Inland Western phased-in liquidity program

Inland Western phased-in liquidity program

Postby nyhcking » Tue Dec 21, 2010 7:24 am

Hi,

Can anyone shed some light on this? I assume that onece they are listed, I will be able to sell? However, I fear that the market price will be a fraction of what i paid. Any thoughts?????

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Re: Inland Western phased-in liquidity program

Postby DebER » Tue Dec 21, 2010 9:34 am

I hope you are able to get an answer. I posted a question about Healthcare Trust of America and never got a response. So far, all the posts I find are just bashing Non Traded Reits.

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Re: Inland Western phased-in liquidity program

Postby REIT Wrecks » Sun Dec 26, 2010 2:55 pm

Sorry for the delay. I have been happily involved in a number of different pursuits recently, including an engagement to my fiancee and closing the purchase of an apartment complex. The answer to your question is below, but first, I learned a few days ago that my future mother-in-law, a 60-ish widower, owns a bunch of Inland Western shares, so this question is especially pertinent. Thankfully, it's not enough to bankrupt her like some others who have posted here (see this comment from an Inland American investor). However, it was quite interesting to be on the other side of the fence with a shareholder that I know personally -- this is a woman who has excelled in almost everything she's done, and she has one of the best educations that money can buy.

I observed several things:

First, she had no idea what Inland Western did. Second, while she had received the Inland Western shareholder communications, she didn't know what it meant. Third, fourth and fifth, she did not know that (i) she could not sell the shares, (ii) that the price had been cut from $10 to $6.85 (or why), and (iii) that the dividend had been slashed by almost 90%. Meanwhile, her advisor has been busy jabbering on about her various income "buckets," into which he had poured several variable annuities (this is a story in and of itself), a bunch of Inland Western shares and, thankfully, some much more liquid stock and bond funds. Interestingly, despite her age and income, she had no cash in her account - it was ALL invested. Worse, 85% of it was in bonds or bond-related instruments. Not surprisingly, she got crushed in November and October as interest rates moved off of their all-time historic lows. She is now interviewing new financial advisors, and I can assure you that there will be no commission-driven annuity salesmen on her list.

Now on to your question re: the Inland Western phased in liquidity program. This is simply a long, drawn out IPO process. It means that Inland Western may go public, and if they do, the shares will be listed on a public exchange, but you will not be able to sell all your shares for 12 months or longer. This is the structure that was used in the Piedmont IPO, and I covered that IPO in this post.

Given my newfound interest in the activities of Inland Western, I will try to learn more about the proposed IPO price and timing. However, I am not optimistic that the IPO price will exceed the $10/share that you and my mother-in-law paid, or that management has been acting in shareholders' best interests. For background on this, please read my earlier post on this topic What are Inland Western Shares Really Worth?. This is not bashing. It's simply a different point of view on valuation, and it happens to conflict with management's point of view.

This forum's mission is to provide information, so in terms of recent developments at Inland Western, here is the latest:

On December 14, 2010, Inland Western declared distributions for the fourth quarter of 2010 at an annual rate of 2.25%. This is good, as it represents an increase from the previously declared annual distribution rate of 1.87%.

On December 8, 2010, Inland Western filed a proxy statement related to the phased in liquidity program - and I am assuming that this proxy statement is what prompted your question. The proxy requests approval of an amendment to Inland Western’s charter that would permit Inland Western to initiate a phased-in liquidity program in connection with an IPO. If approved, Inland Western's new charter would look very similar to other Non-Traded REITs that have gone public. The phased-in liquidity program, in my view, could last as long as 18 months from the IPO. This means that you could sell a portion of your shares on the IPO date, but not all.

Unfortunately, because Inland Western is allegedly pursuing an IPO, it is not planning to publish an estimated annual statement of value of its common stock at the end of the year. In my opinion, this is simply a convenient means to delay the day of reckoning. Inland Western bought $6.8 billion of real estate during the bubble, and valuations have declined - broadly speaking - by 40%. If the stock is really worth the $6.85 valuation listed on my mother-in-law's brokerage statement, I would be surprised.

On July 14, 2010, a lawsuit relating to Inland Western’s advisor internalization was settled, and on November 8, 2010, the court granted final approval of the settlement. The court agreed with shareholders that management was "self dealing" and had overpaid themselves by $90 million in order to internalize the management of the REIT. Internalizing management is good for shareholders, but allowing IW management to overpay themselves by $90 million to do it is obviously not. In addition to the $90 million disgorgement, the court also ordered Inland Western to pay legal expenses and fees in the amount of $10.0 million.

As of the most recent quarterly report (September 30, 2010), Inland Western had approximately $125.8 million of mortgages that had matured. During the second quarter, Inland Western ceased making monthly debt service payments on two mortgage loans totaling approximately $61.2 million (approximately $30.0 million of which had matured).

It will be interesting to learn more about the Inland Western IPO price expectations, and I will post information on that as soon as I learn more. Until then, good luck to all!

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Re: Inland Western phased-in liquidity program

Postby nyhcking » Wed Dec 29, 2010 9:06 am

Congrats on the engagement.

Why do I have the feeling that your mother in law has an Ameriprise agent. Please do keep us posted as this effects almost 50% of my IRA holdings.

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Re: Inland Western phased-in liquidity program

Postby lawfox » Wed Dec 29, 2010 2:51 pm

A lawyer, Sam Orticelli, is soliciting votes for the Prime Group Realty Trust's upcoming election of two preferred holders to the board of trustees.
He previously worked at Inland Real Estate companies. He is asking people to vote for Howard Goldberg and himself. Does anyone have any helpful comments?
Thank you.

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Re: Inland Western phased-in liquidity program

Postby ddo2 » Thu Dec 30, 2010 9:56 am

Will this "IPO" also include a reverse split like Piedmont? Not clear. Someone needs to explain to me the logic of a 12 month lock-up. I get a short lock up, or maybe a phased in unlocking to avoid a massive stock dump on the first day, but a a solid 12 month just pushes the dump off for 12 months, and will likely depreciate the stock for the first year as investors wait for the widow and orphan dump.

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Re: Inland Western phased-in liquidity program

Postby REIT Wrecks » Tue Jan 11, 2011 5:18 pm

The latest on the IPO pricing is this: Inland Western shares are currently trading on the secondary market in the $4/share neighborhood. This is slightly below Q3 2010 book value per share of $4.75, so that makes some sense. It is also below Inland Western's ridiculous valuation of $6.85. However, I am hearing from several different people - well placed, but neither working directly on the IPO for either JP Morgan or the Inland Group - that the underwriters will try to bring Inland Western out to the market at $6-$7/share. I am also told that no investor has ever lost principal on an Inland program, but that this program might be the first.

Essentially, if you bought in the primary market from a financial planner at $10, you may have lost about 25-30% of your principal, ignoring dividends, and assuming the market pricing does not improve. Of course, this all assumes that an IPO can be successfully completed in the first place.

I am not a financial advisor, but some people may want to to contemplate the difference between the current secondary market price and the proposed IPO price. Even contemplating this is a risky endeavor, so don't even think about it with money you may actually need.

On the bright side, the Piedmont IPO did turn out to be a successful model for a non-traded REIT IPO - assuming you can ignore the totally lousy economics of the original Wells REIT for even a minute. Investors were allowed to sell every quarter, not all at once in the beginning or at the end, so the "dump" was there but it was rationed over time. Post IPO, the shares traded slowly higher during the lock up. Based on Piedmont's price appreciation during that time, most investors who wanted to sell could have eventually gotten out above the IPO price ($14.50), just not as soon as they probably would have liked. :(

nyhcking - sounds like you might need a new advisor too ;)

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Re: Inland Western phased-in liquidity program

Postby nyhcking » Mon Feb 14, 2011 1:30 pm

Oh, I got rid of that advisor a long time ago. Right about the time that I realized that he duped me into two very costly variable annuities. I cut my losses on those not long after my enlightenment. The only legacy to that is this Inland REIT.

I am in the process of ceasing the dividend reinvestment and will put all dividends into an index fund IRA.

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