Friday, April 29, 2011

Cornerstone Healthcare Plus REIT Pulls Offering, Hires Stanger
I love Friday afternoons.  I just saw this filing from Cornerstone Healthcare Plus REIT.  It has terminated its offering, and has hired Robert Stanger to assist it with its strategic alternatives.  One of the alternatives could include hiring a new managing broker / dealer, which would mean the REIT would reopen its offering at some future point.  Cornerstone Healthcare Plus began raising capital in August 2007 and has raised an anemic $130 million (approximately) in investor equity.   Here is the entire correspondence:

April 29, 2011

Dear Investor,

We are writing to inform you of a recent decision made by the Independent Directors Committee of the Board of Directors of Cornerstone Healthcare Plus REIT, Inc. (“CHP”). 

At the recommendation of our advisor, the Independent Directors Committee is considering various strategic alternatives for CHP to enhance stockholder value. One of the alternatives under consideration is the hiring of a new dealer manager for the company’s public offering of common stock.  The Independent Directors Committee has engaged Robert A. Stanger & Co. as its independent financial adviser to assist in the consideration of strategic alternatives.

In consideration of the uncertainty associated with these developments, our Independent Directors Committee has directed us to take the following steps with respect to our public offering.

The Public Offering.  Effective immediately, we are suspending our public offering.  Accordingly, we are not making or accepting offers to purchase shares of stock in CHP until further notice.

Suspension of the Distribution Reinvestment Plan.  Our offering included a distribution reinvestment plan under which our stockholders could elect to have all or a portion of their distributions reinvested in additional shares of our common stock.  Consistent with the above decision with respect to the offering, we are suspending our distribution reinvestment plan effective on May 10, 2011.  Therefore all distributions paid after that date will be in cash until further notice.

Suspension of the Stock Repurchase Program.  Our stock repurchase program provides stockholders with a limited ability to sell shares to us for cash until a secondary market develops for our shares.  Consistent with the decisions to suspend our public offering and distribution reinvestment plan, we are suspending repurchases under the program for reasons other than death effective May 29, 2011. We can make no assurances as to when or if repurchases will resume.  The share repurchase program may be amended, resumed, suspended again, or terminated at any time.

We believe that these steps will better position us to maximize stockholder returns over the long term.  We take your investment with us very seriously, and we look forward to continuing to serve you.

Terry Roussel
President and CEO
The share repurchase programs are always the first casualties when REITs start exploring their "strategic alternatives."  Investors' limited liquidity options are now zero, except for trying to brave the secondary market.   Cornerstone Healtcare Plus has overpaid its distribution since inception, so now that the equity raise is over, I'll watch to see whether the current distribution level is maintained.


Anonymous said...

Cornerstone's B/D arm, Pacific Cornerstone Capital, let all the wholesalers and marketing teams go that same day.

Word on the street is the CEO was on the grim internal conference call but didn't even utter any words to his loyal followers who had played the cards they were dealt for years.

Cornerstone Real Estate Funds, the firm's multiple working capital private placements that will never deliver a penny back to investors, and the dissolution Pacific Cornerstone Capital will be a classic case study for investors.

Rational Realist said...

Sounds like a true Profile in Courage. Fortunately, I don't know much about the working capital funds. The whole concept of working capital funds makes me shudder.

Anonymous said...

Shudder you should! As I understand it, they sold private placement units that literally paid the B/D unit's overhead. In exchange for this unsurmountable and ridiculous risk, investors were promised shares of fee-sharing once the B/D raised certain amounts of offering proceeds! The problem is, their targets were consistently in the BILLIONS, well outside of Cornerstone's reach.

The investors' proceeds have now been entirely spent on salary and electricity bills while Cornerstone was kept on life support even at abnormally low funraising levels.

The parent company remained debt-free and the private placement investors took on 100% of the risks related to starting a non-traded REIT distribution company.

But I'm sure all of them read those prospectuses carefully...
On second thought, maybe not:

Rational Realist said...

This statement alone - "they sold private placement units that literally paid the B/D unit's overhead. In exchange for this unsurmountable and ridiculous risk, investors were promised shares of fee-sharing once the B/D raised certain amounts of offering proceeds!" - should have been enough to stop any B/D from approving these transactions. No expected return is worth the risk of these affiliated crap shoots.

Anonymous said...

Why do people speculate about worst-case scenarios and also throw in unrelated garbage to make the audience 'shudder'?! What possible gain could there be in any posts of that nature? It serves no purpose and only stirs the pot - why not find something where you can actually make a difference in a positive fashion?

GW said...

a heavy fine for misrepresentation from the same company doesn't sound unrelated to me!

Anonymous said...

You are making sweeping generalizations and accusations in a very condescending manner about Cornerstone, it's Products, it's CEO and The Financial Industry as a whole. Your personal experiences hold weight for you, but not for the whole of the B/D Community or the Financial Industry.

People, no matter what religious, racial, or sexual orientation group they identify with are responsible for their own actions.

It is inaccurate to imply a one-size fits all frame of reference on any B/D or Financial Institution for a crime which the victims have yet, if ever, to identified. You add insult to injury by implying that they as members of a B/D and/or selling group are part of a group of people who don't care and turn the other cheek without even a modicum of Due Diligence.

Every Financial Advisor, B/D and/or Product Sponsor is not an abuser or a thief. Every Private Placement is not a SCAM!! Every Investor does not sit by idly ingesting investment opportunities that are "spoon-fed" them by Advisors without researching facts and reading and learning for themselves.

It's no fun for anyone to be lumped together as a whole to be criticized for something only one or a few in any arena, Financial or otherwise, may have done.

Rational Realist said...

Anonymous, who are you accusing? I write this blog to point out the good and the bad. It has never been an indictment of an industry or individuals. If you read it closely, you'll it just the opposite. I comment on public filings. It is strange that I have had so many comments on this REIT that has been around for sometime and did not raise much money in nearly four years. Every deal is not bad, far from it. I made no comments whatsoever on Cornerstone's CEO, the quality of its product or the financial services industry.