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.
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.
According to filings with the SEC, on April 3, 2020, HTI 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, HTI 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 HTI, 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 $6.65 and $6.85 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 this illiquid investment will incur a substantial loss.
Healthcare Trust, formerly known as ARC Healthcare Trust II, is a non-traded real estate investment trust which “seeks to acquire a diversified portfolio of real estate properties, focusing primarily on healthcare-related assets including medical office buildings, seniors housing and other healthcare-related facilities,” according to its website. The REIT reportedly terminated its offering in November 2014 after raising approximately $2.2 billion in investor equity. Healthcare Trust invests in multi-tenant medical office buildings and owned a portfolio of 191 properties, as of the fourth quarter of 2018.
As a publicly registered non-traded REIT, HTI was permitted to sell securities to the investing public at large, including unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.
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 like HTI generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
Furthermore, non-traded REITs are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Many uninitiated investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Typically, investors in non-traded REITs can only exit their investment through redemption directly with the sponsor on a limited basis, and often at a disadvantageous price, or through sales in a limited secondary market.
Investors who wish to discuss a possible claim 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. Attorneys at the firm are admitted in New York, New Jersey, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).
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