Sila Realty Trust Inc., a non-traded real property investment trust (REIT), was formerly known under Carter Validus Mission Critical REIT II. A letter has been sent to shareholders informing them to reject an unsolicited tender proposal by CMG Partners and its affiliates CMG Income Fund II LLC. CMG Liquidity Fund LLC, CMG Liquidity Fund LLC, and Blue River Capital LLC.
CMG will purchase up to 500,000 Class A Shares for $4.15 each. This is approximately 50% less than the REIT’s latest net asset value per share, $8.20, which was announced in July 2021. CMG’s offer ends April 13, 2022, unless extended.
According to InvestmentFraudLawyers.com, investors have filed lawsuits against financial advisors and broker-dealers that sold Sila Realty Trust to recover losses. They have set up a toll-free number at 800-856-3352 for investors to call for a free consultation.
The REIT amended its share purchase program in December 2020 to restrict redemptions to shareholders who are deceased or under involuntary exigent circumstances.
CMG’s offer to acquire shares at a low price to make profits and deprive stockholders who tender their shares of company stock of the potential long-term value, we believe, is an attempt to get current stockholders off-guard,” stated Michael Seton, Sila’s chief executive officer, and president.
CMG and its affiliates own 16.300 Class A shares or 0.01 percent. The current tender offer includes 500,000 shares, which is 0.22 percent of all outstanding shares and 0.30% of Class A shares. CMG will pay approximately $2.1 million if all shares are offered.
The REIT sold its entire 29 property data center portfolio to Mapletree Industrial Trust in July 2021 for more than $1.3 million. Stockholders were awarded a $1.75 per-share special cash distribution following the sale.
Sila Realty Trust invests its capital in “high-quality healthcare properties leased by tenants capitalizing on structural and economic growth drivers.” It launched its initial offering in May 2014, raising approximately $1.2 billion in investor equity. The REIT’s second offering was closed in November 2018 and raised $129.3 million. Sila Realty Trust was the owner of 125 healthcare properties as of September 30, 2021.
Public Non-Traded REITs – Do a thorough review before you invest
Investors often look for products that offer higher yields during periods of low interest rates. The publicly registered, non-exchange traded real property investment trust (REIT), or “nontraded REIT” as it is commonly known, is one such product. Although non-traded REITs have many similarities to exchange-traded REITs, there are some key differences. The most important thing is that shares of non-traded REITs are not traded on any national securities exchange. Non-traded REITs can be illiquid for up to eight years. The ability to redeem shares early is rare, and the fees associated with these products can make it difficult to earn a return on your investment. In some cases, periodic distributions that make these products attractive can be heavily subsidized with borrowed funds. These distributions may also include a return on investor principal. This contrasts with the dividends that investors receive from large corporations trading on national exchanges. These are usually derived only from earnings.
This alert is being issued by FINRA to inform investors about the risks and features of publicly registered, non-exchange traded REITs. It also helps you avoid common pitfalls and misperceptions associated with these investments. Be prepared to ask questions about the features, fees, and benefits of a publicly traded non-exchange traded REIT.
What is a REIT?
A real estate investment trust (or REIT) is a trust, corporation, or association that manages the income-producing real property. REITs pool capital from many investors to buy a portfolio of properties, including shopping centers and office buildings as well as apartments and hotels. They also purchase timber-producing land that the average investor might not be able to otherwise.
REITs may offer tax benefits. Qualified REITs that comply with Internal Revenue Service requirements may deduct distributions to shareholders from their corporate taxable income. This avoids double taxation. A REIT must distribute at least 90% of its taxable income annually to shareholders. These distributions are subject to tax up to the number of capital gains and ordinary income.
There are two types: public REITs that trade on a national security exchange and those that don’t. This alert focuses on REITs that fall into the latter category, also known as publicly registered non-exchange traded (or simply non-traded REIT).
Non-Traded REITs: Features
Non-traded REITs also invest in real property, just like exchange-traded REITs. Non-traded REITs must also comply with the IRS requirements, such as distributing at least 90% of their taxable income to shareholders. Non-traded REITs must be registered with the Securities and Exchange Commission. They are also required to file regular SEC disclosures such as a prospectus, quarterly (10-Q), and annual (10-K) reports. All of these documents are available publicly through the SEC’s EDGAR Database.
Before you Invest
Avoid sales pitches and literature that offer simplistic reasons to invest in a REIT. While sales pitches may tout stability and high yields, they might not mention the product’s liquidity and fees. Ask the person recommending you buy a REIT what commissions they (and their company!) are getting in sales commissions and other fees. Ask them why the REIT is a good investment and how it will help you reach your investment goals 1.
Ask to see the prospectus, including any supplements. These documents will provide a better explanation of the risks than any sales materials or pitches. A prospectus can be obtained by visiting the SEC’s EDGAR databank of company filings. Type in the REIT name and then search for entries titled “Prospectus.” Do not assume that a company has filed reports or registered securities.
Ask about the fees associated with the product. Ask about how distribution is funded, and whether any portion of the distribution includes a return on investor capital. You will have limited redemption options and lock your investment. If the REIT offers share redemption programs, ensure you are clear about how the repurchase price and the limitations of that plan. Discuss with your financial professional the risks involved in real estate investments and other products that may meet your investment goals (investment income). Learn about the liquidity events that are specific to the REIT that you are interested in.
Only invest if you feel confident that the product will help you achieve your investment goals and are comfortable with the risks.