Timberland REIT takes axe to share price

Timberland REIT takes axe to share price
On Monday, management at the very popular Timberland REIT took an ax to the trust's stock, lowering the per share valuation by 35%. Here's why.
JAN 02, 2013
The board of directors of Wells Timberland REIT Inc. on Friday issued an estimated value of $6.56 per share of common stock in the real estate investment trust, which invests in working timberland. The shares were offered to the public at $10 when the REIT was launched in 2006. The company blamed the 35% drop in value on the still-dismal housing industry but said that the REIT's land holdings are continuing to grow in value. “While the estimated per-share value of Wells Timberland REIT has been adversely affected by the economic downturn, our strategic forestry management practices have permitted us not only to maintain but also increase the percentage of higher-value timberland,” the company said in a written statement. The REIT is sponsored by Wells Real Estate Funds, one of the largest firms in the arena of nontraded REITs. It has invested more than $11 billion in real estate for more than 300,000 investors, according to the firm's website. Last January, Wells Timberland Management Organization LLC (Timo), a subsidiary of Wells and the adviser to the fund, decided not to collect accrued advisory fees of $27 million. The parent company also committed $37 million to the REIT in preferred equity, currently accruing dividends at an annual rate of just 1%. In a letter to stockholders last Friday, Leo Wells III, president and chairman of the board, said the two initiatives are “significant examples of Wells Timo's long-term commitment to the REIT and its stockholders.” The $6.56 estimate for the common shares was based on information as of Sept. 30. Investors in the fund might find it difficult to get that price in the market because of the illiquid nature of the investment. According to the REIT's 8-K filing with the Securities and Exchange Commission, the fund has timber assets of $11.70 per share, $0.28 of other net assets per share, and debt and preferred equity liabilities of $5.42. The board of directors used appraisal information from a forest consulting firm and a certified public accounting firm but made the estimate itself. Last October, the trust suspended redemptions of shares until the new estimate of share values was completed. Beginning in January, shareholders will theoretically be able to redeem shares for 95% of the estimated value — or $6.23. The REIT, however, funds redemptions out of its “distribution reinvestment plan,” and because it has made no cash distributions, it has also not made any ordinary share redemptions. The board has reserved $150,000 per month for redemptions by shareholders because of death, qualifying disability or confinement to a long-term-care facility.

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