Friday, March 27, 2015


The lazy reporting on non-traded REITs is getting tedious.  Few journalists that write articles about non-traded REITs fully understand them, and it shows.  The latest installment is from the March 24, 2015, Wall Street Journal, in an article titled "Property Investors' Latest Horror: Zombie REITs."  The article focuses on two pre-crash REITs, and not all the liquidity events over the past two years.  The article's focus was Inland American and CNL Lifestyle, two REITs I have recently posted about.  There is no way to spin the poor performance of these two REITs, but they are not the entire market, and their struggles are not new news. 

The article states that the value of Inland American's holdings has plunged 60%.  Wrong.  This is based on the $10.00 per share price that investors paid for their shares and the recently announced $4.00 per share value.  The difference between the original $10.00 per share and current estimate of $4.00 per share is indeed 60%, but it excludes the value of the Xenia Hotels & Resorts (XHR) spin-off that all Inland American investors received.  I figure the listing of XHR was worth approximately $2.80 per share to Inland American investors, or 28% or their original investment (and XHR stock has gone up since its listing).  The article mentions XHR, but not the amount returned to investors.  The amount investors received in XHR needs to be added to Inland American's remaining value.  Inland American still has its issues and investors are still at a loss, but the XHR listing was a major event.

The article further states (my emphasis):
Fundraising by nontraded REITs has now cooled. The funds pulled in about $15 billion in 2014, down by a quarter from 2013, in part because the funds returned just $12.9 billion of investors’ original capital last year, down from $17.2 billion in the previous year.
My own research showed $13.5 billion of original equity experienced liquidity events in 2014, not $12.9 billion.  If you use the WSJ numbers, in two years there was over $30 billion of liquidity.  If you look back at the lack of liquidity in the '80s, '90s, and '00s, $30 billion of capital returned to investors in a two-year span is stunning.

(There is more than a small irony that the article complains about 2014's drop in fund raising for non-traded REITs due to the decline in liquidity events.  Selling a REIT upon its liquidity event to reinvest in another non-traded REIT is a story in itself and a bigger industry-wide issue than two well-known, struggling REITs.)

Journalists and business publications have to get better covering and understanding non-traded REITs (and their sort of brethren business development companies).  These investments have raised billions since 2008, and to sound alarms and recyle old themes without addressing current issues is not helping investors.  The only thing missing from this article was as a Leo Wells reference.


Kurt Tesh said...

Not only has Inland American spun off Xenia Hotels, it has internalized management (at no cost), sold off non-core assets and paid down debt, all steps typically taken in anticipation of a public listing. CNL Lifestyle Properties is selling its assets and paying down debt on a course to fulfill its prospectus objective of liquidating by the end of 2015. In the face of $30 billion of liquidity events over the past two years, I guess these qualify as late bloomers. But they are hardly zombies.

Your reference to Leo Wells is doubly ironic as he was notorious for delaying exits. With the sale of Signature Office REIT (fka Wells Core Office) to Griffin Essential Asset REIT, all Wells REITs have executed an exit.

And of course any reference to Nick Schorsch would not have supported his thesis.

Anonymous said...

Inland American/Inventrust..whatever name ...since 2006 $10/share value has only gone south since inception
NAR today $4.00/share $6.04/share if you add back Xenia at today's market ($16.33....a far cry from the $22.08 share cost basis from 8k)

Although they raised approximately $8.0 Billion to date......
No earnings stream to support dividends
Share redemption program suspended February 2015
45 year old CFO resigned November 23, 2015 $480,000 + job
Xenia spin-off $22.08/share to $16.33/share

Financial advisor recommend to you ....take my word and run for the door and don't look back...would be better off in a 2% ten year government t-bill