Highlands REIT Launches $25M Self-Tender at 31% Discount to Its Own NAV

Highlands REIT Inc. has commenced a self-tender offer to purchase up to 125 million shares of its own common stock, or about $25 million worth, at $0.20 per share in cash, according to a Schedule TO and an accompanying Form 8-K filed with the U.S. Securities and Exchange Commission.

The offer, funded from cash on hand, is scheduled to expire at 11:59 p.m. ET on Sept. 29. If more shares are tendered than the company will buy, holders of odd lots – fewer than 100 shares – will be purchased in full first, with all other tendering stockholders prorated afterward. Highlands REIT may increase the offer by up to 2% of its outstanding shares, or roughly 14.5 million more, without formally amending or extending it. Computershare is serving as depositary and paying agent, and Georgeson LLC as information agent, the company said.

The purchase price values the roughly 722.65 million shares outstanding well below the company’s own estimate of their worth. Highlands REIT most recently pegged its per-share value at $0.29 on a fully diluted basis, an estimate its board announced in May based on an independent third party’s appraisal as of March 31, using a standard net asset value methodology built on discounted cash flows for its real estate portfolio. At $0.20 per share, the self-tender prices stock at a 31% discount to that figure.

Yet the offer is still a premium to where Highlands REIT stock has actually been changing hands. The Stanger Report, which tracks secondary-market trading in nontraded REIT shares, logged transactions between $0.04 and $0.14 per share for the company’s stock from April through June, according to the real estate investment trust — meaning the tender price runs well above recent market clearing levels even as it undercuts the company’s own valuation.

Highlands REIT’s board approved the offer but is explicitly declining to weigh in on whether stockholders should participate. “None of the company, our board of directors, Computershare … or Georgeson … has made or is making any recommendation to any stockholder as to whether to tender or refrain from tendering their shares,” the offer to purchase document states, calling the decision a personal one for each investor to make. The company said the purchase price reflects board discussions weighing secondary-market prices, long-term value, current real estate conditions, the company’s tender-offer history, and how much cash it could prudently deploy.

The company framed the buyback as serving two audiences at once: giving stockholders who want immediate liquidity a way to sell without broker fees, while boosting the proportional ownership stake of those who hold on. Highlands REIT said the move fits its broader strategy of shedding non-core assets and positioning for “a potential liquidity event” for investors down the line, though it gave no timeline for that outcome.

The pricing stands in sharp contrast to how Highlands REIT treated a similar discount just months ago. In May, the company’s board unanimously urged stockholders to reject an unsolicited mini-tender from MacKenzie Capital Management LP offering $0.04 per share – calling it an 86% discount to that same $0.29 NAV estimate. Four months later, Highlands REIT is itself buying back stock at a discount to that valuation, just a smaller one, and this time offering no view on whether stockholders should take the deal.

Highlands REIT is a Chicago-based nontraded REIT that owns a portfolio of non-core real estate assets, including office, retail and other properties, following its 2016 spinoff from InvenTrust Properties Corp. Its shares are not listed on a national exchange and trade only sporadically through secondary-market intermediaries.

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