Investor Lawyers Blog
Individuals who suffered significant REIT losses in Wells Timberland REIT and Wells REIT II could recover their losses through securities arbitration. In the latter part of 2011, the Financial Industry Regulatory Authority fined an affiliate of Wells Real Estate Funds, Wells Investment Securities Incorporated, for the use of misleading marketing materials. The $300,000 fine was related to the sales practices of the firm in relation to Wells Timberland REIT from May 2007 until September 2009. According to FINRA, 116 “improper, unwarranted or exaggerated statements” were included in the advertising literature. Some of these statements were about the distributions, redemption and diversification of the non-traded REIT. As a result, many of the individuals who invested in this REIT were investing in a product that was unsuitable for them, given their age, risk tolerance and investment objectives.
Furthermore, in June of 2011, Wells REIT II was allegedly offered as a “safe, income-producing” investment. But by November of that year, it had reportedly lost over 25 percent of its initial value with its estimated per share value dropping from $10 to $7.47. Reportedly, this decline occurred even though the REIT’s properties are “some of the most prestigious office addresses and tenant corporations in the U.S.,” according to Wells officials, and despite the fact that these properties had an occupancy rate of 94.3 percent.
The 2010 annual report filed with the SEC for Wells REIT II stated that during that year, distributions to investors totaled approximately $313.8 million. This number includes monies paid to investors who decided to redeem their shares. However, Wells REIT II reported a net income of just over $23 million and total cash from operations of $270.1 million. With distributions exceeding cash from operations by nearly $44 million, investors should be asking themselves where the financing for distributions is coming from. According to the investment’s third quarterly report for 2011, Wells REIT II has paid over $1.1 billion in excess of earnings for cumulative distributions since its beginnings in 2004.