Another nontraded REIT to go public

May 17, 2012 @ 7:09 pm

By Bruce Kelly

Another nontraded real estate investment trust is planning an initial public offering, this time a leading owner of medical office buildings with $2.5 billion in real estate assets.

Healthcare Trust of America Inc. in a filing with the Securities and Exchange Commission on Thursday afternoon said it would make its debut on or about June 6 on the NYSE. It anticipates its symbol to be “HTA.”

It is seeking an IPO price of at least $10.10 per share, according to the filing.

The REIT's announcement comes at a time of close scrutiny for nontraded REITs by regulators, the registered reps who sold the products and the clients who bought them in the hope of stable returns.

Some major REITs are seeing disappointing downward adjustments in their valuations, and the largest nontraded REIT, the $11.2 billion Inland American Real Estate Trust Inc., said this month it was facing an investigation by the SEC.

Meanwhile, recent nontraded REIT IPOs have had mixed results. Healthcare Trust of America is the third nontraded REIT to announce an IPO this year.

In March, American Realty Capital Trust Inc. was listed for public trading, and on Thursday afternoon it was trading at $10.84 per share, above its initial nontraded offering price of $10 per share. However, Retail Properties of America Inc., formerly dubbed the Inland Western Real Estate Trust, debuted in April at a split adjusted price of $3.20 per share, far below the $10 per share that investors initially bought the REIT nearly a decade ago.

Healthcare Trust of America has posted strong gains for investors, according to the SEC filing. The REIT has had a total return of 52% since its inception in 2006, assuming a share price of $10.10 when it lists in June.

One advantage to the offering is the REIT's management team's decision to restructure or “internalize” in 2009 with no fee, and that reduced costs to shareholders, said Nicholas Schorsch, CEO of American Realty Capital. That firm's subsidiary broker-dealer, Realty Capital Securities LLC, is the dealer-manager for Healthcare Trust of America.

Such internalization fees can drive up costs for investors, Mr. Schorsch said in an interview Thursday afternoon. And nontraded REITs that have a manageable level of debt will perform better after a public listing, Mr. Schorsch said. “I think the listings work very well when a balance sheet has low leverage, and you have a high quality balance sheet that doesn't need more capital,” he said.

Healthcare Trust of America eliminated more that $200 million in such fees from 2009 to 2012, according to the SEC filing.

Mr. Schorsch said that Healthcare Trust of America's balance sheet currently had about 20% leverage, and that could increase to 30% of total assets after the IPO. The REIT will undertake a tender to offer to purchase up to $150 million in shares from investors at that at that time. Investors can sell their shares in four tranches over the next 18 months.

According to the SEC filing, Healthcare Trust of America will be only one of two publicly listed companies significantly dedicated to medical office building real estate.

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