In Complexity We (inven)Trust
Many non-traded REITs impose highly restrictive and unnecessarily complicated shareholder liquidity programs that hurt investors and benefit no one.
Today, while technology companies ask, “what if transacting alts was as easy as transacting mutual funds?” some non-traded REIT sponsors respond, “what if transacting alts was as difficult as bringing a family heirloom back home from war?”
Share Repurchase Programs (SRPs) such as the one recently announced by InvenTrust Properties, erode secondary market values, invade shareholders’ privacy, and exist as a tax on the non-traded industry, impeding its growth and technological development.
InvenTrust Properties, like many non-traded REITs, has a liquidity waterfall where shareholders are prioritized.
Categories include, in order of priority:
- Category 1 – Death
- Category 2 – Disability
- Category 3 – Required Minimum Distribution
- Category 4 – Small Accounts
- Category 5 – Other
One might argue that the waterfall is a shareholder friendly feature that demonstrates the compassion InvenTrust Properties has for shareholders who pass away while waiting for a liquidity event. However, other terms of the SRP disprove this theory.
There is a limit on how much the REIT is willing to repurchase
Per the 8-K filed on April 12, 2021: “Please be aware that funds available for the SRP may not be sufficient to accommodate the demand.”
Secondary market buyers are excluded from participating in the SRP altogether
Only Qualifying shareholders are eligible for the SRP and the definition of Qualifying shareholder specifically excludes those who bought their shares on the secondary market or through a mini-tender offer.
This creates a powerful disincentive for secondary market participants.
Unless the goal is to prove that the complexity bias is alive and well, it is difficult to determine who benefits from having such a complex system in place.
If the point of these terms is to thwart unscrupulous arbitrageurs from launching investment strategies based on parking discounted shares in elderly family members’ accounts, mission accomplished.
However, if the point is to protect shareholders from low secondary market offers, then the plan backfired.
Non-traded REITs that restrict secondary market buyers from participating in their SRPs, consistently trade at a more substantial discount to their stated value than non-traded REITs without such restrictions.
By making existing investors’ shares less attractive to secondary market buyers, restrictive liquidity programs are harming investors, not protecting them.
Perhaps that is the point.
InvenTrust Properties is only willing to pay 75% of the estimated share value per share, which they proudly claim is “well-above current mini-tender and secondary market pricing.”
It is easy to have the most competitive offer when you eliminate all of the competition.
What does the future hold for non-traded REITs that continue to involve themselves in some of the most painful and personal decisions in their shareholders lives? Will they continue to insist that the heirs of the recently deceased have greater liquidity needs than the recently disabled? Will the DTCC’s Alternative Investment Product (AIP) service accommodate the paperwork scavenger hunt associated with gathering and providing proof of disability documents and death certificates to non-traded REIT sponsors?
These types of repurchase programs will become extinct and future generations will react to them the same way Jeff Goldblum’s character reacted to Jurassic Park: “[They] were so preoccupied with whether they could, they didn’t stop to think if they should.”
 Upon the passing of a shareholder registered on an InvenTrust account, their heirs or co-owner on the account will have the opportunity to sell shares back to InvenTrust. The Qualifying Event must have occurred after September 13, 2018.
 A classified disability (as determined by an applicable governmental agency) or the determination of incompetence (as determined by a U.S. Court) of a registered shareholder on an InvenTrust account. The Qualifying Event must have occurred after September 13, 2018.
 8-K filed on 04.12.21: “Qualifying shareholders are those that purchased their shares of common stock from the Company during our initial offer periods from 2005 to 2009, or acquired their shares through one or more non-cash transactions.”