The NAV of the real estate portfolio was negatively impacted by a recent merger.
The Sonn Law Group is investigating allegations that brokers recommended investments in Carter Validus Mission Critical REIT II. If you or a family member has suffered losses investing, we want to discuss your case. Please contact us today for a free review of your case.
Carter Validus Mission Critical REIT II is a non-traded, publicly registered REIT that intends to employ a long-term, net lease strategy in order to help mitigate risk, provide greater certainty of rental income and maximize value for fund shareholders, according to its website.
In April 2019, Carter Validus Mission Critical REIT I and Carter Validus Mission Critical REIT II entered into a merger agreement, creating an entity valued at approximately $3.2 billion. The merger was completed in December 2019. At that time, the board of directors approved an estimated NAV of $8.65 per share for the REIT’s Class A, Class I, Class T, and Class T2 shares of common stock, as of October 31, 2019. The shares were originally sold for $10.00 per share.
Although the value of the real estate portfolio increased after the merger, the NAV was negatively impacted by transaction costs incurred from Carter Validus Mission Critical REIT I’s debt payoff and other merger-related costs, distributions in excess of earnings, and a change in the value of interest rate swaps. The NAV is the net asset value. Net asset value is the value of an entity’s assets minus the value of its liabilities.
The board reported adopted a new share repurchase program (SRP) in October 2019, prohibiting repurchases from exceeding 5% in 2020. This limits the repurchase amount to 1.25% per quarter. Unfortunately for investors, the repurchase limit for the first quarter of 2020 has already been met.
Investors can buy shares in REITs, which in turn borrows money to make investments in multiple properties specific to a certain sector, such as retail, industrial, office, or multi-family residential apartments. REITs have specific risks associated with them that are not prevalent in traditional investments.
The following are risks that investors should consider:
- REITs that are publicly traded on the equity markets are subject to not only real estate portfolio risks, but also a broad range of global and domestic economic events, changes in interest rates and other evolving conditions that cause market swings.
- Non-traded REITs are not required to registered with the SEC and are therefore not bound by the same compliance standards, disclosure requirements and investor protections of their publicly traded counterparts.
- Portfolio diversification within a particular REIT typically is limited to a specific asset class and geographic area. Moreover, because the full portfolio of a REIT’s properties may be unspecified, investors may not have full knowledge of all of their investment risks.
- Investors do not have a say in or control over the properties in which the REITs choose to invest or the way in which those properties are managed.
- There are no guarantees that the securities offered by a REIT will have an established trading market, adequate trading volumes or sufficient liquidity.
- Because REITs borrow money to fund their operations, they are subject to leverage risks and a potential lack of sufficient cash flow and access to additional financing.
- REITs do not provide investors with opportunities to defer or eliminate capital gains tax on the sale of assets nor do they pass tax losses onto their individual investors to be used to offset taxable gains.
Despite the risks associated with REITs, brokerage firms continue to push these investments because of the high commissions associated with their sale and creation. Firms typically earn between 7-10% in commission for selling a non-traded REIT, which is higher than most investment types.
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The Sonn Law Group is currently investigating allegations that brokers recommended investments in Carter Validus Mission Critical REIT II. We represent investors in claims against negligent brokers and brokerage firms. If you or your loved one experienced investment losses, we are here to help. For a free consultation, please call us now at 866-827-3202 or complete our contact form.