Investors in American Finance Trust (“AFIN”), formerly known as American Realty Capital Trust V, Inc., may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their AFIN position was recommended by an investment advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or financial advisor. According to its website, AFIN is structured to protect shareholder capital and produce stable cash distributions through the acquisition and management of a diversified portfolio of commercial properties leased to investment grade tenants.
AFIN is a publicly registered non-traded real estate investment trust (“REIT”) that is based in New York, NY. Incorporated in early 2013 as a Maryland REIT, AFIN is registered with the SEC, and therefore, the non-traded REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.
According to publicly available information through the SEC, MacKenzie Capital Management LP (“Mackenzie”) recently made an unsolicited tender offer to purchase up to 1 million shares of AFIN common stock at $13.66 per share. This tender offer is set to expire on March 22, 2018, unless extended.
In response to the unsolicited tender, AFIN’s board has called upon shareholders to reject the MacKenzie tender, and further, has authorized AFIN to commence its own defensive tender offer to purchase up to 1 million shares for $14.35 per share. The AFIN tender offer is set to expire on March 27, 2018.
AFIN commenced its initial public offering in April 2013, which closed approximately six months later, raising $1.6 billion in investor equity. Investors who participated in the IPO paid $25 per share. Therefore, investors who elect to participate in AFIN’s defensive tender offer will be cashed out of their position at $14.35, sustaining losses of approx. 42% (net of distributions) on their initial investment.
Non-traded REITs pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors and stockbrokers who recommend these complex investments. One significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. Such high fees (perhaps as high as 13-15%) act as an immediate ‘drag’ on any investment and can serve to compound losses.
Moreover, non-traded REITs are generally illiquid investments. Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Investors in non-traded REITs typically can only redeem shares directly with the sponsor on a limited basis, and often at a disadvantageous price. Or, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares at a disadvantageous price.
If you have invested in AFIN, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at firstname.lastname@example.org for a no-cost, confidential consultation.