Friday, July 18, 2014

Liquidity Events and Hyperbole

I re-read the Bruce Kelly article I linked to earlier in the week.  The article stated that there were only two liquidity events in the first half of 2014.  Bruce missed a few.  Here are the liquidity events I know of in the first half of 2014:

Liquidity Events First Half of 2014
Fund Month Original Equity (Billions)
ARC Trust IV Jan  $1.7
CPA 16 Global Feb  $1.9
BlueRock Resid.* Feb  $- 
ARC Healthcare April  $1.7
ARC New York REIT April  $1.7
UDF IV June  $0.6
FSIC April  $3.0

In addition to ARC Healthcare and ARC New York REIT, the first half of 2014 saw ARC Trust IV complete its merger into American Realty Capital Properties (ARCP), CPA 16 merge into WP Carey, and the listings of Blue Rock Residential Growth* (BRG) and UDF IV (UDF).  I included the April listing of the first Franklin Square business development corporation, Franklin Square Investment Corp (FSIC), because while not a REIT it was a non-traded investment that provided a liquidity event. 

The strange part of the Kelly article was the Inland executive gloating about Inland Diversified's completed merger with Kite Realty:
The deal has been one of the most successful for nontraded REIT investors in the recent past, Mr. Sabshon said.

He noted that on July 2, the first full trading day for the Inland Diversified/Kite merger, Kite closed at $6.40. At an exchange rate of 1.7, that translates to an Inland Diversified exit value of $10.92, he said.

Excluding nontraded REITs that were purchased by related or affiliated REITs, a common industry practice, the Inland Diversified merger represents the highest nonaffiliated transaction exit price in two years, Mr. Sabshon said.
Yes, Inland Diversified's sale to Kite Realty was a successful liquidity event.  No, it was not the most successful listing of the past two years.  Does anyone remember the Cole Credit Property Trust III listing a year ago?  I believe there was some controversy surrounding this listing, but it opened at $11.50 per share.  The Inland executive's arbitrary exclusion of affiliated liquidity events makes no sense.  Is cash from an affiliated liquidity event worth less than cash from a non-affiliated liquidity event?  The CPA 16 and ARCT III liquidity events were with affiliated entities and traded at values higher than Inland Diversified's 9% premium.  I am taking nothing away from Inland Diversified's listing and its returns to investors, they are commendable and more than respectable, but let's lower the hyperbole. 

*  BlueRock Residential Growth (BRG) only raised about $23 million of investor equity in its multi-year offer period.  BRG's listing involved an IPO where the original investors received three classes of illiquid Class B shares.  The first B class does not convert to liquid shares until twelve months after the listing, and it'll be two years post-listing until original BRG shareholders are fully liquid.  BRG is a listing but should not be considered a liquidity event.   Its equity raise was so small it would not even show on the table above.


Anonymous said...

Cole III may have opened at an arbitrary number, which was determined by management and not at arms length, of $11.50, but it closed at $10.90.

Anonymous said...

At one point cole Iii traded over $15. With arcp purchase, Cole Iii shareholder received approx 1.1 shares of arcp. $13x1.1=$14.30 today. Not bad.