Moody National REIT II Revises NAV Per Share and Lowers Fees
March 23, 2018 | James Sprow | Blue Vault
On March 19, 2018, the board of directors of Moody National REIT II, Inc., including all the independent directors, determined an estimated NAV per share of the REIT’s Class A shares, Class D shares, Class I shares, and Class T shares of common stock of $23.19 as of December 31, 2017. The previous net asset value per share was $25.04 as of December 31, 2016. The decrease of 7.4% in the NAV was, according to a letter to shareholders, the result of two factors.
First, the Company completed its merger with Moody National REIT I, Inc. in September 2017, involving a number of one-time costs and expenses. The 10-Q for Q3 2017 showed acquisition expenses of $10.76 million or $2.15 per common share. All of those acquisition expenses appear to be related to the merger, since there were no property acquisitions in the quarter.
Secondly, a number of the Company’s properties underwent franchisor-required property improvement programs (“PIPs”) in 2017. “While the Company believes that these PIPs will improve the value of its properties in the long-run, they also resulted in short-term room displacement as rooms underwent renovation. That displacement impacted revenue at the properties undergoing PIPs, which, in turn, affected the valuation of those properties. In addition, PIPs will continue at several properties in 2018. However, the Company anticipates that the operational performance of its hotels that underwent or are undergoing PIPs will improve as renovations are completed.
Class A, Class D, Class I, and Class T shares will be priced at $23.19 each and the distribution rate will be 7.56 percent based upon the new NAV. Based upon the original $25.00 share price, the distribution rate remains at 7.0 percent.
Moody National Advisor II LLC, the REIT’s advisor, currently funds all selling commissions, dealer manager fees, and stockholder servicing fees. In December 2017, Moody REIT II reduced the selling commission on its Class A shares from 7% to 6% and announced that the advisor or its affiliates intends to pay all selling commissions, dealer manager fees, and stockholder servicing fees for the four classes of common stock in the offering. However, the advisor would be paid an increased acquisition fee to allow the advisor to recoup those payments with a delay of approximately 12 months following the changes.
The company also amended its dealer manager agreement to reduce the fees paid to its advisor from 3.0 percent to 2.5 percent for the sale of Class A shares. The other terms of the agreement remain unchanged.
The REIT’s advisor performed the NAV valuation in accordance with Investment Program Association guidelines and engaged CBRE Inc. Valuation & Advisory Services and Kendall Realty Consulting Group LLC to provide property appraisals.
As of December 31, 2017, the REIT owned 14 hotel properties. Each of the appraisers appraised a portion of the hotel properties in the portfolio using the income method of valuation, specifically a discounted cash flow analysis, as well as the sales comparison approach. Kendall appraised the CY Lyndhurst, Embassy Suites Nashville, Hampton Austin, Hampton Great Valley, HGI Austin, HWS Woodlands, Hyatt Germantown, Hyatt North Charleston, and SHS Seattle properties. CBRE appraised the TownePlace Suites, Hampton Inn Katy Freeway, Homewood Suites Austin South, Residence Inn Austin University, and Residence Inn Grapevine properties. The income method is a customary valuation method for income-producing properties, such as hotels.
According to a recent prospectus update, Moody’s management believes that the hotel space has a greater supply-demand imbalance compared to other real estate asset classes, and that hotel properties are continuing to trade below their normal pricing which creates buying opportunities currently, while a supply-demand imbalance should create upward pressure on room rates.
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