The Non-Listed REIT Blog

Earlier this year the board of Piedmont Office Realty Trust, the fifth largest nonlisted REIT in terms of total assets, announced that the company had allocated $100 million for share repurchases which had been suspended since mid-2008.  Of this amount, 30% was set aside for share redemptions due to death or required minimum distributions under Internal Revenue rules.   When the company’s repurchase plan was reopened in April 2009, shareholders seized upon this opportunity by submitting an unprecedented number of redemption requests.   As a result, the company was only able to repurchase up to 2000 shares of each redemption request and its redemption program has been closed for the remainder of this year.    All unmet redemption requests will remain on file with the company’s transfer agent and will be processed when this program is reopened.   The company will continue to redeem shares submitted for redemption as a result of deaths and required minimum distributions.

At this point the six largest nonlisted REITs  have shut down their share repurchase programs.  The other five companies include Inland American Real Estate Trust, Inland Western Retail Real Estate Trust, Wells Real Estate Investment Trust II, Behringer Harvard REIT I and Cole Credit Property Trust II.

Other nonlisted REITs that have either stopped repurchasing shares or been unable to repurchase all the shares submitted include Behringer Harvard Opportunity REIT I, Desert Capital REIT, Dividend Capital Total Realty Trust, Grubb & Ellis Apartment REIT, KBS Real Estate Investment Trust and Whitestone REIT.

Another non-listed REIT, this time Behringer Harvard REIT I which owns 74 office bldgs., has announced that it will slash its annualized dividend rate.  In a letter to shareholders dated May 15, the company reports that it will cut its annual dividend rate from 6.5% to 3.25%, based on an original share purchase price of $10.  This reduction will take effect with the company’s monthly dividends payable for the months of April, May and June 2009.  The company pays dividends monthly, approximately 30 days after the end of the month for which the dividend is payable.

Behringer Harvard REIT I is the third largest nonlisted REIT in terms of total assets.  With this announcement, four of the five largest nonlisted REITs have cut their dividend rate in the past several months.  The other three companies include Inland American Real Estate Trust, Inland Western Retail Real Estate Trust and Piedmont Office Realty Trust.  This brings the number of nonlisted REITs that have cut their dividend rate in recent months to eight.

In connection with this dividend reduction, Behringer Advisors, the advisor to the company, has agreed to waive $5 million of asset management fees that Behringer Harvard REIT I would be obligated to pay for the second and third quarters of 2009.  The company believes these measures will assist it in maintaining the liquidity it will need to meet the potential challenges resulting from the current economic downturn.

To review the shareholder letter reporting these events, visit

http://www.sec.gov/Archives/edgar/data/1176373/000110465909033010/a09-11271_2ex99d1.htm

Two Non-Listed REITs managed by Dallas-based Behringer Harvard have reported that they will join the growing list of such companies that have halted share repurchases.  These REITs include Behringer Harvard  REIT I and Behringer Harvard Opportunity REIT I.  Both REITs will accept redemption requests for death, disability or need for long-term care but will reject all other such redemption requests “until further notice”.   In addition, the REITs have reported that they will declare dividends in arrears on a going-forward basis rather than in advance.   This new dividend policy is designed to enable the board to make dividend decisions with “greater visibility”.  Both REITs reported that requests for share redemptions during the first quarter alone exceeded the full year’s budgeted amount for redemptions, and that accepting redemptions of this magnitude could affect the REITs’ ability to fulfill other funding obligations.

Here are links to the S.E.C. filings reporting these changes:

Behringer Harvard REIT I

http://www.sec.gov/Archives/edgar/data/1176373/000110465909021391/a09-8971_1ex99d1.htm

Behringer Harvard Opportunity REIT I 

http://www.sec.gov/Archives/edgar/data/1308711/000110465909021817/a09-9093_1ex99d1.htm

Another nonlisted REIT, this time KBS Real Estate Investment Trust, has announced that it will stop redeeming shares for the remainder of 2009, except in very limited situations such as death and disability.  According to an S.E.C. filing, this move was based on the level of redemptions received already in 2009, as well as the amounts the company has budgeted from net proceeds from its dividend reinvestment plan for capital expenditures, tenant improvement costs and other funding obligations.  The KBS REIT joins the growing list of nonlisted REITs that have either shut down or otherwise maxed out on share repurchases in 2009, including Inland Western Retail Real Estate Trust, Inland American Real Estate Trust, Dividend Capital Total Realty Trust and Wells Real Estate Investment Trust II.  Piedmont Office Realty Trust, which suspended it share repurchase program last year, has reported that it will resume share repurchases effective April 15, but this window may not be open very long as pent-up demand from investors to have their shares repurchased may quickly deplete the amount of funds the REIT has set aside for share buy-backs.

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With $1.4 billion of debt maturing in the second half of 2009, some observers expected Inland Western Retail Real Estate Trust to cut its dividend to conserve cash to help refinance this debt.  This nonlisted REIT had been paying an annualized dividend of $0.64 per share which translates to a 6.4% yield based on the price ($10) at which the company sold shares in its public offerings.  Sure enough, the REIT has reported in an S.E.C. filing (http://www.sec.gov/Archives/edgar/data/1222840/000110465909019990/a09-8529_1ex99d1.htm) that it will be cutting its annualized dividend rate by 70% to only about $0.19 per year.  This is a much larger reduction than some analysts had anticipated and is sure to alarm these shareholders who will be made aware of this change in mid-April.   The extent of this pay-out cut was apparently required to amend the REIT’s credit agreement which permits it to pay out only the minimum amount required to maintain its REIT status.  Another amendment to the credit agreement prohibits the REIT from redeeming any shares until March 31, 2010.  The REIT had already suspended share redemptions “indefinitely” in October 2008 upon reaching the 5% buyback limit.  At this point, the only place these shareholders can sell these shares is the secondary market.  But shares prices for Inland Western have plummeted in recent months, and the price will only go lower with the dividend being slashed.

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Inland American Real Estate Trust, the largest nonlisted REIT of them all by a longshot, has announced that it will stop selling shares other than shares sold in its dividend reinvestment plan.  According to a letter dated March 27 (http://www.sec.gov/Archives/edgar/data/1307748/000110465909021044/a09-8889_1ex99d1.htm), management believes that the REIT has raised enough cash to execute its business plan, adding that stock sales for March were better than expected in light of current economic conditions.   The REIT has raised over $8.2 billion since launching its IPO in August 2005 which is the most capital ever raised by a nonlisted REIT.  In late February the company reported that it would stop redeeming shares from investors wanting liquidity, effective March 30, as it has already reached the maximum number of shares it is permitted to buy back for 2009.  In February the company reduced its annualized dividend from $0.62 to $0.50 per share which spurred redemption requests.  This announcement that the REIT will stop selling shares comes on the heels of a large dividend cut by Inland Western Retail Real Estate Trust.

To comment on the above, email the editor at editor@DISpectrum.com