Non-Traded REIT Comparison: Dividends, Leverage & Fees

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Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby REIT Wrecks » Wed Feb 24, 2010 3:39 pm

The lack of publicly available analysis on non-traded REIT programs makes it difficult to compare and assess the various offerings. To alleviate this difficulty, I have compiled data on 44 non-traded REITs in the table below, using information reported in the latest 10Q/10K filings with the SEC. The data include metrics that should be important to any serious investor, including current leverage ratios, book value, dividend coverage and fees. [NOTE: UPDATED CHARTS FOLLOW THIS POST, AND I WILL PROVIDE CONTINUING UPDATES AS FREQUENTLY AS TIME PERMITS - PLEASE SCROLL DOWN FOR THE UPDATES]

A note on dividend coverage: I have used GAAP operating cash flow to calculate the ratio. Many non-traded REITs also report what is known as Funds From Operations ("FFO"), but FFO is a non-GAAP concept developed by an industry trade group, and it can be calculated in numerous different ways. This lack of uniformity can generate inaccurate comparisons, and many Non-Traded REITs have used FFO to distort their true results. Because of this, and the fact that dividends are declared and payable in cash, I have used GAAP cash flow from operations to calculate coverage. As illustrated below, many (but not all) non-traded REITs are paying dividends significantly in excess of cash flow from operations (see REISA Addresses Non-Traded REIT Ponzi Scheme Allegations, including the attachment). If you are a fiduciary being placated with commission waivers, consider also the quality and source of your dividends:

Q3comparison-2.27.10-update.gif
Non-Traded REIT Comparison v2
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Note that the book value per share is different for each REIT. This is hardly surprising, and it exposes the uniform $10.00 share valuations to some much needed sunlight. I have also included a whimsical but objective rating of each REIT, on a scale of one to five, based on comparisons solely within the peer group. One REIT Wrecks phoenix means extreme caveat emptor, while three to four mean a little less caveat emptor. None of the non-traded REITs on this list deserve five phoenixes, but I await the day when that becomes possible to consider.

In the latest illustration of how careful financial advisors and investors need to be in this market, Hines REIT abruptly closed its public offering late in Q4 and simultaneously slammed the door shut on its share repurchase program. It now looks as though Hines will be cutting its dividend due to weakness in the office market, yet the Board of Directors won't consider any new shareholder liquidity options for at least another 6-10 years (for more on this, see: Hines REIT Ends Share Repurchases - Is the Dividend Next?). This means investors could be stuck with an illiquid security and limited cash flow for a very long time. Among others discussed on this forum, Lightstone Value Plus REIT is headed down the same path.

In general, new non-traded REIT offerings will not have these "legacy" portfolio issues. These offerings will also be better positioned to take advantage of more attractive prices, which translates into stronger cash flow for investors. Two offerings in this position include GC Net Lease REIT and TNP Strategic Retail Trust. I have given each three phoenixes, since GC Net Lease expects to cover dividends entirely from GAAP operating cash flow by Q1 2010, after only two quarters of operations, while TNP intends to obtain annual independent third party valuations of its portfolio within 18 months of closing. These small improvements in transparency help these two stand out among the current crop of mediocrity.

Please also note that there are a number of non-traded REIT programs that have eliminated or severely limited their share repurchase programs. Among these are a number of programs that are still offering their shares to the public. As of Q1 2010, this group included Behringer Harvard Multi-family REIT I, Grubb & Ellis Apartment REIT, Wells REIT II, and Wells Timberland REIT. Based on their Q3 earnings, the two apartment REITs are in heaps of trouble, while Wells Timberland REIT is playing a game of beat the clock with its lenders using money from new shareholders. Avoid these like the plague.

Last but not least, all financial information is derived from the latest earnings reports filed with the SEC. I have every reason to believe the financials filed with the SEC are reliable, but I have made no attempt to independently verify any of the filings.

Related Posts:

Non-Traded REITs Ranked by Total Assets

Non-Traded REITs Ranked By Dividend Coverage

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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby VANTAGE » Thu Apr 22, 2010 9:42 am

WHAT A GREAT PIECE OF WORK. VERY INFORMATIVE. FOR THOSE OF US INTERESTED IN THIS SPACE THIS IS EXTREMLEY VALUABLE. THANKS.

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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby crabsofsteel » Tue Jun 08, 2010 7:43 am

It only gets better as the biggest borrower in the first multi-borrower CMBS since the market died in 2008, which is supposed to revive the market, is none other than IWEST. RW, any chance you could bring this table up to date?

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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby REIT Wrecks » Tue Jun 08, 2010 4:44 pm

Crabs/Monica, et al. I am posting all updates here. The old comparisons are archived here too (below the most recent version). The most recent chart is immediately below, and it is based on the latest 10Ks (data as of 12/31/10, reported in March 2011). The red and green arrows indicate changes from the previous report. A red arrow pointing down obviously signifies a deterioration in performance vs. the previous comparison, and a green arrow pointing up signifies improvement.

The informal Non-Traded REIT ratings have also been updated to reflect the real world -- many NTRs are so toxic that they are radioactive. Clearly, Non-Traded REITs deserve a new ratings paradigm, and this new chart delivers all the isotopes!

You can save the chart to your local drive by right clicking on the image and choosing "Save As". From there you can print a copy. I will post updated charts here as often as time permits. Please feel free to use the thread below for comments/questions. Thanks!

Fiscal year end 2010 comparison:
2010 non-traded reit Comparison.jpg
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Q3 2010 Comparison:
Updated Non-Traded REIT Comparison (as of Q1 2010).jpg
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Q3 2009 Comparison:
Q3comparison-2.27.10-update.gif
Q3comparison-2.27.10-update.gif (98.04 KiB) Viewed 55664 times

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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby monica » Fri Jun 11, 2010 1:00 pm

Is there an updated version of this chart available?

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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby crabsofsteel » Tue Jun 15, 2010 7:45 am

Monica,

That was the updated version, with the most recent data available for Q1 2010. Are the ratings updated too? Industrial Income is losing $24/share and it's rated with 2-phoenixes? The Inland funds are also aso losing money and are rated as something better than dog poop? Maybe the rating is based more on how outrageous the commissions are, instead of the likelihood that shareholders will see any return of principal.

-crabs

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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby moneybags » Sat Apr 09, 2011 3:02 pm

would love to take a peek at a chart now that the market is starting to rally a bit...

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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby BruceM » Wed Apr 13, 2011 12:11 pm

REIT Wrecks
Great info. You should send this information to your local newspaper 'business section' to try to find a personal finance wrtier who would be interested in broadly getting the word out to potential buyers of these things, before the salesmen get to them.

One other metric I've found VERY useful in measuring the operations of a REIT is the tax character of their distributions. Market valuations, FFO, AFFO and NAV can be massaged. What gets reported to the IRS on the REITs 1120 however, cannot be massaged...it must be accurate, with severe penalties awaiting those REITs who try to play games with it. The very best REITs distribute 100% ordinary income. The lesser but perhaps still sound REITs will have some ROC in their distributions (due primarily to the large (relative to revenue) depreciation (non-cash) expense) with occasional long term capital gains/Sec. 1250 unrecaptured CG when management announces (in advance) that they will be selling highly appreciated properties to generate capital to purchase other propertes........, while the real dogs will have mostly ROC that far exceeds their depreciation deduction, or they will have primarily LTCG/1250 distributions, meaning without any logical explanations (other than the always suspicious "we're selling off non-core assets", they are liquidating properties to provide cash flow. I haven't looked at it, but I'd venture that most of the unlisted REIT distributions are ROC.

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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby REIT Wrecks » Mon Apr 25, 2011 6:34 pm

moneybags, I have posted an updated chart above. All data is current as of the latest 10Ks (12/31/10). I have added a number of REITs -- some I missed in the earlier chart, and others have just recently gone effective or are in the process of registering. But for two REITs that have not raised meaningful amounts of money, I believe this chart is complete for all non-traded REITs whose registration has been declared effective by the SEC as of year end. Like the earlier comparison, it includes current dividend coverage ratios and book value estimates.

Note that the Apple REITs offering price was $11 per share, and Wells Core Office REIT's offering price is $25 per share. All others were offered at $10 per share. Today's challenge quiz: try to find a REIT on the chart with a book value equal to the original money...
------------------------------------------
BruceM, thanks, and I agree wholeheartedly on the ROC. There are a number of journalists who already visit (they email me from time to time), but a little more outreach would probably be good. As for the characterization of the dividends, the trouble is that I haven't been able to locate a reliable data source. I looked for the characterization of the dividends as I went through each 10K for this latest revision, but very few REITs report that information to non-shareholders. As you point out, some of the dividend will always include some return of capital simply due to depreciation and amortization, but it's obvious that very few of these REITs are generating enough income to cover their dividends. As a result, very few of the dividends contain any real income at all! If this practice occurs over a long period of time, shareholders are totally screwed.

Two of the worst offenders in this regard are Cornerstone Core Properties REIT and Behringer Harvard REIT I. Over the years, every Cornerstone financial report that I have read indicated that 100% of their dividends have been a return of capital. The disaster that resulted from this insanity was very similar to the mess that Behringer Harvard engineered with their first REIT (and which they appear to be repeating with their subsequent "offerings"): In Q4, Cornerstone cut the dividend to 1%, suspended their shareholder redemption program indefinitely, and they are now reporting a book value of about $4 and change. This is a 50% loss of principal from what had been marketed as a safe, income-oriented, bond-like investment. Apple REIT nine appears to be in the same boat, among others. In case anyone is wondering, here is what that boat looks like:

sinking ship.jpg
Don't Worry, The Sharks Have Already Eaten You Alive!
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Re: Non-Traded REIT Comparison: Dividends, Leverage & Fees

Postby REITMAN333 » Fri Feb 24, 2012 5:21 pm

This info is extremely helpful. I am trying to compile a similar list updated as of 12/31/11. I dont see details on upfront fees, ongoing fees (asset mgmt, acquisition, disposition, advisory, etc) in the 10k/10Qs. Can someone point me in the right direction?

Thanks

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