Thursday, August 16, 2012

A Valuation Too, Too Far

I was wrong.  I wrote yesterday that the scant disclosure surrounding CNL Lifestyle's share valuation was too much for me.  Lifestyle has now been surpassed by the valuation released today by TNP Strategic Retail.  Strategic Retail is in the midst of its equity offering period and has determined an net asset value of $10.40 per share.  I'll let you read today's 8-K filing yourself.  The disclosure is better than CNL Lifestyle's, and yesterday's anonymous, Discounted Cash Flow-loving commenter should be ecstatic with the Strategic Retail's valuation methodology.

The REIT was valued by its advisor, but it obtained a Good Housekeeping Seal of Approval by seeking the valuation consulting services of Duff & Phelps.    I don't read that Duff & Phelps valued Strategic Retail's assets, but I'll let you decide:
Our board of directors determined the estimated per share value in its sole discretion and is ultimately and solely responsible for establishing the estimated value of a share of our common stock. Our board of directors did, however, engage the services of Duff & Phelps LLC, or Duff & Phelps, an independent valuation firm, to conduct valuation consulting services regarding all of our real estate assets. We believe there are no material conflicts of interest between Duff & Phelps, on the one hand, and us, our advisor and our directors or officers, on the other hand. 
Fees matter.  Strategic Retail offers its shares at $10.00 per share.  From this is deducted 10% in commissions and selling costs, and up to another 3% in organization fees, which the REIT estimates will be 1.75%.  This amount of front-end costs is typical for non-traded REITs.   The $10.00 per share purchase price becomes a net $8.83 (using 1.75% in organization fees) that is being invested in properties.  I did not include the 2.50% acquisition fee paid on the price of each acquisition, which includes debt, and the 1.0% finance fee on the amount of any outstanding debt, which the REIT instituted earlier this year.  So, by reading today's valuation we're to believe that a net investment of $8.83 today is worth $10.40.  Fees matter.

4 comments:

Anonymous said...

Well the REIT has been raising money since 2009. Maybe some of the properties that they purchased back then have appreciated =).

Rational Realist said...

i know, but still,complete load elimination? Inst. investors should figure out a way to exploit the spread. buy load waived and sell at NAV.

Anonymous said...

This is a joke, tony is on life support

Rational Realist said...

2nd Anonymous, don't count Tony Thompson out or underestimate him.