A Better Liquidity Feature for Non-Traded REITs: Share Repurchase Plans and the Next Frontier
February 13, 2023 | David H. Roberts, Ettore A. Santucci, Yoel Kranz, & Mark Schonberger | Goodwin Law
Share Repurchase Plans Overview
Non-traded REITs at their core wrap an illiquid real estate portfolio into an illiquid securitized container, with no market-clearing mechanism to adjust supply and demand. Share repurchase plans are offered by many non-traded REITs to provide investors with a measure of liquidity from time to time. Under these plans, stockholders can periodically request that the non-traded REIT repurchases all or a portion of their shares. For those non-traded REITs that calculate a monthly net asset value (NAV) per share, repurchases under the share repurchase plan also typically take place on a monthly basis and at a price per share generally equal to the prior month’s NAV for the relevant class. For those non-traded REITs that calculate a daily NAV, repurchases can take place on each business day at the NAV for the relevant share class as calculated after the close of business on that day. As a result, for non-traded REITs that have daily repurchases, at the time an investor submits a repurchase request, they will not know the exact price at which the order will be executed. Share repurchase plans also often subject repurchases to short-term trading discounts (e.g., if the shares are held for less than a year, they will be redeemed at 95% of the applicable NAV per share).
There is no legal requirement, however, that a non-traded REIT offer a share repurchase plan in the first place. Rather, these plans are generally offered to provide the opportunity for limited liquidity to enhance the marketability of non-traded REIT shares. Indeed, even if a share repurchase plan has been adopted, a non-traded REIT is not obligated to repurchase shares under the plan and may choose to repurchase only some, or even none, of the shares that have been submitted for repurchase. The non-traded REIT’s board of directors typically also has the unilateral power to suspend the share repurchase plan at any time at its discretion.
