Thursday, April 20, 2017

Mystery Solved

Strategic Storage Growth Trust Inc. raised over $93.5 million in equity in the last month of its offering.  The March equity inflow represented nearly 41% of all the equity the REIT received in its entire offering period, which was over two years, and the REIT's last three months of equity inflows totaled a staggering 57% of its equity.  A non-traded REIT, long into a previously weak offering, does not experience big inflows without a reason.  

Yesterday, I believe I learned the reason.  The DI Wire reported (OK, mostly reprinted Strategic Storage's press release) that Strategic Storage Growth Trust had announced a Net Asset Value per share of $11.56 per share.  All the new money - $131.5 million in the first three months of 2017 -  that went into the REIT at $10.05 per share, now have a new value of $11.56 per share.  Nice!  

I suspect Strategic Storage was whispering about the higher pending valuation and that resulted in the huge money inflow.  This strategy has been used before by Strategic Storage and other sponsors to raise big money over the short period between when they receive the new valuation and when they announce the new revaluation.  It is a good story: market a non-traded REIT at price per share that the sponsor knows for sure is going to show a much higher value in a matter of weeks, and then sponsor and financial advisor look like geniuses and new investors are happy.    If something works, stick with it.  But remember, you can't spend a valuation increase in a non-traded security.

1 comment:

Richard J said...

No need for whispers, if one looks at the earnings reports from last year. Even before the 12/31 report was issued in late March, the first three 2016 quarterly reports with solid double digit same store earning and NOI set the stage for a substantial revaluation. All that needed to be whispered was... "look at the earnings reports".