Nonlisted REIT Group Issues Value-Disclosure Guidelines

A trade group that represents real estate investment trusts that aren’t publicly traded issued guidelines for the industry to improve and speed up the disclosure of the REITs’ valuations.

The Investment Program Association today recommended that net asset value be used as the basis for the reporting of per-share valuation, the Ellicott City, Maryland-based group said in a statement. Using that method would standardize an industry practice that has been disparate, said Kevin Hogan, chief executive officer of the association.

“It’s part of the maturing process,” Hogan said in a telephone interview. “This truly was a collaborative effort from our industry over the last two years.”

The group recommended that each nontraded REIT hire a third-party appraiser to determine values for the company’s real estate in the first year it’s required to do so, and at least every second year afterward, to eliminate any perception of conflict of interest. Nontraded REITs, which don’t trade on a stock exchange, are created by companies that run them and often manage other REITs as well.

Existing U.S. securities regulations require nontraded REITs to provide valuations 18 months after they’re done raising money. Under those rules, it can be four and a half years or more after the initial share purchase before an investor gets a valuation of the REIT’s investments, according to the Investment Program Association. The group’s recommendations would cut investors’ waiting time in half, it said.

Founding Sponsors

Nontraded REITs typically are managed by a founding sponsor, which earns fees for services such as overseeing properties and making acquisitions. The REITs raise money through share sales and buy properties with the proceeds, with a requirement that they eventually return money. Until then, shares are generally illiquid and investors collect dividend payments.

The Investment Program Association’s members include American Realty Capital, a sponsor of nontraded REITs. The New York-based company raised $2.6 billion last year, the most of any nontraded-REIT sponsor, according to data from Blue Vault Partners LLC, a Cumming, Georgia-based company that tracks the industry.

The association’s membership also includes sponsors of investment vehicles in the oil, gas and equipment-leasing industries. Nontraded REITs are the largest category among more than 150 members.

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