REIT, Inland American to name two - that dropped distributions after closing their offering period. While the drop in distribution is unfortunate, it was not unexpected, and appears prudent.
Wells REIT II also announced a huge acquisition. The REIT is paying $615 million for Market Square, a 679,710 square foot, Class A office complex in Washington DC. This equates to $905 per square foot. This monster transaction should represent at least 10% of Wells REIT II's portfolio. I am not sure whether it's comparable, but another downtown DC office property recently sold for $596 per square foot. If the sale is comparable, REIT II did not get the property on the cheap. Wells REIT II's purchase of Market Square is not going to tamper the opinion that Washington DC is the hottest commercial real estate market in the country. It was a big freaking deal.