Based on publicly available information, including recent SEC filings, shares of Summit Healthcare REIT, Inc. (“Summit” or the “Company”) may have a value of less than $2.00 a shares – far below the initial offering price of $8.00 share and also less than the $2.80 NAV provided by Summit.
Headquartered in Lake Forest, CA, Summit is structured as a Maryland corporation that qualifies as a real estate investment trust (“REIT”) for tax purposes. Formed in 2004, Summit was formerly known as Cornerstone Core Properties REIT, Inc. Following a strategic repositioning of the Company’s property portfolio to focus on healthcare real estate and related assets, the name change was formally adopted in October 2013.
On June 21, 2018, a third party known as MacKenzie Realty Capital, Inc. reportedly closed on a tender offer, purchasing some 41,566 shares of Summit at a price of $1.56 per share. As of December 31, 2017, Summit reported a net asset value (NAV) of $2.80 per share.
Further, investors seeking near-term liquidity on their Summit shares may elect to sell their shares on a fragmented and relatively inefficient secondary market. Recent price quotes for Summit shares on a secondary platform suggest Summit investors may sell their shares for a price of approximately $1.67-$1.87 per share. This pricing suggests that Summit investors seeking near-term liquidity have sold at a discount of approximately 40% to NAV. Of course, Summit’s current NAV ($2.80) itself represents a significant loss of approximately 65% on the initial offering price of $8 per share, excluding any distributions paid to date.
Because Summit is a publicly registered, non-traded REIT, many unsophisticated retail investors may have participated in the Company’s initial offering, with shares sold pursuant to an initial offering at $8 per share. Unfortunately, in certain instances, investors may have been steered into Summit without first being fully informed of the investment’s risks, including but not limited to its high commission, the potential for principal losses, and the lack of a liquid public market for the sale of shares. With regard to Summit’s fees, investors were charged a hefty sales commission of 7% on their initial investment, in addition to another 3% in the form of dealer manager fees.
Investors in Summit have limited options at their disposal in the event that they wish to exit their investment. While many non-traded REITs do have share redemption programs in place that allow investors to sell their shares back to the sponsor, such programs are often restricted, both as to timing (many programs only allow for investors to redeem their shares on a quarterly basis) and their scope (many programs limit the number of shares that investors may redeem, typically pursuant to a formula). Moreover, some non-traded REITs, including Summit, have elected to suspend their redemption program altogether. As set forth in Summit’s most recent 10-K for fiscal 2017: “Effective December 2010, we suspended redemptions under our stock repurchase program and we suspended our distribution reinvestment plan.”
In light of Summit’s lack of internal liquidity, investors seeking cash through sales of their Summit shares are left with limited options. Briefly, these options include partaking in a tender offer from an institutional, third-party investor, or alternatively, selling shares on a limited and fragmented secondary market. On June 21, 2018, MacKenzie Realty Capital, Inc. (“MacKenzie”) closed on a tender offer for some 41,566 shares of Summit at a price of $1.56 per share. As of December 31, 2017, Summit reported a net asset value (NAV) of $2.80 per share.
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 business development companies (BDCs). Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at firstname.lastname@example.org for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and 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).