Lifestyle describes its methodology below:
In determining an estimated fair value of the Company’s shares, the Board of Directors considered various analyses and information, a portion of which was provided by the Company’s advisor. In preparing its value estimate, the Company also consulted an independent valuation advisor.The independent valuation advisor was not disclosed, nor was the scope of its work. "Consult" can mean many things, but it doesn't mean that the third party firm valued the REIT's assets. The value was determined by REIT's advisor, and it used a 10-year discounted cash flow analysis. This a discounted cash flow methodology that involves significant assumptions about future revenues and expenses. The REIT gives its weighted average growth rate but no information on its expense growth. A large portion of Lifestyle's debt matures over the next five years, and the assumptions made for repaying or refinancing this debt would play into the valuation Lifestyle has had issues with a number of its properites since its inception, so I'd question whether a linear, assumption-based cash flow analysis is the most appropriate methodology. (Lifestyle did not assign a premium for enterprise value or portfolio aggregation.)
The valuations for non-traded REITs are getting more and more unbelievable, and Lifestyle's internal valuation, to me, is one valuation too far. Broker / dealers need to call foul and demand independent valuations**. Non-traded REIT sponsors are not going to stop these self-serving internal valuations until forced. The non-traded REIT's use of an independent consultant or advisor is not good enough. Dropping the name of a third party firm when the actual valuation is done by the REIT's advisor is a joke. As I have noted before, there are only a few valuation methodologies, so having a third party valuation firm affirm a methodology is not the same as having a third party firm calculate the valuation. Investors and broker / dealers are the ones harmed by nonsense valuations. Non-traded REIT sponsors, whether too desperate or thick to realize it, will ultimately be hurt, too.
* Lifestyle is externally advised by an affiliate. It does not appear that the advisor will be impacted by the new, lower valuation. The advisor receives an asset management fee of 1% of the purchase price of the REIT's real estate and principal amount of any mortgage assets. This fee is not impacted by the new valuation because its based on the purchase price of the assets not Lifestyle's new asset value. Investors just received a 27% reduction in their investment value, and had 32% chopped from their distribution, but Lifestyle's advisor's income stays steady.
** For an independent valuation done right, look at last fall's valuation by Wells REIT II, which was completely done by a third party valuation firm.