More Problems in the NonTraded REIT Market


Another nontraded REIT, CNL Lifestyle Properties Inc. (CNL), has informed investors that it is worth significantly less than they paid for it, and that it will also be cutting its dividend. CNL has reported that its share price had declined from its offering price of $10.00 down to $7.31 per share, a 27% decline (“Another nontraded REIT faces sharp drop in value,” by Bruce Kelly, InvestmentNews).

CNL reported a net loss of $19.9 million, or seven cents per share, for the quarter that ended in June, compared with a loss of $15.7 million, or five cents per share, for the same period last year. CNL invests in ski resorts, theme parks and senior housing. CNL raised $2.7 billion in equity from investors through last year.

CNL’s annual distribution had been 6.25% of the original value that was based on $10.00 per share. The new distribution will be 5.81% the new lower estimated value based on $7.31 per share. If the new distribution was based on the original purchase price of $10 per share, the annual distribution would be 4.25%.

The nontraded REIT industry has been plagued in recent years by regulatory actions accusing sellers of misleading investors by maintaining the reported per share value at the offering price despite the fact that assets had been devalued, and by paying distributions that were not supported by earnings.

This year a number of other nontraded REITs have undergone significant devaluations. The list includes: KBS Real Estate Investment Trust (originally sold at $10 per share, then devalued to $5.16 per share) and the Dividend Capital Total Realty Trust (originally priced at $10 and devalued to $6.69 per share).

According to Michael Stubben, president, MTS Research Advisors, all of these nontraded REITs acquired assets in the pricing bubble of 2006 to 2007, and were loaded with “impaired assets, failed alternative investments, and short-term debt maturities that have severely impacted valuations and sustainable dividends.” Stubben expects that “[t]he majority of these REITs will not get values back to $10 per share.”

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.