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Liquidity events heating up REIT market this summer

Jul 16, 2014 @ 12:15 pm

By Bruce Kelly

Nontraded REITs, traded REITs, liquidity events, listings on an exchange, mergers and acquisitions
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Liquidity events of nontraded real estate investment trusts are heating up during the dog days of summer.

This month already has seen one liquidity event — meaning a merger or a listing on an exchange; while a significant nontraded health care REIT is reportedly in talks to be acquired.

July has also witnessed the announcement of an acquisition of a traded REIT that was composed of former nontraded REITs and a spinoff of a nontraded REIT asset manager from its traded REIT parent.

The flurry in activity comes after the first half of the year saw only two liquidity events: the listings in April of the $2 billion American Realty Capital Healthcare Trust Inc. on Nasdaq and the $1.9 billion American Realty Capital New York Recovery REIT Inc., which changed its name to New York REIT Inc., on the New York Stock Exchange.

In June, a giant health care REIT, Ventas Inc., said it agreed to acquire the ARC Healthcare Trust for $2.6 billion in cash and stock, with the deal expected to close by the end of the year.

Also in June, shares of United Development Funding IV (UDF) began trading on the NASDAQ Global Select Market. Formed in 2006 as a nontraded REIT, it has about $614 million in equity

At the start of the month, Kite Realty Group Trust, a traded REIT, said it had completed its merger with the Inland Diversified Real Estate Trust, with the deal valued at about $2.1 billion. Inland Diversified stockholders receive 1.7 shares of Kite Realty Group Trust stock for each share of Inland Diversified.

The merger “was a transformative event for Kite,” said Mitchell Sabshon, chief executive of Inland Real Estate Investment Corp. “It doubled its market capitalization and added high-quality properties to the portfolio.”

The deal has been one of the most successful for nontraded REIT investors in the recent past, Mr. Sabshon said.

He noted that on July 2, the first full trading day for the Inland Diversified/Kite merger, Kite closed at $6.40. At an exchange rate of 1.7, that translates to an Inland Diversified exit value of $10.92, he said.

Excluding nontraded REITs that were purchased by related or affiliated REITs, a common industry practice, the Inland Diversified merger represents the highest nonaffiliated transaction exit price in two years, Mr. Sabshon said.

Kite Realty Group Trust, with the ticker symbol KRG, was trading Wednesday at $6.37 per share.

Meanwhile, NorthStar Realty Finance Corp., a traded REIT, is in exclusive talks to buy Griffin-American Healthcare REIT II, according to published reports. Damon Elder, a spokesman for the $3 billion Griffin-American Healthcare REIT II, declined to comment on the reports.

Other announced mergers and listings of former nontraded REITs or related companies have also occurred this month.

Last week, Regency Centers Corp. said it had offered to acquire AmREIT Inc. for $22 per share in cash and stock. The move was a positive for nontraded REIT investors, according to one financial adviser.

“AmREIT is a traded REIT that was created when several older vintage nontraded REITs specializing in retail real estate were combined” and listed in 2012, said Larry Solomon, director of investments and financial planning with OptiFour Integrated Wealth Management.

“AmREIT had several small public nontraded offerings that raised money in the pre-crash period,” Mr. Solomon said. During the Great Recession, the REIT slowed down, he said, cutting costs and reducing its fees. It also stopped raising new money, he said, “so they could focus on going full cycle with their existing programs. The strategy worked and they listed in 2013. Now they are being bought out for a substantial premium.”

Finally, NorthStar Realty Finance last month spun off its asset management division, NorthStar Asset Management Group, with the ticker NSAM. It began trading on the New York Stock Exchange June 27. NSAM manages nontraded REITs NorthStar Real Estate Income II Inc. and NorthStar Healthcare Income Inc.

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