Investors in Healthcare Trust, Inc. (HTI) Could Recover Losses Through FINRA Arbitration

Investors in Healthcare Trust, Inc. (HTI) may have claims to recover their losses through securities arbitration before the Financial Industry Regulatory Authority (FINRA), provided a stockbroker’s or financial advisor’s recommendation to invest was unsuitable or misleading.

Incorporated as a Maryland real estate investment trust (REIT) in 2012, HTI “invests in healthcare real estate, focusing on seniors housing properties and medical office buildings located in the United States.” As of March 31, 2020, HTI—formerly known as ARC Healthcare Trust II—owned a portfolio of some 200 properties in 31 states comprising nearly 10 million rentable square feet.

As a publicly registered non-traded REIT, HTI was permitted to be sold nationwide to retail investors. In certain instances, some investors in HTI may not have been adequately informed of the many risks and complex nature associated with investing in non-traded REITs, such as HTI. To begin, an investment in HTI is highly illiquid in nature as investors cannot readily sell their shares as they are not listed on a national securities exchange. Typically, investors in non-traded REITs must commit for an extended period, sometimes as long as 7-10 years, before a “liquidity event” occurs (such as shares being listing on a national exchange).

Beyond its illiquid nature, HTI is also expensive, charging high up-front fees and commissions to investors. In fact, when HTI conducted its public offering of shares—priced at $25 per share—investors may not have been adequately informed that up to 10% of their initial investment was immediately allocated to selling commissions and a dealer manager fee. Additionally, 1.5% of the initial capital invested would have been allocated to organizational and offering expenses and 1.3% to acquisition fees and expenses. This means that HTI investors who acquired their shares through the initial offering had nearly 13% of their initial investment used for fees and commissions, acting as a drag on initial investment performance.

Most recently, in April 2020, HTI’s Board of Directors approved and published a revised per-share net asset value (NAV) in the amount of $15.75 per share, as of December 31, 2019. Prior to this, HTI’s Board had last updated its NAV as of December 31, 2018, reflecting an assigned value of $17.50 per share. Moving forward, HTI’s Board intends to periodically publish an updated NAV for HTI shares, “at least once annually.”

Investors in HTI who participated in the public offering by acquiring shares at $25 are currently left holding shares with a revised NAV of $15.75 per share. Therefore, exclusive of any distributions received to date, which may include a return of capital, HTI investors may be carrying unrealized losses of more than 35% on their initial investment.

In addition, given the recent Covid-19 lockdowns, HTI sought in March 2020 to borrow “an additional $95.0 million under the Company’s Credit Facility . . . to provide more cash on the Company’s balance sheet.” In its most recent quarterly report (for the period ending March 31, 2020), HTI has acknowledged that the Covid-19 pandemic “has caused and may continue to cause certain of our tenants to be unable to make rent payments to us timely, or at all.”

The attorneys at Giarrusso Law Group LLC have considerable experience with complex investments including non-traded REITs as well as business development companies (BDCs). Investors may pursue a claim to recover their losses through FINRA arbitration, or in some instances, by litigation. Investors who wish to discuss a possible claim are invited to contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation.