Huge nontraded REIT getting liquid?

Inland American halts share buybacks; potential sign of listing or merger

By Bruce Kelly

Jan 30, 2014 @ 1:52 pm (Updated 3:42 pm) EST

nontraded real estate investment trust, nontraded REIT, inland american, merger, liquidity event

Inland American Real Estate Trust Inc., the largest nontraded REIT with $9.5 billion in assets, on Wednesday signaled that it may soon be in line for a merger or listing of its shares, dubbed a “liquidity event” in the nontraded REIT business.

In a letter to shareholders, Inland American said that “In connection with our board's review of an additional liquidity option for our stockholders, this letter serves as notice that we are suspending our current share repurchase program, which is available to stockholders in the event of death or for stockholders that have a 'qualifying disability' or are confined to a 'long-term care facility.'”

The suspension will take effect at the end of February, with the company saying there was potential to reinstate the plan later this year. The company's board could take action over the next 30 to 60 days, according to the shareholder letter.

Inland American spokeswoman Nicole Spreck declined to comment.

When a nontraded REIT halts its share repurchase program, it can be an indication of a pending merger or listing on an exchange, said Daniel Wildermuth, chief executive of Kalos Capital Inc., a broker-dealer that focuses on alternative investments.

Inland American's announcement was a surprise, he said, adding he had no specific knowledge of the REIT's potential strategy. Such an announcement “usually is” an indication of a listing or merger, he said. “I hope that's what it is,” he said. Kalos Capital has shied away from doing business with Inland in recent years he said.

BANNER YEAR

Last year was a banner year for nontraded REIT “liquidity events,” with at least six REITs announcing or transacting such deals. The nontraded REIT industry, along with the independent broker-dealers that sell the product, benefited tremendously, and brokers sold more than $20 billion in nontraded REIT shares to investors hungry for yield. Industry observers expect 2014 to be robust for REIT liquidity event, as well.

Inland American has had its share of problems dating back to the credit crisis. Launched in 2005, the REIT was among a collection of large nontraded REITs hammered by the fall in commercial real estate prices. Sold originally to investors by brokers at $10 per share, the REIT's most recent estimated per share valuation at the end of December was $6.94 per share.

It has been shedding assets. Last year, three nontraded and traded REITs controlled by Nick Schorsch, CEO and chairman of American Realty Capital, agreed to acquire close to $2.3 billion in net-lease real estate assets, including debt, from Inland American.

Inland American in 2012 said it was the target of a Securities and Exchange Commission nonpublic, formal fact-finding investigation to determine whether it had been in violation of certain provisions of federal securities laws. At the time, Ms. Spreck said that the REIT had not been accused of any wrongdoing and was fully cooperating with the SEC.