Continuing with the terrible misfortune investors in Behringer Harvard REIT I have had for the past few years, the REIT has recently announced a further reduction in share price and a complete suspension of already anemic distributions.
In a letter sent by Behringer Harvard to investors this week, the REIT announced a reduction in share value to $4.01 per share from the previous 2011 valuation of $4.64 per share. This signifies a reduction in share value of approximately 13 percent from the previous share value and an overall reduction of approximately 60 percent of the investor’s original investment (down from the original $10 a share).
The letter sent to investors merely announces what Behringer Harvard had already disclosed in its form 8K filed with the SEC on December 20, 2012. In the document, Behringer Harvard announced the following:
On December 17, 2012, pursuant to our Second Amended and Restated Policy for Estimation of Common Stock Value (the “Estimated Valuation Policy”), our board of directors met and established an estimated per share value of the Company’s common stock equal to $4.01 per share. This estimate is being provided solely to assist broker-dealers in connection with their obligations under applicable Financial Industry Regulatory Authority (“FINRA”) rules with respect to customer account statements. The estimated value per share set forth above will first appear on the fourth quarter 2012 stockholder account statements that will be mailed in January 2013.
According to the form 8K, Behringer Harvard attributes the reduction in share value to four different factors. And while the REIT alleges that the reduction in value is due in part to slow recovery in the real estate market, it also attributes the reduction in share value to payment of distributions to investors, the use of cash and restricted cash to fund leasing and other operations costs, and the impact of the REIT’s debt obligations.
Behringer Harvard REIT I is an investment that initially charged investors selling commissions of 9.5 percent; organization and offering expenses of 2.6 percent; acquisition and advisory fees of 3.0 percent; acquisition expenses of 0.5 percent; and an initial working capital reserve of 1.0 percent. In other words, more than 16 percent of the investor’s initial investment went to pay commissions (to the advisor who initially recommended the REIT), fees, and other expenses to the REIT and the REIT sponsors. And while investors continue to suffer devastating losses, the REIT and REIT sponsors have continued to charge investors millions in management fees.
The reduction in share value is worsened by Behringer Harvard’s supplementary announcement that the board of directors has directed a complete suspension of distributions made to investors as well as a continuation of the redemption suspension policy. This announcement was also disclosed in Behringer’s form 8K filed with the SEC, which stated the following:
On December 19, 2012, the board of directors of the Company approved the suspension of monthly distribution payments to stockholders and quarterly redemptions under the Company’s Fourth Amended and Restated Share Redemption Program. As noted in previous filings, distributions are authorized at the discretion of our board of directors based on its analysis of numerous factors, including but not limited to our forthcoming cash needs, and there is no assurance that distributions will be declared again in any future periods or at any particular rate.
Behringer Harvard’s decision to suspend distributions is preceded by an initial reduction in distributions from 7 percent in 2008 to 3.3 percent in 2009, and a further reduction from 3.3 percent to 1 percent in 2010. The suspension in distributions also comes approximately one month after the Chief Operating and Financial Officer for Behringer Harvard REIT I, Mr. Scott Fordham assured investors (during a third-quarter 2012 conference call) that “the financial condition of the company ha[d] improved substantially since the depths of the recession.”
Just four days ago, on January 13, 2013, the CEO of Behringer Harvard REIT I Mr. Bob Aisner wrote an article on what he called the “evolving non-listed REIT industry.” In the article, Mr. Aisner refers to the resilience of the non-traded REIT industry “in spite of occasionally disappointing estimated valuations.” And while the article focuses on the necessary evolution and updated regulatory requirements for REITs and REIT sponsors, the fact that Mr. Aisner stated that disappointing estimated valuations are occasional is particularly troubling, especially because the REIT that he is in charge of has slashed valuations by 60 percent, has suspended redemptions and distributions altogether, and has effectively diminished the investor’s overall investment. Furthermore, Behringer Harvard REIT I’s latest quarterly report discloses that, despite being the REIT’s CEO, Mr. Aisner is only required to devote a small portion of his time working on Behringer Harvard REIT I matters. Specifically, the quarterly report discloses the following:
Additionally, under the [CEO] consulting agreement entered into with Mr. Aisner at the time we became self-managed, Mr. Aisner is only required to devote approximately 20% of his working time to our matters. Further, due to Mr. Aisner’s responsibilities with other entities affiliated with Behringer Advisors, there is no assurance he would be able to provide us with any additional time if needed.
In our opinion, investors who believe they were not informed of the true characteristics and risks of Behringer Harvard REITs (as well as other REITs such as Wells, Inland, Cole, KBS, and CNL, among others) and/or investors who are in or near retirement with significant portions of their investable assets in REITs should have their portfolios independently evaluated and should explore their legal options.
If you are concerned about your non-traded REIT assets and the circumstances under which the investment was sold to you, please call Vernon Litigation Group toll-free at (239) 319-4434 or by e-mail at info@vernonhealy.com. Vernon Litigation Group is a Naples, Florida based law firm that advocates for the rights of investors throughout the United States and currently represent investors across the nation and whose money was put into Behringer Harvard REITs and other REITs.