If fees fall in a forest, do they make a sound? Yes. It's a slow-building, rumbling sound that will echo for some time. Wells Timberland REIT filed an 8-K on Tuesday, January 24th, where it quietly announced that its advisor, Wells Timberland Management Organization, LLC (Wells TIMO) had permanently "discharged" $25.1 million in accrued and unpaid management fees and expense reimbursements. These fees and expenses had accrued due to lender restrictions that were part of the debt Timberland REIT utilized to acquire its timber assets. These fees had been a drag on this REIT because the fees were in a priority position to investor capital. At September 30, 2011, the REIT had $27.3 million Due to Affiliates, of which $24 million was advisor fees and reimbursements payable to Wells TIMO.
The fee forgiveness is positive for investors and the right decision by Wells. The REIT will continue to pay fees to Wells TIMO, but lender restrictions have been lifted due to debt paydown, and future fees will be paid as incurred, and not accrue any more.
(Forest picture from Google Images and the website ecoeternity.com and is no relation to Wells Timberland REIT.)
5 comments:
In May Wells REF agreed to lower the interest paid on preferred stock to 1%. Part of that agreement, however, allows ongoing redemption of preferred stock. So far more than six million dollars of preferred stock has been redeemed. In other words, Leo can get his cash out of this unfortunate investment but the common stockholders are stuck. My expectation is that any extra cash not tied up in escrow accounts and guarantees will go out the door to redeem preferred stock.
This REIT needs to change its name to “Dead on Arrival”
Timberland REIT will never reach it goals and objectives, even if the advisor extends the holding period to 15-20 years (which is standard for one of Leo’s programs). This new announcement of the advisor waving fees that is owed is Leo’s last ditch effort to bring in new money into this REIT.
This REIT will never reach the goals and objectives stated in the prospectus. Both Leo and the advisor need to communicate to the REIT stockholders how to they plan to return their investment back to the investors and stop with the gimmicks of waiving or reducing fees. This new announcement of waiving fees should have been done on the front of the investment.
Maybe Leo needs to reach into his bank account from all the fees he was paid from past programs and the BIG internalization fee he took from Piedmont and just return the capital to these investors.
Leo – the NTR industry has changed, when will you and your firm wake up and reduce you high fees, cut your holding period and return investors’ money.
The 10K for 2011 will be interesting. Watch for more preferred stock redemption in Q4/11. Won't be surprised if lenders put a stop to it. I live in the middle of Wells Timberland's holdings and am active in timber related investments. Wells Timberlands success was predicated on HBU sales and stable timber values. Recreational sales are dead as a loblolly seedling planted in June. Saw timber and chip and saw prices stink. Without stock sales to keep servicing the debt I don't see adequate cash flow to have any confidence in their success. Leo is voting with his feet.
Anonymous #2, the NTR world has not changed that much, big fees are still the norm.
At Sept 30, 2011, there was approximately $50 million in outstanding preferred stock and accrued interest.
It's easy to play woulda, shoulda, coulda with this REIT, but Wells made the preferred investment in the REIT that allowed it to make required debt payments. Without the preferred investment the REIT would have lost its timber property several years ago. I'm not sure whether Wells' investment could have been structured as common stock due to REIT ownership restrictions.
The preferred stock is not cheap capital for the REIT. It was an actual cash investment rather than the REIT providing stock grants, which is too common.
Regardless of the issues, it is better for REIT to have a dialogue with their investors. It is really important, so that the small-scale shareholders would be educated about what would happen with their returns. A good and clear communication is a must to prevent misunderstanding between the parties involved.
Sabrina Garza
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