Frequently Asked Questions
Short for Real Estate Investment Trust, a REIT is an organization that owns—and usually operates—income-producing real estate. It can include commercial and residential properties. A REIT can deduct dividends paid to its owners and avoid incurring all or part of its U.S. federal income tax liabilities. REITs are required to distribute all of its net annual income to its shareholders. REITs were first introduced in the U.S. to provide all investors an opportunity to invest in large portfolios of income-producing real estate through the purchase of liquid securities. A REIT is in many ways like a mutual fund for real estate with investors obtaining the benefit of a diversified portfolio under professional management.
Private REITs" and "Public Non-Traded REITs" are oftentimes confused with one-another, as both types of products are structured as open-ended vehicles, and neither type of product is listed or traded on public stock exchanges. There are key differences, though, in the way that these types of offerings are sold to investors, how they are valued, and the commissions & fees that can be involved in a purchase.
Royal Oak Realty Trust (“Royal Oak”) is a "Private REIT." Private REITs are not SEC-registered entities, but are required to conform with the SEC's rule 506, regulation D. The offerings are available only to investors that meet one or more of the SEC's "Accredited Investor" thresholds and are sold directly via private placement. Investors' shares are valued on a quarterly basis via a "Determined Share Value”, which is outlined in more detail in the FAQ. While private REITs are, by law, allowed to charge front-loaded commissions on investments, Royal Oak does not charge a commission to invest, and does not pay any broker-dealer commissions on sales of Royal Oak shares. The REIT has, instead, built in a one-time capital-raising fee of up to 0.75%, which helps cover the cost of the offering, including legal and marketing expenses. This means that a minimum of 99.25% of every dollar invested in Royal Oak goes directly towards purchasing income producing real estate.
"Non-Traded REITs" are SEC-registered offerings and are required to conform with the Securities Acts of 1933 and 1934. These offerings are most frequently marketed and sold by a "broker/dealer" or "dealer manager," which may not be the same entity as the REIT itself, but may be "affiliated," and ultimately controlled by the same management team. These "broker/dealers" often charge investors front-loaded commissions as high as 10% of the purchase value.
An alternative investment is one that does not involve the traditional investments of stocks, bonds, and cash. It includes tangible assets such as precious metals, art, antiques, or coins, as well as financial assets such as commodities, private equity, and hedge funds. Real estate often falls under the term “alternative investment.” Such investments are often used to diversify, thereby reducing overall risk. Alternative investments such as real estate often require a high degree of investment analysis before buying. They may also be relatively illiquid.
A net lease requires the tenants to pay some or all of the property expenses that are otherwise paid by the property owner, such as real estate taxes, insurance, maintenance, and utilities. A triple net lease is an agreement in which the tenant is solely responsible for all of the costs related to the property they're leasing, in addition to rental fee. The name “triple net” comes from the three types of costs the tenant has to pay—net real estate taxes, net building insurance, and net maintenance. An absolute net lease implies the tenant is responsible for rent and all other property related expenses, which includes roof and structure. This type of lease agreement completely relieves the property owner or investor of all financial obligations.
According to the Securities and Exchange Commission, Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as "accredited investors." The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:
- a bank, insurance company, registered investment company, business development company, or small business investment company;
- an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
- a charitable organization, corporation, or partnership with assets exceeding $5 million;
- a director, executive officer, or general partner of the company selling the securities;
- a business in which all the equity owners are accredited investors;
- a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
- a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
- a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
- a natural person serving as a firm's director, executive officer, or general partner if that firm is the issuer of the securities being offered or sold.
- a natural person who is a financial professional holding a FINRA Series 7, 62, or 65.
See the Securities and Exchange Commission Website for more information.
The Determined Share Value is the value of each share of our common stock as determined by the Independent Directors Committee (“IDC”) of our Board of Directors. The IDC reviews the DSV in the third month of each calendar quarter and adjusted as needed based on the net asset value of the portfolio and such other factors as the Independent Directors Committee may, in its sole discretion, determine.
Currently the IDC evaluates and sets the DSV based on the net asset value of our portfolio, management’s internal valuation of our common stock, independent third-party valuations of our common stock utilizing various valuation methodology, and such other factors as the Committee may, in its sole discretion, determine, inclusive of but not limited to financial reporting of Royal Oak’s tenants, rent collections, and broad real estate market trends. The Asset Manager may, but is not required to, engage consultants, appraisers and other real estate or investment professionals to assist in the Independent Directors Committee’s valuations
The Compound Annual Growth Rate is defined as the average annual rate of growth over a defined number of years. CAGR is calculated as follows: [(Ending Value/Beginning Value)^1/n] -1, where n is the number of annual periods.
The Average Annual Total Return is defined as the average annual return over a defined number of years and assumes the reinvestment of dividends. Average Annual Total Return is calculated as follows: [(Ending Value/Beginning Value)^1/n] -1, where n is the number of annual periods.
Royal Oak shareholders will receive a 1099-DIV for tax reporting purposes. This is typically mailed at the end of January.
Yes, Royal Oak shares can be purchased through an IRA or other approved retirement vehicles.
Royal Oak shares can be held directly through Royal Oak, which utilizes American Stock Transfer & Trust (“AST”) as a record keeper. Shares of Royal Oak can also be help through Charles Schwab, Fidelity, TD Ameritrade, Pershing, Equity Institutional, Millennium Trust Company, and JP Morgan.
When investors receive their 1099-DIV at the end of January each year, the document will list off the portion of the dividends received that are treated as “taxable” and the portion that is treated as “return of capital”.
The return of capital portion does not reflect any returned principal but instead the amount that investors should lower their cost basis by to track their investment. This portion of the dividend would be taxed at the capital gains rate should the investment be sold later on.
The portion coded taxable will be taxed at the ordinary income rate at the federal level and the state level where applicable. The portion of the dividend that has been taxable has been approximately 40% or less every year since inception and the management of the tax efficiency of Royal Oak’s dividend is a high priority. As an example, 29% of Royal Oak’s dividend was considered taxable in 2022, with the remaining 71% considered a return of capital.
Investors must hold their Royal Oak shares for 1 year after the initial date of closing. After that mandatory holding period, investors may redeem their shares in year 2 through year 5 at a 5% discount to the DSV in effect on the day that is 15 days prior to the last business day of the quarter. After the 5-year anniversary of their share purchase, investors may redeem their shares at full value of the DSV in effect on the day that is 15 days prior to the last business day of the quarter. Shares are eligible to be redeemed quarterly. If an individual stockholder is deceased, the deceased stockholder’s estate may redeem shares held in the deceased stockholder’s individual capacity at 100% of the DSV within one year of the death of the stockholder.
Adjusted Funds From Operations is a non-GAAP supplemental financial performance measure to evaluate the operating performance of our real estate portfolio. AFFO, as defined by our company, excludes from FFO amortization and write off of deferred financing costs, straight-line rent adjustments, above and below market lease intangibles amortization, debt prepayment fees, and adjustments for discontinued operations. AFFO allows for a comparison of the performance of our portfolio with that of other REITs, as AFFO, or an equivalent measure, is routinely reported by other REITs, and we believe often used by analysts and investors for comparison purposes.
Funds From Operations is a non-GAAP financial performance measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and widely recognized by investors and analysts as one measure of operating performance of a real estate company. FFO is defined as net income (computed in accordance with generally accepted accounting principles), excluding items such as real estate depreciation and amortization, gains and losses on the sale of depreciable real estate and impairments of depreciable real estate. Depreciation and amortization as applied in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, it is management’s view, and we believe the view of many industry investors and analysts, that the presentation of operating results for real estate companies by using historical cost accounting method alone is insufficient. In addition, FFO excludes gains and losses from the sale of depreciable real estate and impairment charges on depreciable real estate, which we believe provides management and investors with a helpful additional measure of the performance of our real estate portfolio, as it allows for comparisons, year to year, that reflect the impact of operations from trends in items such as occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs. We compute FFO in accordance with NAREIT’s definition.
Royal Oak communicates often with investors; transparency and communication are hallmarks of the shareholder experience. Investors should expect robust communication throughout the calendar year. At a minimum, investors will receive monthly shareholder update emails, quarterly compiled financial statements, both a digital and mailed Annual Report with audited financials, quarterly updates on DSV and dividend decisions, and 1099-DIV statements at the end of January. Royal Oak’s Annual Meeting of Stockholders takes place during May of each year. Communications regarding the previous year’s annual returns and dividend taxability are typically sent towards the beginning of the year. Royal Oak looks to communicate any major news, changes, or happenings as timely as possible with shareholders.
Royal Oak is a private REIT which allows investment by Accredited Investors. Investments are accepted on a monthly basis and the minimum initial investment level is $200,000. Steps to invest:
- Request and review Investor Kit and contact our Investor Relations team with any questions.
- Request Private Placement Memorandum and Subscription Documents from our Investor Relations team
Complete and return subscription documents (either printed and signed or completed via DocuSign) to a member of the Investor Relations team (firstname.lastname@example.org) so that the funding process can be initiated.