Valuations of Non-Traded REIT Stock

For many investors holding shares of stock in non-traded REITs, the value of their holdings remains a mystery.  This is due to the absence of public markets.

In February 2009, the Financial Industry Regulatory Authority (FINRA) issued a notice to its members firms (NTM 09-09) notifying them that they would be required to discontinue their practice of listing the value of non-traded REIT stock on their customers’ brokerage statements as the offering price regardless of the performance of the underlying REITs.  In response, the operators of non-traded REITs began providing estimated valuations which the brokerage firms then began reporting on their customers’ statements.

Unfortunately for investors, the valuations that non-traded REIT operators provide is arbitrary and often overstated.

We believe that the book value non-traded REIT stock — the remaining shareholder equity divided by the number of shares outstanding – provides a far more objective and realistic estimate.

It is worth noting, however, that shares of non-traded REIT stock often trade at substantial discounts to book value on secondary markets.  For Example, TIER REIT, Inc. (f/k/a Behringer Harvard REIT I, Inc.) stock currently trades on secondary markets for approximately $1.70/share.  The book value of the stock, according to TIER REIT’s 10-Q report for the second quarter of 2013, is currently $2.56/share.   TIER REIT currently reports an estimated share value of $4.01/share.

In August 2013, many non-traded REITs filed reports for the second quarter of 2013 with the Securities and Exchange Commission (SEC).  Book value can be calculated from the data contained within these reports.  Here’s how the book values of several non-traded REIT stocks have changed since the end of 2012:

TIER REIT, Inc. (f/k/a Behringer Harvard REIT I, Inc.): $2.56/share (down from $2.62).

NetReit, Inc.: $5.59/share (unchanged).

KBS REIT I, Inc.: $3.94/share (down from $4.03).

CNL Lifestyle Properties, Inc.: $4.97/share (down from $5.42).

Dividend Capital Diversified Property Fund, Inc.: $4.00/share (down from $4.38).

Blau & Malmfeldt is a law firm that represents investors across the United States.  If you believe that your broker misled you with respect to the risks associated with non-traded REITs, please call us at 312-443-1600 for a free consultation or email Paul Malmfeldt at pmalmfeldt@blau-malmfeldt.com.

 

 

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