NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”) a public, non-traded REIT, has lowered its estimates net asset value or “NAV” to $3.89 a share. Shares were originally sold for $10.00 a share. NorthStar Healthcare had last reported a $6.25 NAV per share, as of June 30, 2019.
NorthStar Healthcare reportedly engaged Duff & Phelps, a third-party independent valuation and consulting firm, to assist with the valuation, which is based on the estimated value of NorthStar Healthcare’s assets, less the estimated value of its liabilities, divided by the number of shares outstanding as of June 30, 2020. Based on the valuation, the estimated value of NorthStar Healthcare’s healthcare properties, joint venture investments and healthcare debt investment was reportedly approximately $2.06 billion, or about 25 percent lower than the properties’ total cost.
In April 2020, NorthStar Healthcare’s board suspended all repurchases under the share repurchase program in order to preserve capital and liquidity. Distributions were suspended in February 2019.
NorthStar Healthcare Income was formed to acquire, originate and asset manage a diversified portfolio of equity, debt and securities investments in healthcare real estate. The company launched in February 2013, and through September 30, 2020, had reportedly raised $2 billion via sales of stock to investors, including $232.6 million through its distribution reinvestment plan or “DRIP”.
Although investors may be disappointed at the low $3.89 a share NAV, this net asset value or NAV may not even reflect the actual value that shareholders would realize if NorthStar Healthcare were liquidated, listed on an exchange or merged with a public company. Financial analysts frequently assume that non-traded investments such as NorthStar Healthcare will trade at a discount to NAV if listed on a securities exchange. In a prominent example of this phenomenon, a large non-traded REIT known as American Finance Trust or AFIN that listed its shares in 2018 had published an estimated NAV of $23.56 a share, yet shares later traded for as little as $10.08 after AFIN was listed on the Nasdaq Global Select Market. AFIN shares have traded at prices below $10.00 a share during 2020.
During 2020, shares of NorthStar Healthcare have reportedly traded on a secondary market platform at prices below $2.00 a share.
Some customers who purchased NorthStar Healthcare shares upon the recommendation of a broker may, in some instances, have been uninformed of the complex nature of the investment, and its high upfront commissions and fees (as set forth in its prospectus, NorthStar Healthcare charged investors a selling commission of up to 7% of gross offering proceeds, a dealer-manager fee of up to 3%, and an acquisition fee of 2.25% for properties acquired by the REIT).
Furthermore, as a non-traded REIT, NorthStar Healthcare is illiquid in nature. Investors seeking liquidity have limited options at their disposal in the event that they wish to exit their investment position in the near term. Briefly, investors seeking liquidity may: (i) seek to redeem their shares directly with the sponsor (it is worth noting that NorthStar is “not obligated to repurchase shares” under its Share Repurchase Program), or (ii) be presented with limited, market-driven opportunities to tender their shares to a third party professional investment firm (typically at a disadvantageous price), or finally, (iii) seek to sell their shares on a limited secondary market specializing in creating a market for illiquid securities. Finally, non-traded investments like NorthStar Healthcare may, as here, lose principal value- but the sales presentations that many advisors give to customers may indicate or imply that the customer’s principal investment is guaranteed to be returned after a period of time.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and BDCs. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at email@example.com 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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