During the financial crisis, alternative investments have been recommended to be a component in many client’s accounts. The purposes of these kinds of investments are to provide greater yield, equity and bond market diversification and to achieve modest growth. In our practice, we have recommended a number of alternative investments ranging from real estate investment trust (REITs), equipment leasing programs, oil & gas programs and business development companies (BDCs). There are many components that make these kinds of investments different from traditional investing in stocks, bonds, mutual funds and annuities. The primary difference is that these products generally are not liquid. When an investment is made, the invested money can be ‘locked-up’ for years, maybe even decades and, it is possible your principal investment will never be returned. Therefore, an understanding of exactly what you are investing your money into is very important.
There are many alternative products available for investors and they all have certain investor qualifications. We spend a great deal of time researching and vetting these products. As always, your comments and suggestions are welcome as well.
Many clients have chosen to invest in alternative investments. Alternatives are not suitable for all investors. Each individual’s situation is unique and should speak with a financial professional before taking action.
American Realty Capital Healthcare Trust II – ARC Healthcare Trust II is currently in the process of raising capital with an expected close in the 2nd quarter of 2014. Similar to ARC Healthcare Trust, the fund seeks to acquire medical related office space and health centers with the goal to provide monthly income and possible appreciation at the time of liquidation. The current monthly dividend is 6.7% (annualized).
American Realty Capital Retail Centers of America – Focuses on the acquisition of core retail properties, including lifestyle centers, power centers, power centers and large needs-based shopping centers. The principals believe a unique and limited opportunity is available at this time to acquire target properties which will produce both current income (annual dividend is currently 6.4%) and appreciation. The fund intends to close no later than September 12, 2014.
Franklin Square Energy & Power – The fund invests primarily in the U.S. energy and power industry. The fund is sub-advised by GSO / Blackstone, a leading alternative investment firm, and invests primarily in the debt and income producing equity securities of private companies involved in the vast domestic infrastructure required to locate, produce and deliver energy and power. The fund’s investment objective is to generate current income and long-term capital appreciation. The fund currently (December 3, 2014) offers shares for sale at $10.30 each and pays a monthly dividend of $0.0054 (annualized at 6.88% from the current offering price).
Franklin Square Global Credit Opportunities Fund is an unlisted closed-end fund that invests primarily in global corporate credit which includes loans, bonds, and other credit instruments that companies issue to finance their operations. The fund seeks to provide both immediate income and some appreciation upon the liquidation of the portfolio. The fund opened December 12, 2013 and is in the process of raising capital which it expects will cap at 3 billion dollars. As of December 3, 2014 the annualized distribution rate is 7.89% based on a share price of $9.89.
CLOSED TO NEW INVESTORS
Ridgewood Energy A-1 Fund – The A-1 fund closed to new investors in December 2010. The fund successfully drilled for oil and gas in deep water projects in the Gulf of Mexico. Investors began receiving royalty distribution checks within 15 months of investment and as of December 2014 they have received more than 82% of their original investment, not including some income tax benefits. The fund continues to have several productive wells we are hopeful will continue to produce monthly revenue for investors for several more years. On October 30 the company issued a press release to update the Beta discovery. Recently the fund payouts have been less than originally anticipated due to two main reasons: First, the price of oil and gas have declined. Secondly, the fund is actively investing in another project to engineer a system to extract more resources which we anticipate will begin to pay investors back as soon as the end of 2015.
American Realty Capital Global Trust, Inc. (ARC Global) is a global sale-leaseback focused real estate investment trust (REIT). ARC Global seeks to purchase commercial properties with the objective of building a diversified pool of assets, emphasizing corporate sale-leaseback transactions involving single tenant properties. The primary geographic targets will be concentrated in the United States and Europe. The investment closed to new investors June 2014. Shares were offered at $10 each and the fund currently pays a dividend on a monthly basis equal to 7.25% annually.
American Realty Capital Business Development Corporation (BDCA) – BDCA is a specialty finance company formed to make debt and equity investments in middle market companies. The fund is an externally managed, non-diversified closed-end investment company that has elected to be treated as a business development company, or BDC, under the Investment Company Act of 1940, or the1940 Act. We are therefore required to comply with certain regulatory requirements. The fund currently pays a monthly dividend at an annualized rate of 7.75%.
American Realty Capital Trust V (ARC V) – ARC V is similar to the other ARC Trust REITs in the series and the company has announced this will be the last offering of this type for the foreseeable future. The REIT pays a dividend of 6.6% (paid monthly) and specializes in owning freestanding, single-tenant, necessity-based real estate. Most lease terms are 10-25 years in duration and the portfolio is diversified by both geography and type. The fund is closed to new investors.
Phillips Edison Shopping Center REIT (PECO) – PECO is unique in that they buy strip shopping centers where the major tenant (about 50-70% GLS) is a grocery store, complimented with national chains such as Subway sandwich shops and 10% by local retailers such as dry-cleaners. The fund is still raising capital for $10 per share and pays a dividend yielding 6.7% ($0.67 per share). The fund expects to close to new investors in the first quarter of 2014.
Icon Capital 15 – Closed June 6, 2013 to new investors. The current dividend is 8% and shares were purchased for $1,000 each. The fund invest in equipment leasing programs.
Franklin Square II – The fund is still raising capital and expects to close by the first quarter of 2014. Shares are evaluated each month and the share price can fluctuate. Since inception, the share price to new investors has risen from $10 / share to the current $10.50 per share. The share price can be lowered, but so far it has only been risen. The dividend began with a yield of 7.25%, but for new investors it has dropped to about 7.22%. The fund makes loans to private companies.
CLOSED POSITIONS WHICH HAVE BEEN SOLD OR ARE PUBLICALLY TRADED
Healthcare Trust of America (HTA) – HTA closed to new investors in the winter of 2012 and subsequently went public under the stock ticker HTA on June 6, 2012. The fund invest in medical related real estate diversified with the type of medical facility as well as geographic diversification. At inception investors purchased shares for $10 each and received a dividend of 7.25%. When the fund went public, the dividend was cut to $0.58 per share, where it remains today. The shares since going public have traded between $9.25 – $13.35. Investors shares were converted into four equal lots as class A, B1, B2 and B3. Class A shares were immediately vested and able to be purchased and sold on a stock exchange. The Class B shares were restricted, with one class converting to class A shares every six months. On November 7, 2013 HTA accelerated the restriction on the 4th share Class B3 shares and converted all to Class A. Scott Peters, HTA’s chairman felt the stability in HTAs share-price warranted the lifting of the restricted share class.
American Realty Capital New York Recovery REIT (NYRR) – The NYRR became a publically traded company on April 15, 2014. The dividend was lowered, slightly, upon the public listing to $0.0383 paid monthly (4% based upon a trading price of $11.50). The fund, unlike the ARC Trust series invest primarily in Manhattan, New York by acquiring commercial office space, usually with ground floor retail stores. Original shareholders purchased shares for $10 / share. We expect the holding to appreciate significantly over the next several months.
American Realty Capital Healthcare Trust (HCT) – June 1, 2014 ARC Healthcare announced it is being acquired by Ventas, Inc., a healthcare specialty real estate investment trust. The deal is expected to close later in the summer. ARC Healthcare shareholders will receive 0.1688 shares of Ventas in exchange for each HCT share, representing a premium of 14% over the previous market close. ARC Healthcare closed to new investors on April 10, 2013. The company currently pays a dividend of $0.68 and shares were purchased for $10 each. Most shares were sold in November 2014 for $11.30 per share representing a total return of approximately 23% for the 18 month holding period.
American Realty Capital Trust (ARCT Trust) – ARC Trust was sold for $10/share and paid a dividend of $0.70 per share. The investment closed July 2011 to new investors. The company listed of the NASDAQ on March 1, 2012 with the ticker symbol ARCT. During the subsequent months the stock price fluctuated between $9.50-$13.00 / share and the dividend remained at $0.70 per share. In September 2012 ARCT was acquired by Realty Income (ticker symbol “O”). Investors were offered to sell their shares for a fixed price or exchange their shares for Reality Income. To date, the net result for original investors was a decrease in yield and an increase in appreciation.
American Realty Capital Trust III (ARC Trust III) – ARC Trust III closed to new investors in the Fall of 2012 and was acquired by American Realty Capital Properties (ARCP) on March 1, 2013. Investors purchased shares for $10 each and received a dividend of $0.66 per share. Investors who chose to accept ARCP stock received 0.95 shares for each share of ARC Trust III stock. Since March 1, 2013 shares of ARCP have traded between $13.50 & $18.05 while the dividend has slightly increased for original ARC Trust III shareholders.
American Realty Capital Trust IV (ARC IV) – Investors began buying shares in January & February before the fund closed on March 9, 2013. Investors have received a dividend of $1.65 per share (6.6%) and purchased the shares for $25 each. On October 7, 2013 the company announced a liquidation strategy. To learn more, please click on the hyperlink preceding this paragraph. The fund officially closed on January 3, 2014 after ARC Trust IV shareholders approved the merger agreement. Shareholders received $9.00 per share in cash with the balance of payments in the form of American Realty Capital Properties common and preferred shares. As of the share prices as of January 31, 2014 the total annualized unrealized return (including dividends) is between 18.5-23% depending on the purchase date.
**Everything on this page is a brief synopsis of some alternative investments which you may own. None of the statements are supported by or confirmed by the respective companies. The information is believed to be accurate as of the date of the posting (July 2, 2013). It is advisable if you are considering the purchase of any investment that is still raising funds that you read the sales material associated with the specific product. We are certainly happy to provide one upon request. The above is solely designed to be a reference for you and informational. It is not a solicitation to buy any products or to make any recommendations. Investing is very personal and what may be suitable for one may not be suitable for all.