Redwood Trust, Inc. (“RWT”), a publicly traded real estate investment trust (“REIT”), filed a Form 8-K on April 2, 2020 revealing that its book value fell as much 56% in the first quarter, resulting in the decline of RTW shares of approximately 31% in a single day. See RWT SEC filing http://www.snl.com/Cache/IRCache/c7e6c9bfb-d506-663b-3b5d-328e2398755c.html.
The Form 8-K reported as follows:
Preliminary Estimate of Book Value – Excluding any potential decline in the value of our intangible assets since December 31, 2019, as of March 27, 2020, we estimate that on a preliminary basis GAAP book value per common share is between $7.03 and $7.67, an estimated year-to-date decline of approximately 52% to 56% from our GAAP book per common share at December 31, 2019.
Shares of RWT are down as much as 85% from February 2020 highs.
REITs are companies that own, operate or finance income-producing real estate across a range of property sectors. REITs pool the capital of numerous investors allowing individual investors to earn dividends from real estate investments without having to buy, manage, or finance any properties themselves. The filing resulted in shares of RWT plunging. REITs are often sold to seniors. retirees or conservative investors and pitched as stable, safe sources of dividend income. However, REIT investments are unsuitable for many investors because of the hidden risks and lack of liquidity. REITs are also frequently sold as private placements, which are sales of stock or bonds to pre-selected investors and institutions rather than on the open market. These REIT private placements, used an alternative to an initial public offering (IPO) for companies seeking to raise capital, frequently have high fees to brokers, and investors are often unaware of the lack of liquidity and risks.
Lax & Neville has significant experience with complex securities cases involving REITs, private placements, and other investments. If you have suffered investment losses from a publicly traded REIT, a private placement REIT, or your portfolio being overly concentrated in a single security, contact Lax & Neville LLP today at (212) 696-1999 and schedule a consultation.