Frequently Asked Questions
A REIT, or Real Estate Investment Trust is a company that makes investments in, owns and typically manages income-producing real estate. Investors buy shares in the REIT, and the REIT uses that money to make additional investments. REITs are an alternative investment that allow investors to access a portfolio of real estate and earn a share of the income produced through those investments.
According to the SEC, in order to qualify as a REIT, a company must:
- Be an entity that would be taxable as a corporation but for its REIT status
- Be managed by a board of directors or trustees
- Have shares that are fully transferable
- Have a minimum of 100 shareholders after its first year as a REIT
- Have no more than 50% of its shares held by five or fewer individuals during the last half of the taxable year
- Invest at least 75% of its total assets in real estate assets and cash
- Derive at least 75% of its gross income from real estate related sources, including rents from real property and interest on mortgages financing real property
- Derive at least 95% of its gross income from such real estate sources and dividends or interest from any source
- Have no more than 25% of its assets consist of non-qualifying securities or stock in taxable REIT subsidiaries
Private REITs and public non-traded REITs are often confused. Both are open-ended vehicles, and neither is traded on a national stock exchange. But there are several important distinctions.
Private REITs are not registered with the Securities and Exchange Commission (the “SEC”), meaning their shares are not directly correlated to stock market volatility. Although Private REITs are exempt from SEC registration, they are required to abide by the SEC’s Rule 506, Regulation D. Private REITs are only available to accredited investors and typically require a minimum investment which varies by company.
As a private REIT, Flagship is a non-commissioned offering to accredited investors. Our investors receive REIT stock value equal to the dollar amount they’ve invested, with no commissions or fees removed.
Public Non-Traded REITs are required to file with the SEC and are therefore regulated, however they are also not traded on a national stock exchange. Unlike private REITs, a public non-traded REIT is open to investment by anyone, whether they are accredited or not, although as such, they are subject to investment limits.
Public non-traded REITs are typically sold through a broker-dealer network. Brokers earn commission on the sale of the non-traded REIT shares. Those costs are subtracted from investors’ share ownership, the REIT’s capital proceeds or both.
Accredited investors may request our investor packet by contacting a member of our Investment Relations team or by downloading it from our website. We encourage you to contact our IR team so they can provide you with additional information and answer any questions. Once you are ready to move forward, you will complete and return the subscription documents to a member of the Investor Relations team. Once the subscription request has been accepted, the IR team will work closely with you to initiate your investment.
An accredited investor in the context of a natural person, includes anyone who:
- earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
- has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
There are other categories of accredited investors, including the following, which may be relevant to you:
any trust, with total assets in excess of $5 million, not formed specifically to purchase the subject securities, whose purchase is directed by a sophisticated person, or
any entity in which all of the equity owners are accredited investors.
In this context, a sophisticated person means the person must have, or the company or private fund offering the securities reasonably believes that this person has, sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.
An alternative investment is a financial asset that does not fall into one of the more traditional or “core” investment categories such as stocks, bonds and cash. Alternative investments include real estate, private equity or venture capital, hedge funds, managed futures, art and antiques, commodities and derivatives contracts. Alternative investments are an ideal strategy for those seeking diversification.
Flagship’s independent board of directors convenes on a quarterly basis to approve and establish the Net Asset Value (NAV) based on internal and external valuations. An external valuation is provided by a third-party every six months and an internal valuation is provided by Flagship’s Asset Management, Property Management, and Leasing and Brokerage teams for the interim quarters.
In estimating the portfolio’s net equity value, the external valuation firm forecasts stabilized property net operating income based on:
- Rent rolls
- Potential future leases and lease terminations
- Historical operating statements and ARGUS files
- Discussions with the Manager
- Reviewing market data regarding rental rates
Once stabilized net operating incomes (NOI) are calculated, the external valuation firm then determines and applies the appropriate capitalization rate for each property to determine its estimated value. If the property is not stabilized, the external valuation firm quantifies the cost to stabilize the property in terms of capital expenditures, leasing commissions, tenant improvements and loss of NOI during stabilization and deducts those amounts from the gross market value to achieve a net current market value. Management and Inside Directors do not have a vote on the setting of the NAV.
The REIT projects a 10-14% return, per annum. The return is comprised of a 5-6% annual dividend yield 4-9% in NAV growth.
Yes. Our investors can choose to participate in the Flagship Healthcare Trust, Inc. Distribution Reinvestment Plan (“Plan” or “DRIP”). The Plan provides our stockholders with an easy and economical way to designate all or a portion of the cash distributions on their REIT Shares or OP Units for reinvestment in additional REIT Shares. Under the Plan, you may elect to automatically reinvest all or a portion of your cash distributions, subject to a minimum reinvestment percentage of 10%, in additional REIT Shares at a 3% discount to NAV.
Flagship is an open-end REIT, meaning it is a diversified portfolio of pooled investor money and does not have a fixed number of shares or close date. When you invest in an open-end REIT, new shares are created, and your contribution is added to the investment pool. When you redeem, your shares are dissolved and the investment pool shrinks by the value of the shares redeemed.
An open-end structure allows investors to enter and exit the REIT throughout its life instead of limiting investors to a set time-frame.
The REIT does not have a predetermined end or liquidation date.
Yes. Many investors choose to invest with pretax money through their retirement account to take full advantage of the Dividend Reinvestment Plan. Investors who wish to invest through their retirement account must do so through a Self-Directed IRA (SDIRA). An SDIRA is a type of traditional or Roth IRA that differs only by the assets it holds. Its investment options are more expansive than basic securities for traditional and Roth IRAs offered by brokerage firms. Flagship has experience working with numerous companies that specialize in SDIRAs.