It's been a long day. I'd been trying to finish a project that's taken much longer than I expected, and then I get hit with two bombshells. The first was the news on Grubb & Ellis Healthcare REIT II, which I noted in the previous post. The second was the $7.47 per share price of Wells REIT II. Maybe I shouldn't have been surprised at the low valuation, but I was. I was expecting a Net Asset Value per share closer to $8.50 or $9.00, not below $7.50. Here is an Investment News article on the filing. (The article implies a front end load of 20.3% - $5.9 million raised an $4.7 million in the ground - which seems high too me.) The REIT's dividend is not being adjusted, so the 5% yield on the original $10 per share investment is now a 6.67% yield on the new valuation. (Oh boy, a yield increase!) A third party, Altus Group, Inc., provided the valuation.
After a few hours digesting the new valuation, maybe it makes sense. Office property prices are down more than 40% from their 2007 peak. Wells REIT II acquired its properties from 2004 to 2011, with the majority acquired in the 2004 to 2007 time range, which was before the credit crisis and during a period of lower cap rates than in today's market. (Remember, real estate prices and cap rates move inversely, with low cap rates meaning high prices, and high cap rates signifying low prices.) Many of Wells REIT II's properties are suburban office properties, and suburban properties are just beginning to attract investors and see a rebound in pricing. For many investors in Wells REIT II the $7.47 share price, while unsettling, is not directly relevant because the REIT is non-traded. Investors who are reinvesting dividends will do so at the new lower price, which is a benefit as the current distribution will now buy more shares. Shareholders' real value will be realized when the REIT is listed on an exchange, is merged or sold, or sells its assets directly.
Update: The Snyder Kearny Blog likes Wells REIT II's disclosure related to the valuation. Maybe the added disclosure will start a trend.
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2 comments:
Wait till they "re-value" Wells Timberland. That will be a real blood bath. They quit selling stock on 12/31/11. After that cash flow will just be timber related activity. Selling timberland now in significant amounts will be difficult without taking a major haircut. Leo has cut his preferred dividend percentage but is trying to get his money out. Mead Westvaco is still trying to sell more of their land; not a likely buyer. RMS might take a bite of the apple if price drops low enough. Shareholders are unlikely to do well. After loads and management costs I don't see how this will work in this market.
This is interesting and good to know because I have been looking for office properties recently.
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