Large nontraded REIT set to make splash with 'liquidity event'

Industry will be watching as Cole Credit Property Trust II looks to sell its assets or go public

Aug 28, 2012 @ 2:55 pm

By Bruce Kelly

Cole Credit Property Trust II
+ Zoom

Cole Credit Property Trust II, one of the largest nontraded real estate investment trusts in the industry, told financial advisers Monday that it had engaged two major investment banks as it pursues a “successful exit event” for the REIT. Translation: management at the property trust is exploring a potential sale of assets or an initial public offering.

Investors and their financial advisers watch these exits, known in the nontraded REIT industry as “liquidity events,” with tremendous interest. The sale of a REIT's assets or an IPO is the opportunity for the adviser of the REIT to return as much capital as possible to investors, who typically pay $10 per share for the investment trust and then collect an annual “distribution” or dividend, typically in the range of 5% to 7%.

With almost $3.4 billion in invested assets, Cole Credit Property Trust II is the industry's seventh-largest nontraded REIT that has stopped raising cash and selling its shares, according to research supplied to InvestmentNews by MTS Research Advisors. The REIT primarily invests in single-tenant buildings occupied by such retailers as Walgreens and Rite Aid.

In a letter to investment advisors, Cole Real Estate Investments chief executive Marc Nemer said the REIT in March hired Morgan Stanley and UBS Investment Bank “to move as expeditiously as possible toward a successful exit.”

The REIT's board “is currently working extensively with Morgan Stanley and UBS Investment Bank on a few concrete options to create a successful exit transaction, and we hope to be in a position to share details with you soon,” he said in the letter.

The Cole REIT's estimated valuation is $9.35 per share, close to the $10 offering price that investors initially paid. The valuations of other large REITs have dropped dramatically — to 30% to 50% of the initial share price — as they've suffered with assets bought at the top of the commercial real estate bubble.

The track record for nontraded REITs that have sought to sell assets this year has varied dramatically.

In March, American Realty Capital Trust Inc. was listed for public trading at $10 a share. It was trading at $11.48 per share Tuesday morning.

On the other hand, Retail Properties of America Inc., formerly the Inland Western Real Estate Trust, opened for trading in April at a split adjusted price of $3.20 per share, far below the $10 per share price that investors paid nearly a decade ago.

Since its listing however, the price of the Retail Properties of America Trust shares has improved. On April 5, its first day of trading, the REIT closed at $8.75 per share. Shares were trading Tuesday at $11.17, a 27% gain.

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