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Articles Posted in FINRA Arbitration

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Investors in Healthcare Trust, Inc. (“HTI”) may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by a stockbroker or advisor.

Piggybank in a Cage
HTI,  a publicly registered non-traded real estate investment trust, announced that it has amended the company’s distribution policy and share repurchase program to end cash distributions and suspend redemptions.   Future distributions to shareholders will be paid in shares of common stock instead of cash, and share repurchases under the REIT’s share repurchase plan (or “SRP”) were suspended.  These announcements leave investors with no cash income from the REIT, and limited options if they wish to sell shares.

HTI states that it made these changes to preserve liquidity and maintain additional financial flexibility in light of the COVID-19 pandemic.  In a filing with the U.S. Securities and Exchange Commission (“SEC”), HTI indicated that any future distributions, if and when declared, will be paid on a quarterly basis in arrears in shares of common stock valued at the net asset value per share.  The number of shares paid will continue to be based on the prior cash distribution rate of $0.85 per share per year, the company said.

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Investors in New York City REIT (“NYC REIT”, formerly known as American Realty Capital New York City REIT)  may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

Wastebasket Filled with Crumpled Dollar Bills
NYC REIT is a former public, non-traded REIT that listed on the New York Stock Exchange (“NYSE”) on August 18, 2020 under the ticker symbol “NYC”.  Investors who were relying on NYC REIT’s most recent estimated NAV of $20.26 a share (valued as of June 30, 2019) were in for an unwelcome surprise, as despite a reverse split of its shares of 2.43 to 1, NYC REIT shares closed their first day of trading at $17.60 a share.

This price doesn’t sound so bad until one accounts for the reverse split- after the 2.43 to 1 reverse split, pre-split shares of NYC REIT are effectively worth only about $7.24 a pre-split share.  While drastically below the sponsor’s stated value of $20.26 a share, this price is only modestly below the $8.75 to $9.50 a share purchase of NYC REIT in the illiquid private market before share listed.  Shares of the REIT were originally sold to the public for $25.00.

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Investors in Terra Income Fund 6 (“Terra 6”) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution, if a broker or financial advisor made the recommendation to invest in Terra 6 without a reasonable basis, or misled the investor as to the nature of the investment.  Terra 6 is a non-traded business development company headquartered in Kansas City, Missouri.  Formed on May 15, 2013 and commencing operations on June 24, 2015, Terra 6 is a non-traded business development company (“BDC”).

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As an investment vehicle, BDCs first emerged in the early 1980’s following legislation passed by Congress making certain amendments to federal securities laws.  These legislative changes allowed for BDC’s — types of closed end funds — to make investments in developing companies and firms.  Many brokers and financial advisors have recommended BDCs as investment vehicles to their clientele, touting the opportunity for retail investors to earn enhanced dividend income while participating in private-equity-type investing previously unavailable to the average “Mom and Pop” investor.

While non-traded BDCs may offer an attractive investment opportunity for certain investors, non-traded BDCs, such as Terra 6, are complex and risky investment products.  Non-traded BDCs, as their name implies, do not trade on a national securities exchange, and are therefore illiquid products that are hard to sell (investors can typically only sell their shares through redemption with the issuer, or through a fragmented and illiquid secondary market).  Further, non-traded BDCs often entail high up-front fees and commissions (typically 10% or more in the aggregate), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.  Finally, although they are frequently sold as steady income investments, non-traded BDCs do present the risk of loss of principal.

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Investors in Phillips Edison & Company, Inc. (“PECO”) may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

Money Maze
PECO was formed in Maryland in October 2009 as a non-traded real estate investment trust (or “REIT”), to acquire grocery-anchored shopping centers. In November 2018, PECO officially merged with Phillips Edison Grocery Center REIT II (“Phillips Edison II), a move that caused significant loss to its investors. Investors who purchased shares in PECO at the initial offering acquired shares at $10.00 per share, and while PECO’s sponsor has said that it currently has an estimated net asset value (“NAV”) of $8.75 per share, shares on the limited private secondary market have reportedly traded between $4.50 and $5.50 per share in recent months.

Making matters worse, in March 2020 PECO announced that it would suspended monthly distributions, as well as share repurchases or redemptions, albeit indicating that these  suspensions will be temporary.  As measures to guard against liquidity issues, PECO also reportedly borrowed $200 million from a revolving credit facility and announced plans to reduce expenses.

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Investors in Strategic Student & Senior Housing Trust, Inc. (“SSSHT REIT” or “the REIT”) may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

money whirlpool
SSSHT REIT, a publicly registered non-traded real estate investment trust (or “REIT”) sponsored by SmartStop Asset Management LLC, has reportedly suspended its distributions to shareholders, due to concerns over the COVID-19 pandemic’s possible adverse financial impact on the Company.

The REIT’s Board has also suspended its share redemption program (SRP), effective May 3, 2020.  No redemption requests made for the first quarter of 2020 will be honored.  SSSHT indicates that it does not intend to honor investor redemption requests, until further notice.

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Investors in Healthcare Trust, Inc.  may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

Money Bags
According to filings with the SEC, on April 3, 2020, Healthcare Trust announced that its board of directors announced an estimated NAV per share of $15.75 as of December 31, 2019.  This marks a 10% decline from the previous estimated NAV per share of $17.50 per share as of December 31, 2018. Previously, Healthcare Trust lowered its annual distribution rate from $1.45 to $0.85 per share on March 1, 2018, after lowering distributions and previously from $1.70 per share to $1.45 per share in 2017.

But shares of Healthcare Trust, which initially sold for $25.00/share, may be worth even less, and have reportedly changed hands in the limited and illiquid secondary market at prices of between $7.75 and $8.25 a share as of the date of this writing.  Unfortunately for many investors in Healthcare Trust, it would appear that investors who attempt to exit their illiquid investment will incur a substantial loss.

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Investors in Hospitality Investors Trust Inc. (“HIT”), a publicly registered non-traded REIT formerly known as American Realty Capital Hospitality Trust, may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the broker or financial advisor.

Wastebasket Filled with Crumpled Dollar Bills
HIT owns a portfolio of hotel properties throughout North America, including various Hilton-, Marriott- and Hyatt- branded hotels, within the select service and full-service markets.  As of December 31, 2018, HIT reportedly owned 144 hotels.  The REIT’s offering was declared effective in January 2014 and suspended sales activities in November 2015 after raising $903 million in investor equity, according to Summit Investment Research.

In April 2017, HIT changed its name from American Realty Capital Hospitality Trust to HIT after restructuring to become a standalone self-managed REIT as well as a partnership with Brookfield Strategic Real Estate Partners II.  Prior to the restructure and name change, HIT had an agreement with American Realty Capital Hospitality Advisors LLC, and affiliate of AR Global Trust II.

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Investors in ICON Equipment and Corporate Infrastructure Fund Fourteen, LP (“ICON 14”)  may be able to recover investment losses through FINRA arbitration. if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.

money blowing in wind
ICON 14 is managed by ICON Capital, LLC, and is part of a category of alternative investments that is commonly referred to as an equipment leasing and finance fund.  Specifically, ICON 14 is a non-traded, publicly registered equipment finance fund.  ICON 14 purportedly makes opportunistic investments in middle market companies by providing financing solutions that are secured by the company’s business-essential equipment as collateral.

ICON 14 was sold to investors beginning in or about 2010 at a per interest price of $1,000.  Now, as its process of liquidation continues, ICON 14 interests appear to be worth less than $32.00 each, and investors have lost a substantial portion of their principal invested, even net of distributions.

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Investors in Strategic Realty Trust (“SRT”) may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker. SRT,  formerly known as TNP Strategic Retail Trust, is a non-traded real estate investment trust (REIT) which owns a portfolio of shopping centers that are anchored by such grocers as Publix, Kroger, and Wal-Mart. It is a non-traded REIT sponsored by Thompson National Properties, LLC.

Money Bags
A company known as Mackenzie Realty Capital has just extended a tender offer to purchase shares of the REIT for just $1.00 per share. According to Mackenzie’s letter to investors, SRT has given no indication when it might liquidate, and its charter does not require it to do so on any particular schedule.

Further, although SRT redeems shares on a quarterly basis, repurchases are limited to death or disability of a stockholder.  SRT estimated the REIT’s net asset value per share as $5.86 as of April 2019, a 41.4% decline of from the original offering price of $10 per share.  Shares of SRT have reportedly changed hands at even lower prices of between $2.30 and $2.50 a share in the limited secondary market.

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HMS Income Fund (“HMSIF”), a publicly registered, non-traded business development company, announced a suspension of its share repurchase program and decreased its monthly distribution reinvestment plan share sale price, citing the COVID-19 pandemic.

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HMSIF will suspend repurchases for the second quarter of 2020 and will reevaluate its program depending on circumstances going forward.  HMSIF also announced a reduction of the price at which it sells shares to investor pursuant to its monthly distribution reinvestment plan (known as a “DRIP”) from $7.80 to $6.65 a share beginning with the April 1, 2020 distribution.

HMSIF focuses on loans and investment in small and mid-size companies throughout the United States.  HMSIF reportedly has raised approximately $236.3 million in its public offerings including proceeds from the DRIP of approximately $104.6 million.

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