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:
- Non-Traded REIT Comparison v2
- Q3comparison-2.27.10-update.gif (98.04 KiB) Viewed 3918 times
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. The financials in these reports are generally unaudited, and while I have every reason to believe the financials are reliable, I have made no attempt to independently verify any of the information.
