Wednesday, May 23, 2012

The Valuation Is Too Damn High - Part II - Garbage Example

Cole Credit Property Trust IV filed an update to its prospectus last Friday, May 18, 2012.  The update included information on the track record of the REIT's sponsor.  The language below discussing Cole Credit Property Trust II's (CCPT II) valuation is worth noting.  Here is the passage:
In determining an estimated value of CCPT II’s shares of common stock in July 2011, the board of directors of CCPT II relied upon information provided by an independent investment banking firm that specializes in providing real estate financial services, and information provided by CCPT II Advisors. In determining an estimated value of CCPT II’s shares of common stock in June 2010, the board of directors of CCPT II relied upon information provided by an independent consultant that specializes in valuing commercial real estate companies, and information provided by CCPT II Advisors.

The valuation periods are July 2011 and June 2010.  The July 2011 valuation was $9.35 per share and the June 2010 valuation was $8.05 per share.  CCPT II used a consultant in 2010, and an investment bank in 2011 to provide information.  Both valuations relied in information provided by CCPT II's advisor.  There is no other disclosure on the methodologies.  The increase of $1.30 per share, or 16% is sizable for a REIT that is not trading.  It'd be interesting to know what inputs were changed in 2011 to bump the value of a REIT that has a mainly fixed portfolio.  It's not the valuation methods, its data and assumptions that are put in the valuation models.

Cole adds the following disclosure after discussing the valutaion:
The statements of value were only an estimate and may not reflect the actual value of CCPT II’s shares of common stock. Accordingly, there can be no assurance that the estimated value per share would be realized by CCPT II’s stockholders if they were to attempt to sell their shares or upon liquidation.
There is no truer sentence in the entire filing.  It's time for CCPT II to execute the liquidity event it disclosed it was going to seek within twelve months back in June 2011. 


Anonymous said...

I will be interested what you find our, or what your thoughts are about Cole Credit Property Trust II.

I was told last week that it would be towards the end of the year when the exit strategy would be implemented (they haven't said what the strategy will be). Now today, I was informed that it more than likely wouldn't happen until sometime during the first quarter of 2013.

So much for implementing the exit strategy by this month. I guess things could still change, but that is what I was told.

Rational Realist said...

It's a decent non-traded REIT. Its distribution about matches its funds from operations, which is good. It raised capital from 2004 to 2007, which is likely when it acquired most of its properties.

I have not heard about the delayed listing, but not surprising. It's externally advised, like most non-traded REITs, and I'll be curious if Cole tries to take an internalization fee. It'd be shame if Cole waits too long and misses the market.