Tuesday, November 15, 2011

Wells REIT II Valuation

Wells REIT II sent a letter to investors with an updated share valuation.  At $7.47 per share, the new value reflects a significant decline from both the offering price of $10.00 and the DRIP price of $9.55.  It is also notably lower than the estimate share value estimate I gave in an earlier post.

Wells is due some credit for accepting the consultant's valuation unmodified.  The REIT was formed and was making significant acquisitions during a real estate market that was much more robust than current conditions.  Valuations are bound to be lower than par, given the legacy properties in the portfolio.

Unfortunately, the new valuation is also consistent with investor experience with Wells programs.  Investors receive an attractive income stream, but then are subject to a negative surprise on a revaluation or liquidity event.

Special thanks to the Rational Realist.

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