Cole Real Estate Investments starts trading, drops below Schorsch offer

Company has $500 million to put toward buying shares

By Bruce Kelly

Jun 20, 2013 @ 3:48 pm (Updated 8:16 am) EST

nontraded reit, nyse, cole, schorsch, shares, stock

Shares of Cole Real Estate Investments Inc. dropped 5.2% in their first day of trading on the New York Stock Exchange amid a broad market selloff.

The stock opened at $11.50, below the $12 per share offer that American Realty Capital Properties and chief executive Nicholas Schorsch, who has shaken up the nontraded REIT industry, made in March. It closed at $10.90. First-day volume topped 18 million shares.

After Cole management rejected that hostile offer, American Realty Capital upped it to $12.50 in cash or $13.59 in American Realty Capital shares. Cole rejected that offer too, and American Realty Capital withdrew its proposal.

Now independent representatives and advisers who sold COLE III, as it is known in the industry, are watching closely to see whether Cole Real Estate Investments will trade near or above $12.50 per share.

For its part, Cole Real Estate Investments, a combination of nontraded real estate investment trust Cole Credit Property Trust III and its investment manager, said it was committing $500 million to purchase shares of the company, thus giving it some support and stability during early trading.

The share purchase will be broken in two parts, the company said today in a filing with the Securities and Exchange Commission.

Starting today, Cole Real Estate Investments is beginning a modified “Dutch auction” tender offer to purchase for cash up to $250 million of shares of its common stock from current stockholders. Under the terms of the offer, the company intends to select the lowest price between $13.00 and $12.25 per share.

It has another $250 million on hand to buy shares 11 days after the end of the tender offer. That share buyback, however, has no price range.

Cole Real Estate Investments chief executive Marc Nemer said today that he expects some volatility in the share price and that the company has seen interest from institutional investors, including hedge funds.

Nontraded REITs are sold by brokers who typically charge a 7% commission, with shares usually at $10. But Cole recently has seen an acceleration in client assets in its net-asset-value nontraded REIT, the Cole Real Estate Income Strategy (Daily NAV) Inc., Mr. Nemer said.

Registered investments advisers, who charge fees instead of commissions, are starting to take note of nontraded REITs, Mr. Nemer said. “Our daily NAV product has doubled in the past six months,” he said. “[Advisers] are looking at it as a new type of sale.”

Large wirehouses like Morgan Stanley and Bank of America Merrill Lynch have avoided selling nontraded REITs, but Mr. Nemer said he believes that will change. Wirehouses will eventually become more “comfortable” with the product, he said. “I think the opportunity there is tremendous.”

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