Stifel Nicolas recently picked up coverage of PDM with a not so flattering “Hold” rating. Piedmont, of course, is the offspring of Wells REIT I, a non traded REIT that went public earlier this year. Stifel said Piedmont Office REIT was fully valued at its current price ($18.70), but that was the least of their concerns.
According to Stifel, PDM is still suffering from a hangover related to its decade long existence as a non-traded REIT, and it will likely suffer from that hangover for some time. Despite moderate leverage and “generally” forthcoming management, Stifel struggles with PDM’s ability to cover its dividend. At the current rate of $1.26/share, Stifel says the dividend is “unlikely to be supported” by either 2011 or 2012 FFO and FAD. If you’ve been following the astounding news being notched by non-traded REITs recently, this won’t come as any surprise.
Referring to management’s focus during its years as a non-traded REIT, Stifel says Piedmont needs to transition from a “capital raising entity” to an operating company with a rational geographic focus that can build “solid local operating teams with an ability to see every deal and add value at the submarket and property level. This will take years.”
In a report produced on the eve of PDM’s IPO, Green Street Advisors noted that Piedmont had raised $5.8 billion in gross equity from 118,000 retail investors. At the IPO price of $18/share, Green Street estimated that PDM’s blended annual total returns since 2002-2003 would have only been about 2%. This is far below the 6% return generated by both the Morgan Stanley REIT index and the office REIT sector. Green Street Advisors blamed an “appalling sales load” and “conflicts of interest” for the below average performance.
The White Law Group is currently investigation Piedmont Office REIT, among others. Specifically, the firm is investigating the brokerage firms that recommended these investments. REITs, particularly non-traded REITs, generally pay a significant commission to the brokerage firm that recommends the product (often explaining the financial advisor’s motivation in making the recommendation). For this reason, non-traded REITs have come under scrutiny by FINRA regulators.
If you have questions about a Piedmont Office REIT investment you made, the securities attorneys of The White Law Group may be able to help.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.