Wells REIT II Dividend Payment Remains Same, But Your Account Value Will Change

I would like to make you aware of a change to your Wells REIT II account balance that you may notice when you receive your December statement. Your quarterly distribution will continue to be paid at the exact same dollar amount, but your account balance will be lower due to regulations governing how real estate investment trusts estimate the value of their shares.

When we purchased shares in Wells REIT II, the shares were valued at $10 each. This year, as required, Wells hired an independent firm to appraise its diversified real estate portfolio. The audit determined that the equity in the properties in the portfolio, divided by the number of outstanding shares, was $7.47.

What does this mean for us as investors? Not much.

First, your 5 percent dividend will still be based on that $10 par value of each share. So your quarterly dividend will remain unchanged.

Second, the important share price is the price at the time the REIT is terminated and our shares are redeemed. The assessment is based on the property values individually - not the ongoing real estate business represented by your investment. Simply put, you own shares in a real estate business that is taking in rent on long-term leases with very strong tenants. Wells continues to pay the same dividend from operations. Therefore we get paid our 5 percent (6.8 percent based on the new share value) while we wait for property values to get back to the $10 share value and, we hope, beyond. Wells management remains invested alongside us and would not opt to sell at an inopportune time, like now. This works very much like the value of your home: While you may pay attention to changes in your home's value, the value only really matters when it comes time to sell. Since neither we nor Wells management intend to sell shares, the value is not a critical number at this point.

Finally, our goals for the Wells REIT II investment remain unchanged. We aim to have Wells provide an income stream in the form of dividends, then enjoy a capital gain when the non-traded REIT shares become publicly traded or the REIT is otherwise terminated.

As you know, real estate values have plunged in the wake of the financial crisis. Commercial office real estate values have fallen by an average of 35 percent nationwide. But Wells estimates that the value of its properties has fallen only by about 8 percent, which is a testament to the high quality of its portfolio. As long as Wells continues to generate a strong dividend, we can be patient and wait for the value of the properties to recover.

If you would like more information, or have questions, please contact me. Meanwhile, you can watch this video, in which Wells Chairman Leo Wells explains the valuation process and what it means for investors.