REITS

Apollo to Acquire Bridge Investment Group in $1.5 Billion Transaction

The all-stock deal was announced earlier this week. Bridge Investment Group (NYSE: BRDG) stock is up 30% on the news.  The transaction is anticipated to close in second or third quarter 2024. The deal will enhance Apollo’s footprint in private real estate markets, as Bridge has over $50 billion in AUM, which Bloomberg reports includes $20 billion in fee-paying AUM, in the private real estate markets. This transaction follows Apollo’s other alternative asset manager acquisitions, including Argo Infrastructure Partners, which was announced in January 2025. That transaction will add $6 billion infrastructure AUM. Additionally, in 2021 Apollo announced the acquisition of the interval funds that were launched and sponsored by Griffin Capital, LLC in a transaction that added over $5 billion in AUM in semi-liquid real estate and private credit.

For more information: CHECK THE SOURCE

Bluerock Homes Trust (NYSE American: BHM) Announces Series A Preferred Stock Redemption “Safeguard Policy”

On February 6, the REIT announced that it had put in place a provision to make any redeeming preferred stockholders whole if they experience losses trying to sell any common stock following a redemption. Under the policy, preferred stockholders that seek a redemption, and receive common stock of BHM as consideration, and subsequently sell the common stock within 10 business days for a loss (compared to the aggregate redemption value of the preferred stock) may apply to the REIT to receive the difference between the sale price of the common stock and the par value of the preferred stock. This is an innovative mechanism that we have not seen before. The mechanism is designed to reduce exit volatility for redeeming shareholders, given that BHM has a market capitalization of approximately $46 million with a public float of 76%. BHM has reported that it has raised more than $120 million in Series A Preferred Stock through January 31, 2025.

For more information: CHECK THE SOURCE

Lodging Fund REIT III, Inc. Announces Hotel Management Agreements with Hotel Equities Group

On February 10, the REIT announced that it had entered into an agreement with the Atlanta-based manger for eight of the hotel properties that are currently managed by National Hospitality Services, LLC (NHS).  NHS is owned primarily by Norman Leslie, who also owns 50% of the sponsor of the REIT, and currently serves as the REIT’s president, CEO, and as a member of its board of directors. NHS and Hotel Equities Group previously had a partnership agreement with respect to the management of the hotels dating back to 2023. As part of that arrangement, NHS received a loan from Hotel Equities Group and an ongoing revenue participation on certain REIT portfolio hotels, in exchange for NHS delegating certain hotel operational duties to Hotel Equities Group. Under the new agreement, Hotel Equities Group will be the exclusive manager of the properties and receive a management fee of 3.0% of gross revenue at the properties.  It will also provide accounting, budget forecasting, revenue management, and other services for certain ancillary fees as well.

For more information: CHECK THE SOURCE

Moody National REIT II Announces Sales of Two Hotels

The REIT announced that it had agreed to sell the Residence Inn Austin and Residence Inn Grapevine assets to MCR Hotel Acquisitions, LLC (an unaffiliated entity) for $20.5 million and $22.5 million, respectively. The REIT acquired the Residence Inn Austin  in 2015 for $27.5 million and the Residence Inn Grapevine in 2014 for $20.5 million.

For more information: CHECK THE SOURCE

Ashford Hospitality Trust (NYSE: AHT) Reduces Board Head Count and Board and Executive Compensation

AHT announced that its board had approved reductions to its size and board and management compensation in line with the REIT’s previously announced “Gro AHT” initiative that is designed to reduce expenditures and improve shareholder value. AHT noted that board compensation was reduced 50% relative to recent years, and that the board would shrink from nine members to seven members.  AHT further announced reductions to certain executive incentive compensation.  Total expenditure reductions are estimated at $11 million per year.

For more information: CHECK THE SOURCE

Alternative Ramblings

Bye Bye EB-5? Hello Gold Card?

While details and terms of the program are fluid, the basic framework for a recent Trump administration proposal is the “gold card” would grant permanent residency to foreigners for $5 million payable directly to the U.S. government and scrap the immigrant investor EB-5 program.  The Financial Times reports on this news here.  The EB-5 program, which dates to the early 1990s, required immigrant investors to invest at least $800,000 in an investment program administrated through certain Regional Centers with a documented process that the investment would create or save at least 10 jobs. The EB-5 program was utilized by many real estate developers and generally featured significantly lower economic terms and protections for EB-5 investors than other traditional sources of real estate finance.  EB-5 has previously been described as the “crack cocaine” of development financing.  Substantial real estate projects financed with EB-5 investment included Hudson Yards in New York, which received over $1 billion in EB-5 investment, the D Las Vegas hotel, and many others. Commerce secretary, and former Cantor Fitzgerald CEO Howard Lutnick, noted that there are over 250,000 prospective gold card purchasers. That may peg revenue at $1.25 trillion on the program.

No word yet if the gold card will also get you Big Macs or into the airport lounge, but I’m guessing the target demographic probably doesn’t go through the TSA line.

REITS

NorthStar Healthcare Income, Inc. To Be Acquired by Welltower (NYSE: WELL)

NorthStar Healthcare Income’s board of directors agreed for the REIT to be acquired in an all-cash transaction priced at $3.03 per share, which represents a 2.3% premium to the most recently reported NAV per share of $2.96 as of June 30, 2024. NorthStar Healthcare Income holds a portfolio consisting of 40 senior housing communities. Total consideration to common stockholders is to be approximately $562 million. The sale is anticipated to close in the first half of 2025. The REIT raised approximately $1.7 billion in its common stock offering, which priced shares at $10.00, and which was closed in December 2015. NorthStar Healthcare Income suspended regular distributions to investors in February 2019 in order to preserve capital and liquidity. The REIT made a special distribution of $0.50 to common stockholders in May 2022.

Welltower noted that it anticipates the acquisition will be allocated to its recently announced private funds management business (see Alternative Ramblings below for additional information).

For more information: CHECK THE SOURCE, CHECK THE SOURCE

Greenbacker Renewable Energy Company Announces Re-Underwriting Process to Establish NAV, Announces Appointment of Interim CFO

Greenbacker has historically published an updated NAV per share for each of its respective share classes on a monthly basis. However, the company announced on February 4 that it has initiated a re-underwriting process, in which it is evaluating the expected future performance of its assets relative to their historical performance, while also taking into account current market conditions and their impact on the portfolio. This will include changes to the valuation models utilized by the company. Greenbacker noted that it would not be reporting a monthly NAV until the re-underwriting process is complete. NAV per share was most recently reported at $7.48 for class A shares as of October 31, 2024.

Greenbacker reported on January 29 that its board of directors approved a separation agreement with chief financial officer Christopher Smith. Greenbacker reported in an 8-K that under the separation agreement, “Mr. Smith is required to comply with certain restrictive covenants regarding nondisclosure of company information and non-disparagement.” The board appointed Mr. Carl Weatherley-White to serve as interim CFO.  Mr. Weatherley-White joined Greenbacker in February 2024 and currently serves as the company’s head of capital markets.

We previously reported on Greenbacker’s 2022 management internalization transaction here.

For additional information: CHECK THE SOURCE

Belpointe REIT Inc. (NYSE American: OZ) Holds Annual Meeting and Regains Compliance with NYSE Listing Standards

The company reported that it received notice from the NYSE American exchange that it had regained compliance with the listing standards following the completion of its 2024 annual meeting of unitholders on January 28, 2025.

For additional information: CHECK THE SOURCE

Alternative Ramblings

Walgreens Suspends Common Stock Dividend

Walgreens suspended its quarterly dividend this past week, breaking a streak of such dividends that dates back to the Great Depression. Walgreens noted that the suspension was made to strengthen its balance sheet and improve free cash flow.  Walgreens is a significant tenant in a number of real estate investment programs in the alternative investment space. The common stock dividend suspension comes on the heels of July 2024 downgrade of the company from investment grade to junk status by S&P and Moody’s (December 2023), along with announcement of approximately 1,200 store closures over the next three years and multi-billion dollar settlement of certain opioid litigation.

Significant REIT exposures to Walgreens include ExchangeRight Essential Income REIT (15.9% of annualized base rent, ABR), Cantor Fitzgerald’s Income Trust (4.3% of annualized rental income), and publicly traded REITs including: Alpine Income Property Trust (NYSE: PINE), (ABR), NETSTREIT Corp (5.9% of ABR), and Realty Income Corp. (3.3% of ABR).  Walgreens is a tenant in many DST portfolios sponsored by multiple firms in the retail investment channel, and is a key tenant to continue tracking.

Welltower Announces Private Funds Management Business

Welltower, the largest publicly traded REIT in the healthcare space, announced the launch of a private fund management business that will focus on senior housing portfolios located in the U.S., including stabilized properties and properties that have “a near-term path to stabilization.”  This may include the aforementioned NorthStar acquisition. Welltower’s management team will contribute 20% of private LP capital up to a total of $400 million into the first fund launched by the private fund management business. the Abu Dhabi Investment Authority is committing as an anchor LP as well, also committing 20% or up to $400 million for the first private fund. These mark some interesting developments for Welltower that follow Prologis’ (NYSE: PLD) own establishment of a private fund management business (over 20 years ago) under its strategic capital business segment. Undoubtedly, there will be natural questions surrounding allocations of prospective investments, management time and focus, and other conflicts of interest embedded in such an arrangement.

CBRE Outlook

Citigroup’s Global Real Estate outlook for 2025 includes expectations of strength in the residential, senior housing and healthcare sectors, primarily driven by lower supply growth and a stabilized forecast for the broader economy and macro environment. Sectors that Citi believes may have continued headwinds in 2025 include self-storage, office, and larger net-leased assets, with some downside consideration for changes in immigration policy leading to potential higher operating costs in the hospitality and senior housing sectors.

Interval Funds

CION Grosvenor Infrastructure Fund Launches with Approximately $240 million in Institutional Investment

The interval fund was declared effective by the SEC in November 2024. Recently the fund announced that it holds a portfolio of $240 million in assets, with a further $82 million in committed capital from investors. Pennsylvania Public School Employees Retirement System is the institutional investor behind the launch of the fund. GCM Grosvenor Inc. serves as the sub-adviser to the fund, Grosvenor is an alternative investment firm that has been active in private equity, real estate, and credit since 1971, with reported AUM in excess of $80 billion. Grosvenor also serves as one of the sub-advisers on the Axxes Private Markets Fund, another interval fund that focuses on private equity investment.

This marks another infrastructure interval fund that is seeking to attract retail investors. Cantor Fitzgerald Infrastructure Fund was launched in 2022, has crested $200 million in net assets, and has posted some robust performance numbers with an annualized return of 14.3% since inception through December 31, 2024.

Alternative Ramblings

You Betcha! Going Long Downtown Minneapolis: Office Building Trades Hands at 3 cents on the Dollar from 2016 Sale

The Ameriprise Center, a 31-story 960,000 square feet office tower located in downtown Minneapolis, was recently sold for $6.25 million in cash. The building was previously sold for $200 million in 2016.  Tenant turnover is a significant factor in the pricing, as Ameriprise is consolidating workers in other locations located within a few blocks of its namesake building as the Minnesota Star Tribune reports.

Onward Investors, based in Minnetonka, Minnesota, is the purchaser. Recently, it has been active in a series of bets on the future of downtown Minneapolis, including its recent participation in a joint venture to purchase the Wells Fargo Center in late 2024 with Neuberger Berman and others, and participation with Willow Peak on the acquisition of 300 1^st Ave for $5 million in November 2024. (This property is not the admittedly more fun First Avenue, which is an institution in town.) The Wells Fargo Center was acquired by Starwood Capital Group for $315 million in 2019. The Wells Fargo Center is reportedly 62% leased, down from its historical average of approximately 95%.

Cantor Fitzgerald CEO Howard Lutnick to Sell Business Interests

The Commerce Secretary nominee noted that he would sell or divest all of his business interests within 90 days if confirmed as commerce secretary. This would include Mr. Lutnick’s holdings in Cantor Fitzgerald and various other entities such as Newmark.

As Vice President J.D. Vance notes Mr. Lutnick is a force of nature and just a good dude…..man.

Discounts on Publicly Traded Single Family Rental REITs Proliferate

The Wall Street Journal reports that discounts on the two largest traded SFR landlords Invitation Homes (NYSE: INVH) and American Homes 4 Rent (NYSE: AMH) had reached 35% and 20%, respectively, to gross asset values. This undoubtedly is a headwind on execution of exit strategies for multiple SFR aggregators in the private markets.  However, single-family rentals remain one of the most fragmented real estate sectors, with REITs owning an estimated less than 1% of total single family rental homes, which is nonetheless a good barometer of prospective liquidity scenarios. Increasing costs of debt capital and unsustainable affordability dynamics for many buyers are continuing to weigh on activity in the housing market. Long-term supply demand dynamics appear to be promising, with residential starts ebbing since interest rates increased, which is more acutely noticeable on the multifamily side than single-family construction as the following chart from Green Street highlights. Undoubtedly the SFR market will continue to attract significant attention amongst investors even as increasing regulatory and political risks are likely to shape the discussion over the coming years.

REITS

Belpointe PREP, LLC (NYSE American: OZ) Adjourns Annual Stockholders Meeting and Announces Notice of Noncompliance with NYSE American Listing Standards 

On January 8, Belpointe, a publicly traded company that invests and manages commercial real estate located within qualified opportunity zones, reported that it adjourned its annual meeting of stockholders on December 19 after determining that a quorum was not present.  Belpointe subsequently rescheduled the annual meeting for January 28,allowing for the distribution of certain additional materials to investors. Belpointe further reported that on January 6, it received notice from the NYSE American LLC that as a result of not holding its annual meeting by December 31, 2024, it was not compliant with the continued listing standards of the exchange.  NYSE American noted that the company’s ticker symbol “OZ” may include a below compliance notice (‘.BC’) indicator until the company holds its annual meeting.  Belpointe reported total assets of approximately $0.5 billion as of September 30, 2024.  

For more information: Check the Source 

Strategic Student & Senior Housing Trust, Inc. (SSSHT) Reports Updated NAV Per Share 

On January 10, SSSHT reported that its board of directors approved a NAV per share of $6.35 as of September 30, 2024.  The estimated NAV per share was based on valuation inputs provided by Kroll, LLC, related to the four senior housing properties that comprise its portfolio. SSSHT previously reported a NAV per share of $6.34 in January 2024.  SSSHT sold its last student housing asset in July 2024 and made a $0.24 per share distribution to investors related to the net proceeds from the sale in December 2024. 

For more information: Check the Source 

SEC Charges Arete Wealth Management LLC,  Arete Wealth Advisors LLC, and Certain Registered Representatives Related to Illegal Securities Offering 

The underlying substance of the charges relate to certain “selling away” activities of three formerly registered personnel of Arete.  The three representatives sold approximately $8 million of common stock in Zona Energy Inc., which turned out to be a sham oil-and-gas company, to Arete clients. Arete entities had not approved Zona stock for sale or distribution to their clients.  The SEC seeks to ban these three representatives from the industry. The charges against Arete Wealth Management LLC (the broker-dealer) relate to alleged recordkeeping violations regarding representative communications.  The charges related to Arete Wealth Advisors LLC (the RIA) and its chief compliance officer pertain to allegations of aiding and abetting certain violations of securities laws.   

The complaint in its entirety is available here, the press release summary is available here. The DI Wire further reports on this matter here. 

 

REITS

Silver Star Properties REIT Inc. Appoints an Independent Accounting Firm and Reports Updated NAV Per Share

On December 24, Silver Star appointed CBIZ CPAs P.C. (CBIZ CPAs) as its independent registered public accounting firm for the fiscal years ending December 31, 2024, and 2023. CBIZ CPAs is a PCAOB registered accounting firm based in Kansas City. As we’ve previously reported, Silver Star has not filed quarterly or annual reports with the SEC since its 2023Q3 quarterly report in November 2023. Silver Star owns 4 self-storage properties, 20 office properties and 1 retail development project. Silver Star is in the process of liquidating its office properties and re-allocating the capital into self-storage properties.

For more information: Check the Source

Ashford Hospitality Trust, Inc. (NYSE: AHT) Announces Resignation of Director

On December 26, Alan Tallis resigned from the board of directors effective December 31, 2024.  According to a public filing, Mr. Tallis’s resignation was not related to any disagreement with AHT’s operations, policies or practices. AHT reported that Mr. Tallis tendered his resignation from the board to reduce the number of directors as part of AHT’s efforts to reduce overhead and improve financial performance. Mr. Tallis had served on the board since 2013.

For more information: Check the Source

Bramer Hotels & Resorts, Inc. (NYSE: BHR) Appoints Independent Director Following Resignation of Certain Directors

On December 30, Braemar’s board of directors appointed Ms. Rebecca Musser to serve as a director on its board, effective immediately, until the next annual meeting of shareholders. The board also appointed Ms. Musser as chair of the audit committee effective immediately.

Braemar’s previous chair of the audit committee, Kenneth Fearn Jr., resigned on December 18 after winning re-election to the board at the December 17 annual meeting of stockholders.  Mr. Fearn Jr. had served on the board since 2016.  Additionally, Abteen Vaziri resigned from the board on December 17.  Mr. Vaziri was an independent director who served on the board since 2017.

At the 2024 annual stockholders meeting, CEO Richard Stockton, and directors Candace Evans, Rebeca Odino-Johnson, and Jay Shah were also re-elected to the board of directors. However, chairman Monty Bennett, and directors Mathew Rinaldi and Stefani Carter did not receive a majority of votes cast and were not re-elected. Each un-elected director subsequently tendered their resignation to the board. Certain remaining members of the board then rejected the resignations of the un-elected directors. Braemar reported that Mr. Shah and Mr. Stockton abstained from voting on the rejection of the resignations of the unelected directors.

For more information: Check the Source

Alternative Ramblings

Forecast for Closed-End Funds Under the New Administration

The NAVigator podcast (which is a must listen podcast) hosted attorney Ken Burdon from Simpson Thacher & Bartlett LLP for a discussion on the potential regulatory landscape for closed-end funds including interval funds under the incoming Trump administration and the prospect of Paul Adkins as the nominee for SEC Chair. Mr. Burdon notes that the broad trend of democratization of private markets (read alternatives) access to retail investors, has generally grown over the past five years, and this trend may “kick in to overdrive” with the new administration.

Mr. Burdon further expects broader engagement and regulatory evolution by the new administration, specifically regarding the framework for closed-end funds to co-invest with other sponsor investment vehicles and prospective expansion of the provisions allowing for general solicitation of private offerings.

 

REITS

Bluerock Homes Trust (NYSE American: BHM) Announces Acquisition of 350 Unit Multifamily Property in Charlotte

The REIT reported that it closed on the acquisition on the property for a total purchase price of $92 million, of which $39.1 million (inclusive of certain transaction costs and operating and lender reserves) was funded in BHM equity and a $55.2 million mortgage loan. An affiliate of the seller will manage the property for a property management fee of 3% of gross revenues. This marks the second multifamily acquisition by the REIT, which has historically focused on scattered site and build-for-rent communities of single-family rental properties. The previous multifamily acquisition which we reported on in November 2024, will be syndicated into a DST offering.

For more information: Check the Source

Cantor Fitzgerald Income Trust Exercises Fair Value Market Option on the CF Summerfield DST

The REIT announced that it issued a combination of approximately 1.4 million operating partnership units and $2.1 million in cash in exchange for 75% of the outstanding equity interests in the DST, which owns a multifamily property located in Landover, Maryland. The property is subject to a $76.6 million fixed rate mortgage with a 3.65% interest rate and a maturity date of April 1, 2031. The REIT owned the other 25% of outstanding equity interests prior to the transaction. The Class I and Class T operating partnership units issued as consideration had a net asset value per unit of $20.15, and $20.13, respectively, as of September 30, 2024. This along with the cash consideration aggregates to total consideration of approximately $29.8 million for the 75% outstanding equity component and an implied value of $116.2 million inclusive of the REIT’s 25% stake and outstanding principal balance on the debt. The REIT reported the purchase price of the property was $115.5 million in March 2021.

The REIT previously announced that its chairman and chief executive officer Howard Lutnick, who was nominated by incoming President Donald  Trump to serve as the U.S. Secretary of Commerce, stated his intention to step down from his positions at Cantor Fitzgerald upon confirmation by the U.S. Senate.

For more information: Check the Source

Moody National REIT II, Inc. Announces Sale of Nashville Embassy Suites for $57 Million.

The hospitality REIT announced the sale to a third party on December 6, 2024.  The transaction is anticipated to close before mid-February 2023.  The hotel was originally purchased for $66.3 million in 2015 by Moody National REIT I, Inc. prior to the merger of the two affiliated REITs. Moody II reported that there was $37.2 million in outstanding mortgage debt on the asset as of September 30, 2024. Moody II has 14 remaining hotels in its portfolio.

For more information: Check the Source

Lodging Fund REIT III, Inc. Files 2023 Annual Report

The REIT filed its annual report this past week which had been delayed approximately 9 months. Marcum LLP, the independent accounting firm provided a clean audit opinion. We previously reported on this here and the change in accounting firms from Deloitte & Touche LLP to Marcum LLP here.

For more information: Check the Source

Silver Star Properties REIT, Inc. Reports 25% Drop in NAV per Share

Silver Star announced that its board of directors determined an estimated NAV per share of $2.01 as of June 30, 2024.  This marks a decline in NAV from $2.70 as of December 31, 2023.  We have previously reported on multiple developments at the REIT here.

For more information: Check the Source

Ashford Hospitality Trust (NYSE: AHT) Announces Strategic Initiative to Reduce G&A, Improve Efficiency and Maximize Revenue

The REIT reported that G&A reductions would include cutting management and board compensation, and negotiating with Ashford, Inc., its external advisor, to reduce advisory fees and reimbursable expenses. Details on specifics related to reduced compensation and fees were not disclosed. Revenue maximization efforts identified increased sales efforts focused on driving RevPAR growth and ancillary revenues, and operational efficiency initiatives include reducing payroll expenses and renegotiating and bidding out certain labor contracts in certain MSAs.

For more information: Check the Source

Alternative Ramblings

Green Street Anticipates REIT Premiums May Spur Capital Deployment, Anticipate Increase in Private Real Estate Values in 2025

Green Street’s director of research, Cedrik Lachance noted on the NAREIT REIT Report Podcast that significant premiums in certain publicly-traded REIT sectors may lead to increased capital raising, transactional activity and REIT IPOs. Sectors that are currently in favor, include data centers, self-storage, healthcare, retail and possibly the office sector. Whereas cold storage, hotel, life sciences, single-family rentals are lagging. Mr. Lachance further noted that based on Green Street’s data they put current publicly traded REIT premiums in aggregate at 8-9% above NAV, and that historically this suggests an approximate 75% likelihood that private real estate values will increase in the coming year. However, the comparative lower level of CRE transaction activity and the proliferation of private equity real estate investment vehicles that are seemingly focused on asset gathering and long-term capital management, may diminish the odds of IPOs in the real estate.

SEC FAQ in the Event of a Government Shutdown

The SEC has an announcement outlining key considerations regarding its operations in the event of a government shutdown related to continuing appropriations dialogue in the U.S. Congress. Never fear…EDGAR never sleeps, the accelerated qualification or effective processes, well that’s another story.

That Sinking Feeling

The Miami Herald reports that a recently published study notes that dozens of luxury condos and hotels in Surfside, Bal Harbour, Miami Beach and Sunny Isles are sinking into the ground at rates that were “unexpected”.  Total sinking ranged from 0.8 to 3 inches from 2016 and 2023.  The University of Miami which produced the study noted that satellite images confirmed the subsidence over the time period. While it is normal for settling on high-rises during and immediately after construction, this level of subsidence and for this period of time was unexpected per the researchers. In 2021 the Champlain Towers South in Surfside, Florida collapsed though subsidence was not cited as the cause of the collapse.

Happy Holidays to All and a Happy New Year!

Also please don’t forget to observe Festivus this December 23. No holiday season is complete without a healthy airing of the grievances followed by feats of strength….so dig out the Festivus pole and let’s rumble!

REITS

Egan-Jones Proxy Advisory Materials Recommend United Development Funding IV Shareholders Vote for All of NexPoint’s Director Nominees at December 10 Annual Meeting

NexPoint Real Estate Opportunities, LLC, reported that Egan-Jones has recommended that UDF IV shareholders vote “for” the NexPoint nominees to UDF IV’s board of directors, including Paul Broaddus, Edward Constantino, John Good, and Julie Silcock, and “withhold” on the incumbent trustees, including Lawrence Jones, Phillip Marshall, Steven Finkle, and J. Heath Malone. Per the associated press release, this marks UDF IV ’s first annual shareholder meeting in the past eight years, which is occurring due to court order. We note that certain UDF IV executives, including prior CEO Hollis Greenlaw, were convicted on criminal fraud charges related to their involvement in the management of UDF IV in 2022. NexPoint has outlined some of its proposals in a webinar back in October 2024.

NexPoint has indicated that it will additionally vote its shares against the re-appointment of Bodwell Vasek Wells DeSimone LLP as the independent auditor of UDF IV. Individuals at UDF IV’s previous independent accounting firm (Whitley Penn LLP) received significant sanctions and suspensions from the Public Company Accounting Oversight Board related to their audit work in certain UDF entities and affiliates (including UDF IV United Development Funding II, L.P.).   UDF IV has also not filed any financial statements with the SEC dating back to the third quarter of 2015, and the SEC revoked the registration of UDF IV’s securities in 2020.

Certain NexPoint entities and affiliates have taken an activist stance regarding UDF IV dating back to July 2020, after initially investing in April 2017. They collectively own over 6% of UDF IV’s outstanding common stock.

For more information: Check the source

Ashford Hospitality Trust, Inc. (NYSE: AHT) Announces Closing Date of its Series J and K Preferred Stock

The hotel REIT announced that it will be closing the offering of its Series J and Series K non-traded preferred stocks on March 31, 2025. AHT has raised approximately $180 million in gross proceeds from this non-traded preferred stock offering dating back to 2022.

AHT also recently announced the sale of its Courtyard Boston Downtown asset for $123 million (approximately $390k per hotel key). CEO Stephen Zsigray noted the sale would continue deleveraging efforts of the REIT.

AHT’s external advisor recently privatized in a transaction we reported on here.

REITS Vinebrook Homes Trust, Inc. Appoints John Good as President Following Resignation of Brian Mitts The single family rental REIT announced that Mr. Good, its CEO since August 2024, would assume the role of president following Mr. Mitts’ resignation effective December 31, 2024. Mr. Mitts previously served as CEO of the company until August 2024, at which time John Good was appointed CEO.  Mr. Mitts has held a number of roles at the $3 billion REIT over the years including CEO, president, CFO, and treasurer.  Mr. Mitts will continue to serve as a member of the board of directors, and will be entitled to two separation payments of $200,000 each (both payable in 2025) and certain restricted stock units. John Good also serves as CEO of NexPoint Storage Partners, Inc., an affiliate of Vinebrook. For more information: Check the source InPoint Commercial Real Estate Income, Inc. CEO Mitchell Sabshon Resigns; Denise Kramer Appointed as New CEO The commercial mortgage REIT announced that Mr. Sabshon’s resignation would be effective November 30. The board of directors subsequently appointed Denise Kramer as CEO.  Since 2021, Ms. Kramer has served as the president of Inland Point Advisor, Inc., the external advisor of InPoint Commercial. For more information: Check the source Alternative Ramblings Regulatory Capital Relief Securities Coming to a Portfolio Near You! Bloomberg notes on the increase in “significant risk transfer” securities in the market. These are also broadly referred to as regulatory capital relief investments and allow banking entities to transfer credit risk associated with an underlying asset (or pool of assets) to outside investors. In exchange for this transfer of a portion of the credit risk to entities outside the bank, the bank will get regulatory relief on its capital requirements from banking regulators. These regulatory capital relief investments are typically structured in the form of a credit-linked note. Bloomberg has a convenient info graphic noted below:                                                                                                                                                  Source: Bloomberg This risk transfer attendently increases the opacity within the banking system by adding in another layer, or layers, of transfers regarding who ultimately holds credit risk (and on what issuers). The practice has been more widespread in European markets than in the U.S. Bloomberg previously reported that approximately $1 trillion in loans have had risk transferred through these mechanisms, with some individual transactions in the multiple billions of dollars. Bloomberg reports that given the nascent state of the growing U.S. market, investor demand exceeds supply, which will likely lead to a frenzy of deal making to meet the demand. With prospective returns in the low double-digit range, appetite is understandably high. This has raised concerns that credit quality of some of the deals may deteriorate. Regulatory capital relief securities represent an interesting evolution of the banking industry and capital markets in general, in which banks continue to migrate from long-term holders of credit risk as balance sheet lenders to functioning more like originators. Additionally, these securities are becoming more of a focus for publicly registered investment vehicles distributing into the retail wealth management channel for those targeting higher distribution rates. Office Sector Showing Some Green Shoots Green Street has reported in an Office Sector Update that net office absorption across the U.S. moved into slightly positive territory in 2024Q3. Office utilization rates remain significantly below the 2019 pre-pandemic levels with some geographic idiosyncrasies, as highlighted in the following chart. Improving return to office trends, specifically in NYC and Texas markets, coupled with Fed rate cuts has led to significant gains on many of the publicly traded office REITs during in the past few quarters, with a few trading at premiums to estimated NAVs. The rally has been strong, with trailing 12-month returns on equity prices in the publicly traded space across the sector coming in at 63% pacing the entire REIT sector table. However, debt financing priced on a spread to the 10-year U.S. Treasury remains elevated, with fewer lenders active in the sector, which may weigh on the rally over the longer-term to the extent these conditions persist. Coming Up Clutch! The Weekly Update salutes Jeeno Thitikul in winning the CME Group Tour Championship on the LPGA by one stroke. Check out this approach shot and this putt on the 18th hole with $4 million on the line. She came up clutch in the big moment for the largest prize in women’s golf history! Happy Thanksgiving to All of Our Readers!

REITS MacKenzie Realty Capital, Inc. Uplists to the Nasdaq from the OTCQX MacKenzie announced that it successfully listed its shares on the Nasdaq on November 11. The company noted in July 2024 that trading of the company’s common shares on the OTCQX, which began in May 2024, had been “sporadic and volatile with relatively few shares being traded,” and that it was looking to list on a deeper exchange. The average daily trading volume was approximately 19,000 common shares on the OTCQX. The Company had noted it was seeking to list on a deeper exchange and was exploring listing on the NYSE-American exchange in July 2024. Trading volume has picked up since the Nasdaq listing, with a daily range of 27,000 to 155,000 shares trading. MacKenzie had 13.4 million shares outstanding as of September 30, 2024. MacKenzie was formerly a business development company under the 1940 Act until 2020and has since elected to be treated as a REIT under the federal tax code. The company has historically engaged in many third-party tender offers on non-traded investment programs that have shareholder redemption backlogs. Many of the tender offers were heavily discounted from reported NAVs of the target companies. However, in recent years, MacKenzie has largely pivoted from this strategy and has focused on directly acquiring operating properties on its own balance sheet. MacKenzie reported total assets of $243 million as of September 30, 2024, total debt of approximately $130 million, and book value of equity of approximately $102 million. Shares are trading at discounts to the reported book value, with Mackenzies’ market capitalization at approximately $50 million based on the close of trading November 14, 2024. MacKenzie has also indicated that it has been looking to buy back stock on the open market, which would likely be very accretive for remaining investors. There is a certain irony here: a company that for years has provided deeply discounted tender offers for other companies’ stock may stick to the same game plan with its own shareholders. The following charts highlight trading activity on the Nasdaq over the last five days since the uplisting, and trading on the OTCQX markets beginning in May. For more information: Check the source

REITS Bluerock Homes Trust Inc. (NYSE American: BHM) Acquires Multifamily Apartment Building and Plans to Syndicate the Asset in a 1031 DST Offering Bluerock Homes Trust purchased the 408-unit multifamily apartment for $103 million, acquired with a combination of $14.5 million in equity, $56.7 million in a senior loan from Fannie Mae, and $36 million in a bridge loan from KeyBank. The property will be subject to a master lease agreement with a subsidiary of the operating partnership of BHM, which will be obligated to pay rent to a to-be-syndicated DST. The senior loan from Fannie Mae has a 10 year maturity and bears interest at fixed rate of 4.81%. Details related to the acquisition multiple on purchase and syndication terms of the prospective DST offering were not publicly available at this time. BHM, which was spun out of Bluerock Residential Growth REIT, Inc. as part of its sale to Blackstone entities in 2022 (which we reported on here), has historically focused on single-family rental assets, including scattered site acquisitions, preferred equity investment into developments, and acquisition of build-to-rent communities. BHM is currently in the market with its Series A Redeemable Preferred Stock offering, which has gained capital raising traction in the past couple quarters. Check out our due diligence research on the Series A Preferred Stock offering from BHM available on the FactRight Report Center. For more information: Check the source Interval Funds Gladstone Alternative Income Fund Declared Effective The Gladstone Alternative Investment Fund will primarily target a combination of credit-oriented investments, with a smaller portfolio allocation to equity in lower middle market companies.  The fund has also received exemptive relief to co-invest alongside two BDCs, Gladstone Capital Corporation (NASDAQ: GLAD) and Gladstone Investment Corporation (NASDAQ: GAIN), which are managed by subsidiaries of Gladstone Management Corporation. Stay tuned for an upcoming FactRight due diligence report on the Gladstone Alternative Income Fund. For more information: Check the source Alternative Ramblings Super Micro Computer Inc. (NASDAQ: SMCI) Auditor Resignation Letter Fireworks The anodyne world of SEC filings (and specifically letters from a filer’s registered public accounting firm) got a bit of a jolt with Ernst & Young LLP’s resignation letter as auditor of SMCI, which has been one of the most volatile listed companies throughout 2024. Typically, the registered public accounting firm will note in a letter to the SEC that they have read management’s disclosed statements and agree with them.  Well in this case, EY noted: The Item 4.01 referenced above is available here.  We’ll leave you to fill in the blanks on which sentences in which paragraphs in the Item 4.01 that EY agrees with or doesn’t have “basis to agree or disagree with.” However, the real nitty gritty were the following disclosures that SMCI reported about its interactions with EY, in which EY expressed concerns about whether members of the company’s board of directors, including a special committee established to review internal control matters and corporate governance procedures, and the company itself “demonstrates a commitment to integrity and ethical values.”. EY further questioned whether it “could rely on representations from certain members of management and from the Audit Committee.” Further, SMCI reported that EY’s resignation letter stated: We [EY] are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations. This mic drop moment has resulted in SMCI stock wilting. Since the matter was disclosed on October 30, shares have been going down, down, down, from approximately a close of $49 per share prior to the announcement to less than $25 in current trading. SMCI’s market capitalization peaked earlier in the first quarter at over $60 billion and has traded sharply down since, as the following chart highlights: For more information: Check the sources here and here

REITS Inland Real Estate Income Trust, Inc. Engages Financial Advisor to Explore Strategic Alternatives  Inland REIT announced on October 28 that it retained BMO Capital Markets Corp. to act as the board of directors’ exclusive financial advisor and assist in evaluating strategic options, including a sale of the company or other liquidity event. Inland REIT previously announced in September that it was considering strategic alternatives and had suspended its distribution reinvestment and shareholder repurchase plans effective October 1, 2024. We reported on these developments here.    For more information: CLICK HERE

Many thanks to ADISA and ADISA President Jade Miller for selecting FactRight as the 2024 President’s Award winner at the recent ADISA Conference in Las Vegas. We greatly appreciate the award and look forward to continuing to provide meaningful perspective to broker-dealers, RIAs, and family offices as they navigate through the alternative investment landscape. On behalf of the whole FactRight team, thank you! REITS Pacific Oak Strategic Opportunity REIT Completes Sale of 501 Acres of Developable Land in North Las Vegas On October 3, Pacific Oak reported that it completed the final phase of three transactions resulting in the sale of 501 developable acres in North Las Vegas, Nevada to D.R. Horton, Inc. (NYSE: DHI). Aggregate sales proceeds totaled $223.1 million prior to closing and other costs.  Pacific Oak previously reported that the close of the sale is anticipated to generate $151.6 million in proceeds and that the assets sold had a cost basis of approximately $68.4 million, dating back to their contribution to the REIT in 2016. For more information: CLICK HERE ExchangeRight Essential Income REIT Reports Resignation of Chief Operating Officer of its Manager On October 2, ExchangeRight Income Fund reported that Louis Swingrover, the chief operating officer of ExchangeRight Real Estate, LLC resigned from his positions with ExchangeRight effective that day. ExchangeRight, through a wholly-owned subsidiary, manages the ExchangeRight Essential Income REIT. The REIT reported that Mr. Swingrover’s resignation was not related to any disagreement with ExchangeRight or the ExchangeRight Essential Income REIT regarding any financial, accounting or other matters. For more information: CLICK HERE Hines Global Income Trust Appoints Board Directors On October 7, Hines reported that shareholders approved the election of seven nominees to its board of directors. This included the election of Diane Paddison as an independent director and the return of Laura Hines-Pierce as a director. Ms. Hines-Pierce had temporarily resigned from the board of directors effective December 31, 2023, to maintain compliance with the REIT’s charter requiring a majority of directors to be independent. The resignation came following the November 2023 resignation of Humberto “Burt” Cabanas as an independent director on the board. We previously reported on these matters here and here. Hines also reported that it completed the acquisition of the Duboce Apartment property located in San Francisco for approximately $38 million, from an unaffiliated seller. The property is currently 97% leased. The REIT previously closed on another multifamily asset in the Bay Area in January 2024. For more information: CLICK HERE and CLICK HERE Ashford Hospitality Trust Board Approves 1-for-10 Reverse Stock Split On October 15, Ashford reported that its board approved the previously announced reverse stock split in efforts to maintain compliance with NYSE listing requirements. We previously reported on this matter here. The stock split will become effective at the close of business on October 25 and will reduce the outstanding shares of common stock from approximately 54.6 million to 5.5 million shares. For more information: CLICK HERE   Regulation A+ Trilogy Multifamily Income & Growth Holdings I, LLC Reports Appointment of Marc Henny as CFO On October 2, Trilogy reported that it had appointed Mr. Henny to serve as chief financial officer and that the former chief financial officer Matthew Leiter was appointed as chief commercial officer. Mr. Henny has served as Trilogy’s executive vice president of accounting and finance for the past two years. For more information: CLICK HERE

BDCs On September 27, PFLOAT’s board of directors declared a distribution for the month of September reflecting a targeted annualized 8.5% distribution rate based on the NAV per share as of June 30, 2024. This marks an increase from the distributions for August 2024 and July 2024, which targeted annualized distribution rates of 8.0% and 7.5% based on NAV per share as of June 30, 2024 and March 31, 2024, respectively. PFLOAT is advised by Prospect Capital Management L.P. and has a portfolio of approximately $60 million comprised predominantly of senior secured loans and less than 10% in CLO securities. FactRight notes that key insiders have purchased over $20 million in PFLOAT common stock in the past six months. Stay tuned for a forthcoming FactRight offering report on the issuer’s offering of various share classes of common stock. For more information: CLICK HERE REITS Lightstone Value Plus REIT V, Inc. (Lightstone V) Announces Special Cash Distribution On September 26, Lightstone V announced a special cash distribution of $0.42 per share, which represents a portion of the proceeds from asset sales. Lightstone V most recently completed the disposition of a 306-unit multifamily property in Indiana in November 2023, which resulted in a gain on the sale of the property of approximately $41.1 million, or approximately $2.15 per share. Lightstone V subsequently used a portion of the proceeds to acquire another multifamily property in St. Augustine, Florida, in December 2023. Lightstone reported that adjusted for the special distribution, the estimated NAV per share was $15.94 as of September 30, 2024. The REIT has made special distributions totaling $4.03 per share dating back to 2012, with the September 2024 special distribution being the first special distribution since 2016. The REIT ceased paying regular distributions in 2012. Shares were initially offered at $10.00 per share in an offering that was declared effective in 2008 when the REIT was known as Behringer Harvard Opportunity REIT II, Inc. In 2017 the advisory management agreement was transitioned to affiliates of the Lightstone Group. For more information: CLICK HERE Ashford Hospitality Trust (NYSE: AHT) Announces Intention to Execute a 1-for-10 Reverse Stock Split to Regain NYSE Listing Compliance On September 26, AHT reported that it received a notification from the NYSE that it was out of compliance with the listing requirements, as its average share closing price was under $1.00 for a consecutive 30 trading day period.  AHT intends to execute a 1-for-10 reverse stock split in order to regain compliance.  Management believes that the reverse stock split will also make the stock more attractive for prospective institutional investors. For more information: CLICK HERE Alternative Ramblings Publicly Traded REITs Rally on Expectations of Lower Interest Rates The following chart highlights price to NAV trends as reported by S&P Global over the past five years.  Note the substantial uptick in 2024Q3 as expectations of lower interest rates provided a substantial bid on publicly traded REITs. The average discount to consensus NAV across all REITs declined from 15.5% as of June 30, 2024, to 4.1% as of September 30, 2024.  Some sector dispersion is noted in the second chart below, notably retail (including regional malls and shopping centers) and office bouncing back strongly. We note that office sector discounts were well over 50% in 2023. Our Minnesota Twins have completed their epic collapse…. FactRight’s favorite the Minnesota Twins have ignominiously ended their season stumbling out of playoff position and entering vacation mode earlier than expected.  At least we’re not the White Sox….we’ll get em’ next year! Perhaps the Savannah Bananas will take their Banana Ball tour to Target Field?  Nope, we didn’t make that cut either, but the Bananas plan on playing in 3 football stadiums and 18 MLB stadiums in 2025.

A big thank you to all who attended the FactRight conference in Nashville last week. We hope the conference was productive and informative for you. We’ll see you down the road! REITS Inland Real Estate Income Trust, Inc. (Inland REIT) Board Announces it is Evaluating Strategic Alternatives On September 18, Inland REIT reported that its board began a process to review strategic initiatives, including a potential sale of the REIT, listing of the common stock on a national securities exchange, or other options. The REIT intends to engage a financial advisor to assist in this process. The REIT also announced that it has suspended the distribution reinvestment and shareholder repurchase plans effective October 1, 2024. Any existing unfulfilled share redemption requests will automatically roll over if the REIT restarts the repurchase plan. In its most recent reporting period, Inland REIT repurchased approximately 4.5% of total repurchase requests. Repurchase requests have exceeded fulfilled repurchases dating back to 2018. Beginning in April 2024, the REIT began repurchasing shares at 80% of the estimated NAV per share. The REIT initially offered shares at $10.00 beginning in 2012 and effected a 1-for-2.5 reverse stock split in January 2018. The most recently reported estimated NAV per share was $19.17 as of December 31, 2023, compared to the reverse split adjusted initial offering price of $25.00. Inland REIT began raising capital in 2012 and raised $834 million in equity in an offering that closed in 2015. The REIT’s portfolio features 52 retail assets and is comprised predominantly grocery-anchored retail centers, located across the U.S, with total assets of $1.3 billion and outstanding debts of approximately $840 million. There are no debt maturities scheduled in 2024, and approximately 11% of its outstanding principal balances is scheduled to mature in 2025.The REIT reported a weighted average interest rate of 4.78% on its outstanding debts as of 2024Q2. For more information: CLICK HERE and CLICK HERE Alternative Ramblings Bulls on Parade!? The Federal Reserve Cuts 50 basis points and Stocks Hit All-Time Highs The cut in the federal funds target rate is expected to spur additional economic activity, support liquidity and increase real estate transaction volume, and generally be positive for credit markets. Cushman & Wakefield have some key takeaways and commentary on the cut and anticipated effects on the commercial real estate landscape available here, including easing lending standards, valuation bumps on publicly traded real estate, more dry powder to enter the market, and transaction volumes to pick up. Phillips Edison CEO and Chairman Jeff Edison Discusses Partnership with Cohen & Steers Non-Traded REIT NAREIT’s podcast recently featured an informative discussion on developments in the grocery anchored retail landscape featuring PECO’s CEO Jeff Edison and James Corl, the head of Cohen & Steers’ private real estate group. The $300 million joint venture, which is 80% owned by Cohen & Steers Income Opportunities REIT, Inc. and 20% owned by PECO, is focused on open-air grocery anchored shopping centers.  Cohen & Steers is seeking to tap the sourcing and operational expertise of PECO in allocating into the sector. This joint venture marks an interesting mile marker on the road for PECO, which itself started as a non-traded REIT that completed a consolidating merger with an affiliate and listed on the Nasdaq in 2021, which we reported on here. Key trends discussed included the state of the so-called retail apocalypse over the past decade, and how many tenants are thriving in navigating the hybrid “bricks and clicks” landscape, and notably the low level of new supply over the past couple of decades in the grocery-anchored market, which points to strong cash flow growth for landlords in the space. Goldman Sachs and Fortress Investment Group Form Non-Traded Mortgage REITs Bloomberg reports on the news here. Fortress previously launched a NAV REIT focused on net leased properties earlier in 2024 and has raised over $500 million on the offering, marking the latest efforts of institutional managers creating investment vehicles to access the wealth management channel. Minneapolis Office Tower Trades Hands at 90 Percent Discount From 2019 Price The Forum buildings, which were built in the 1980s and were formerly known as the Oracle Center, in Minneapolis recently sold for $6.5 million. The 600,000 square foot complex previously changed hands at $73 million in 2019.  Minneapolis and St. Paul Business Journal reports that the buildings were 45% occupied. New York based Namdar Realty Group is the reported buyer. Minneapolis Mayor Jacob Frey (who may be the fastest distance running politician in the world sporting a 2:16 time in the marathon), is advocating for more office to residential conversions as a solution to elevated office vacancy and shifting utilization rates. This is a trendy, but often tricky proposition. The fleet footed mayor may find the path of office to residential conversion on 1980s large plate office towers more challenging than making the U.S. Olympic Marathon trials (which he did in 2008). The pennant race is on, and our Minnesota Twins are stumbling down the stretch.  The Twins have lagged since the All-Star break with a 26-31 record, and as of today find themselves in a tie with the Tigers for the final American League wild card spot. With nine games to go in the season, it’s rally cap time!

We look forward to hosting and connecting with many of our readers at the upcoming FactRight conference in Nashville this coming September! REITS Blackstone Real Estate Income Trust, Inc. Announces that Wesley LePatner is Appointed CEO On August 22, BREIT reported that Ms. LePatner, who currently serves as the chief operating officer of the REIT, will become CEO on January 1, 2025. Current CEO Frank Cohen will remain on as chairman of the board of directors following the change in executive leadership. Ms. LePatner currently serves as a member of the board and has been an executive with BREIT since its inception. For more information: CLICK HERE Vinebrook Homes Trust, Inc. Appoints John Good as CEO On August 22, Vinebrook reported that Brian Mitts resigned from his positions as CEO, CFO, assistant secretary and treasurer of the company. Mr. Mitts will continue to serve as Vinebrook’s president and as a member of its board of directors. Vinebrook subsequently reported that John Good was appointed by the board of directors to serve as CEO. Mr. Good serves as CEO of NexPoint Storage Partners, Inc. and as a member of its board of directors. Vinebrook’s board of directors also appointed Paul Richards to serve as Vinebrook’s CFO. Mr. Richards serves in executive roles at affiliates NexPoint Real Estate Finance, Inc. and NexPoint Hospitality Trust, Inc. and certain other affiliates. For more information: CLICK HERE MacKenzie Realty Capital, Inc. Retains Investment Banking Firm to Advise on Strategic Liquidity On August 27, MacKenzie reported that it had retained Maxim Group LLC to provide certain financial and investment banking advisory services in connection with certain matters, including a potential uplisting of the REIT’s common securities on the Nasdaq or New York Stock Exchange. The REIT also reported it was exploring a “potential rights offering, equity issuance or other mechanisms to enhance corporate and shareholder value.” The REIT reported that it had issued 133,000 shares of common stock (approximately 1% of the REIT’s outstanding common stock) to a Maxim affiliate as compensation related to the engagement. The shares are subject to certain lockup and divestiture terms. MacKenzie reported total assets of $226 million as of March 31, 2024. For more information: CLICK HERE and CLICK HERE Lodging Fund REIT III Files Certain Outstanding Quarterly Reports On August 23, the REIT filed its quarterly reports for the quarters ending March 31, 2023, June 30, 2023, and September 30, 2023. The REIT remains outstanding on its 2023 annual report and quarterly filings in 2024. The REIT previously reported that it had engaged a new independent public accounting (Marcum LLP) firm in October 2023. For more information: CLICK HERE, CLICK HERE, and CLICK HERE Gladstone Land Corporation (Nasdaq: LAND) Announces Election of New Director On August 22, the REIT announced the election of Katherine Gorka to the board of directors. Ms. Gorka will serve on the Ethics, Nominating and Corporate Governance Committee. For more information: CLICK HERE and CLICK HERE Alternative Ramblings SEC Issues Final Rule on Form N-PORT Disclosures for Certain Registered Investment Companies On August 28, the SEC adopted amendments to the reporting requirements for certain registered investment companies on Forms N-PORT and N-CEN. The final rule is available here, and a fact sheet from the SEC is available here. Dechert LLP has a detailed analysis of the final rule available here. The amendment will require registered open-end funds, registered closed-end funds, and exchange traded funds organized as unit investment trusts to more frequently disclose monthly portfolio holdings than previously required. Previously, funds reported monthly, but only one such filing per quarter was publicly available (with the other two remaining confidential to the SEC). Funds will now report within 30 days of each month end, with the data becoming publicly available 60 days after each month end. Additionally, funds will need to report information related to service providers used to comply with liquidity risk management program requirements. Per Dechert, this updated information on liquidity  service providers will need to include identifying information, any affiliation information, asset classes for which the liquidity service provider is providing classifications, and whether the liquidity service provider was retained or terminated during the reporting period.

REITS Healthcare Trust, Inc. Announces Internalization Transaction Priced at Approximately $100 Million On August 7, the REIT announced that it had entered into an agreement to internalize its management function through an internalization merger with its external advisor Healthcare Trust Advisors, LLC, and its internal property manager Healthcare Trust Properties, LLC. The REIT announced that the advisor and certain other entities will receive cash consideration of $98.2 million, as well as $14.8 million in asset and property management fees that the REIT would have been required to pay to the advisor and property manager during the six month notice period required to terminate the advisory and property management agreements. The REIT reported that it would fund the internalization transaction with a combination of cash on hand and anticipated net proceeds from certain prospective strategic property dispositions. The REIT anticipates that internalization will close in September 2024. The REIT reported that the internalization is in anticipation of a listing of its common stock on an exchange targeted for 2025, depending on market conditions. Healthcare Trust previously reported in July 2024 of its intent to internalize management as part of its potential listing of common stock on an exchange and its intent to change its name to National Healthcare Properties, Inc. The REIT owns 207 properties, including medical office and senior housing operating properties, totaling 9.0 million rentable square feet. Healthcare Trust reported total assets of $2.1 billion and total outstanding debts of approximately $1.2 billion as of June 30, 2024. The REIT began operations in 2013 and reported an estimated NAV per share of $13.00 per share as of December 31, 2023. Healthcare Trust shares were originally offered at $25.00 and had an annualized distribution of $1.70 per share, payable monthly. The REIT decreased its annualized distributions in 2017 to $1.45 per share, and further decreased the annualized distribution to $0.85 per share in 2018, before suspending distributions at the onset of the COVID-19 pandemic. The REIT subsequently reinstated a quarterly distribution in October 2020 at an annualized distribution per share of $0.05 per share, which has been increased to an annualized rate of $0.06 as of January 2024. Distributions made in 2021, 2022 and 2023 were made as stock distributions as opposed to cash distributions. For more information: CLICK HERE and CLICK HERE Procaccianti Hotel REIT, Inc. Announces Pro Rated Share Repurchases On August 15, the REIT reported that its share redemption requests exceeded its share repurchase funding limitations. The REIT previously reported that under its amended and restated share repurchase program, that share repurchase limits were reached in the quarters ending June 30, 2023, September 30, 2023, December 31, 2024, and March 31, 2024, as repurchase requests exceeded proceeds from its distribution reinvestment program. The board determined that it would pro-rate share repurchases to approximately 31% of requests made in the second quarter of 2024, including those related to hardship of shareholders, including death and disability. The REIT owns a portfolio of five select service hotels and reported total assets of $109 million as of June 30, 2024. For more information: CLICK HERE   BCDs Bloomberg Publishes Article on Prospect Capital Corp. (NYSE: PSEC) The Bloomberg article is available here. Prospect Capital has recently filed additional supplemental information on its website available here. At FactRight, we have been tracking PSEC’s payment in-kind interest trends and distribution payout ratios adjusted for payment-in-kind interest for a number of quarters.  We note that distribution coverage and the common equity cushion on under PSEC’s preferred stock remains robust.  Please reference our quarterly supplements for additional information.   LATE NOTICES Lodging Fund REIT III, Inc. The REIT reported that it will be unable to file its quarterly report in a timely fashion for the quarter ending June 30, 2024. The REIT previously reported that it had engaged a new independent public accounting (Marcum LLP) firm in October 2023 and that it has been unable to file its annual report for 2023 and certain other quarterly reports as of the current date. The REIT noted it is diligently working to prepare and finalize financial statements for all outstanding periods. For more information: CLICK HERE Moody National REIT II, Inc. The REIT reported that it was unable to file its quarterly report for the quarter ending June 30, 2024, due to Frazier & Deeter, LLC (its independent auditors) requiring additional time to complete their review of the REIT’s interim financial statements and related disclosures to be included in the Form 10-Q. For more information: CLICK HERE and CLICK HERE Silver Star Properties REIT, Inc. The REIT reported that it was unable to file its quarterly report for the quarter ending June 30, 2024, due to the resignation of the REIT’s independent registered public accounting firm. The REIT noted it is in the process of engaging a new accounting firm, but until a new firm is engaged, the filing of the quarterly report will be delayed. Silver Star’s most recent quarterly report was filed in November 2023, for the quarter ending September 30, 2023. The REIT previously announced in January 2024 that it had engaged WithumSmith+Brown, PC (Withum) to serve as its independent audit firm only for Withum to decline appointment a week later. For more information: CLICK HERE   ALTERNATIVE RAMBLINGS Room With a View Photo courtesy of Nick Halter/Axios. Hines completes 353-unit multifamily building with a great view of the home of FactRight’s favorite team, the Minnesota Twins. More info on the project is available here. Multifamily outlook Nick Rosenthal, co-CEO of Griffin Capital, has an insightful outlook on the multifamily sector available here.  In a nutshell, solid multifamily operating fundamentals, increasing institutional allocation into the sector, a tightening credit market and favorable supply-demand dynamics present a solid outlook on the sector.  This, coupled with expectations that we are at the close of an interest rate hike cycle, may present an inflection point. One key area we are focusing on is the new supply dynamics within the sector.  The following chart in the Griffin’s multifamily outlook, from CoStar, highlights the drop in multifamily unit deliveries to decade-low levels, a byproduct of the increase in interest rates beginning in 2022, while also noting general stability and growth in asking rents. This trend is further corroborated by other data sources and commentary as well, including YardiMatrix further downwardly adjusting its multifamily supply forecast for 2026 and 2027.  Yardi anticipates new supply will bottom in 2026. All signs seemingly point to a robust environment for multifamily landlords in the medium term. Citius, Altius, Fortius! Part Deux What an inspiring set of performances from Team USA at the Olympics this past month.  A couple of notable performances that caught our attention: Olympic immortality attained by American Cole Hocker in the 1500m as he catches heavy favorites Jakob Ingebritsen and Joshua Kerr on the final turn to win the gold. Many commentators noted this may have been one of the greatest races of all time. American Kristen Faulkner (who did not competitively ride a bike until she was 25!) captured gold in the Women’s Road Race seemingly out of nowhere. Ms. Faulkner was a late alternate in the event and rode past Marianne Vos, regarded by many as the greatest female cyclist of all-time, after tracking her down with 3km to go. She went on to win by almost a minute.

REITS SILA Realty Trust (NYSE: SILA) Announces Results of $50 Million Dutch Auction Tender Offer  Sila reported that it completed the tender offer by purchasing 2.2 million shares of common stock at a price of $22.60. The final pricing came in at the lower bound of the $22.60 to $24.00 tender offer range, as the tender offer was oversubscribed with 4.7 million shares validly submitted for repurchase. Tendering shareholders had 42% of their respective tenders purchased by SILA, likely adjusting for certain odd lot tender offers. Sila noted that the tender offer retired 3.9% of the then-outstanding common stock. Following the conclusion of the tender offer on July 19, Sila common stock has traded within the range highlighted in the chart below. Sila common stock was listed on the NYSE on June 13, 2024. We previously reported on the tender offer here. For more information: CLICK HERE Ashford Inc. (formerly NYSE: AINC) Effects Reverse Stock Split and Delisting as Part of Previously Announced Plan to Take the Company Private On July 29, Ashford completed the 1-for-10,000 reverse stock split of its common stock. Following the reverse stock split, Ashford common stock will no longer be listed on the NYSE American Stock Exchange. Ashford previously provided an outline for the plan earlier in 2024, which we reported on here. For more information: CLICK HERE Alternative Ramblings Hamilton Lane Private Wealth Survey Finds 70% of Respondents Plan to Increase Allocations to Private Markets The private investment manager reported in its survey of 230 global investment advisors that approximately 90% of advisors were already allocating to private markets and that 70% of the advisors planned to expand allocations to private markets in the coming years. Hamilton Lane reported that educational gaps with clients presented a barrier to further allocations, as survey respondents noted that approximately 50% of advisors rate their clients’ familiarity with private investments as “de minimis with little to no knowledge.” Inspired by the need for additional educational materials to create greater awareness amongst investors and expand the universe of investors in private investments, stay tuned for our forthcoming children’s book, My Little Private Equity. Gather round children for an inspirational tale about an entrepreneur who dreamed big and built an empire focused on repositioning Class B and C retail strip centers in inner ring suburbs and urban infill environments. After navigating obstacles including defaulting tenants, renovation cost overruns, leaky roofs, disputes related to common area maintenance, and a rising interest rate environment…they lived happily ever after with the sale of the portfolio to Blackstone. New York Office Property Subject to Ground Lease Sells for Pennies on the Dollar of 2006 Sale Price The New York Times reports that 135 West 50th Street, a 23-story Manhattan office building, was sold at a 97.5% discount to its previous sale price of $332 million 18 years ago. The office property built in 1963 changed hands at $8.5 million in an auction this past week. The building was sold by a private investment fund managed by UBS Realty Investors and details on the buyer were not available. Occupancy of the building was reported as approximately 35%. One major factor driving down the auction price was that the sale was for the building alone, as the land is held by Safehold (NYSE: SAFE) a REIT that focuses on ground leases. The ground lease on the building runs through 2123 and features rent increases every 5 years, and current rent from tenants is not enough to cover the lease payments, per the New York Times.  Safehold reported in its July 30, 2024, earnings call when asked about the pending auction that: The building has benefited from a lot of investment, and we do think the New York Midtown market is recovering pretty well. So let’s see how that process plays out. I think it’s fair to say our ground lease should be viewed as very effective capital by an owner, but it’s premature to speculate exactly how that one will end up. A low dollar price does not impact us. But obviously, we’re more focused on long-term value preservation. So as we do with all ground leases, we’re looking to maximize long-term value. So we’re watching that process closely. Invitation Homes (NYSE: INVH) Settles California Case Over Non-Permitted Improvements for Approximately $20M The Los Angeles Times reports INVH reached an agreement to settle a qui tam action. The complaint alleged that the company utilized contractors that failed to pull building permits on certain home improvements, including demolitions, electrical and plumbing repairs, and swimming pool construction.  INVH previously noted that it believed the complaint was without merit. The company will pay a total approximately $20 million to settle the dispute, thereby fully releasing it without any admission of liability. Invitation Homes owns approximately 84,000 homes for rent across the country. California Not Forever? Group Behind Major Solano County Development Pulls Ballot Initiative for Development Politico reports on the recent news pertaining to the major development named the California Forever project seeks to build a walkable community that could accommodate up to 400,000 residents on 20,000 acres of Solano County farm fields. Organizers noted that they anticipate bringing the proposal back to the ballot for zoning approval in 2026. Some initial polling suggested significant voter opposition to approving the plan. Perhaps pushing the vote outside of a high turnout presidential election year cycle is a more optimal strategy. Citius, Altius, Fortius! The Weekly Update salutes some of the exceptional performances in the Paris Olympic Games. Simon Biles returns to the pinnacle of gymnastics winning the individual all-around title following gold with her teammates, including Minnesota’s own Suni Lee! Katie Ledecky continues to increase her medal count, adding three medals in Paris to the ten she previously won in London, Rio, and Tokyo. She’s well on her way to GOAT status! Briton Alex Yee finished strong in the final few hundred meters of the men’s triathlon to overtake New Zealand’s Hayden Wilde claim the gold in dramatic fashion. And this photo taken by Agence France Presse photographer Jerome Brouillet….. As it stands, Team USA leads the overall medal count and with the track and field events slated to begin, we should really lap the competition. The only thing missing was French group Daft Punk not reuniting to participate in the opening ceremonies, although they have a song tailor made for the Olympic spirit.

REITS Silver Star Announces Acquisition of Walgreens Stores and Self-Storage Assets and Continued Progress in Transition to Self-Storage Focus The REIT announced that it recently acquired 16 Walgreens stores for $60.25 million and three self-storage properties for $40.75 million. The REIT further expects to close on three other self-storage properties by the end of the third quarter. The REIT reported that it has 20 remaining legacy assets which it intends to sell as soon as reasonably possible. Silver Star has noted that upon transition it will have approximately $350 million in self-storage and single tenant real estate assets, with an estimated loan-to-value ratio of approximately 65%. The Company reported that excluding Southern Star DST assets, it currently has $100 million in self-storage and single tenant real estate assets. The REIT further noted that it continues to evaluate opportunities related to its wholly owned subsidiary Southern Star Investment Management, which may include additional DST offerings to investors and a $1 million loan to Southern Star. The REIT noted that an independent trustee of Southern Star DSTs would negotiate terms of the loan on behalf of Southern Star, as Southern Star is under the direct oversight of Silver Star executives David Wheeler and Gerald Haddock. Southern Star, which had sponsored self-storage focused DSTs, was acquired from former CEO Mark Torok in a multi-phase transaction in 2023. Silver Star appointed David Wheeler to oversee Southern Star in as it evaluated strategic options with the subsidiary Silver Star further noted that the Circuit Court for Baltimore City denied former CEO Allen Hartman’s motions to force a liquidation of the REIT. Mr. Hartman previously urged the Company to liquidate its assets and distribute proceeds to investors as opposed to liquidating legacy assets and redeploying them into self-storage assets. The Company is currently late on its 2023 annual report on form 10-K, as it continues to search for a new auditor.  The Company also reported that it is subject to an SEC investigation in February 2024. We have previously reported on developments at Silver Star here, here, and here. For more information: CLICK HERE Sila Realty Trust Modified Dutch Tender Offer Closes Today Sila shares were listed on the New York Stock Exchange on June 13, 2024.  Sila has offered to repurchase $50 million of common stock in a modified Dutch tender offer in a range of $22.60 to $24.00, the offer expires and prices today July 19, 2024. We previously reported on this matter here. The Company will determine the price at which it will purchase shares, and any tender offers submitted at prices below the price determined by the Company will be acquired at its determined price. Sila has a market capitalization of approximately $1.3 billion as of close July 18, 2024. Shares have generally traded slightly below the lower end of the range since listing as highlighted in the chart below.

 

The board of directors further authorized a monthly distribution for August 2024, at an annualized amount of $1.60 per share (approximately 7.1% annualized distribution rate, based on the July 18 closing price).

For more information: CLICK HERE

Braemer Hotels & Resorts Announces Close of Sale on the Hilton La Jolla Property for $165 Million, Evaluates Sale of Two More Hotels

The REIT reported that the sale price, including anticipated capital expenditures of $40 million, represents a 7.2% capitalization rate for trailing 12-month net operating income for the period ending March 31, 2024.  Braemar continues to evaluate the sale of two more hotels. The Company previously noted on its earnings calls that it would retire remaining 2024 debt maturities with proceeds from the sale and use remaining proceeds for other corporate purposes.

For more information: CLICK HERE

Alternative Ramblings Private Credit Trends Private credit stress and yields on syndicated leverage loans are moving up as the credit cycle continues to mature per a recent report from PIMCO.  A key insight in the deck has been the continued decline in coverage ratios for borrowers in the private credit market as highlighted in the chart below.  One would expect deterioration of coverage in light of material increases in interest rates but with approximately 40% of issuers with coverage ratios under 1(x), something has to give as these metrics are not sustainable long-term. Oaktree Capital recorded some insights from their 2024 conference. The recording is a great primer on some of the more recent developments in the private credit space. One keen insight is that in the private credit markets, lenders are actually inserting certain substantial protective covenants again, especially after any distressed exchanges have occurred.  This is in contrast to the broader trend in the syndicated leveraged loan markets of continuous erosion of covenant protections, where covenant-lite became the standard. Venture Capital Formation Off to Slowest Pace in a Decade Global VC fundraising on track for worst year since 2015 – PitchBook A tepid IPO market, down rounds, and a lack of meaningful exits has cramped up the commitments from investors into the sector. The following highlights Global VC fundraising activity and fund launches over the past decade. Mid-Summer Classic As we hit the mid-Summer classic, a quick gander at the baseball standings shows that FactRight’s favorite Minnesota Twins are in the thick of it with a 54 win and 42 loss record at the turn.  The Twins sit 4.5 games behind Cleveland in the American League Central and are second in the Wild Card standings a half game in front of the Boston Red Sox.  A peak at the senior circuit reveals that all but two teams (sorry Colorado and Miami this is not your year) are within 6 games of the wild card spots setting the stage for an exciting run-in.  There is still a lot of baseball left to play, we’ll check back in around Labor Day.

Happy Independence Day! Bonds Beneficient (NASDAQ: BENF) Reports SEC Terminates Investigation On July 2, 2024, Beneficient reported that the SEC issued a letter to Chairman and CEO Brad Heppner, advising that the SEC has concluded its investigation and does not intend to recommend an enforcement action by the SEC under the previously issued Wells Notices. Beneficient subsequently reported that it would be unable to timely file its annual report for the fiscal year ending March 31, 2024. Beneficient postponed its earnings call originally scheduled for July 2, 2024, and will provide an update about rescheduling the call. BENF stock increased substantially on the news more than doubling in the next trading session to its previous closing price. BENF began trading on the Nasdaq in June 2023, following a SPAC merger announced in 2022Q3. GWG Wind Down Trust owns 154.8 million shares in BENF common stock, representing 60% of BENF’s outstanding common stock, according to its most recent Form 13D. BENF most recently reported that it had over 257 million shares of common stock outstanding and certain other securities convertible into common stock. For more information: CLICK HERE and CLICK HERE

REITS Healthcare Trust Inc. Announces Rebranding to National Healthcare Properties and Intent to Internalize Management The REIT announced that it anticipates completing an internalization no later than the fourth quarter of 2024 and completing a listing of its common stock on a national securities exchange “as early as 2025”. Healthcare Trust currently has two series of preferred stocks listed on the Nasdaq Global Market. Pricing dynamics on the prospective internalization transaction were not reported and will be subject to future definitive agreements. Healthcare Trust owns 208 properties, consisting predominantly of medical office buildings and senior housing operating properties, comprising 9.1 million rentable square feet and reported total assets of $2.1 billion as of 2024Q1. The REIT most recently reported an estimated NAV per share of $13.00 per share. The REIT originally was formed in 2012 as American Realty Capital Healthcare Trust II, Inc. and offered stock at $25.00 per share. The REIT raised approximately $2.0 billion in offering proceeds from its initial public offering. As we’ve reported before in recent weeks the healthcare sector, along with data centers, has generally traded in positive territory compared to consensus NAV estimates in recent months, whereas most real estate sectors have been trading at discounts. For more information: CLICK HERE and CLICK HERE Braemar Hotels & Resorts Announces Cooperation Agreement with Activist Blackwells Capital LLC The hospitality REIT announced that they have reached a cooperation and standstill agreement with Blackwells Capital LLC.  Braemar reported that under the cooperation agreement Blackwells has agreed to withdraw its director nominations and proposals, cease soliciting proxy votes, and that it will vote in favor of Braemar’s director nominations and proposals at the 2024 annual meeting of stockholders. Additionally, Braemar and Blackwells have agreed to release all legal claims and dismiss their respective actions against each other.  Braemar further reported that Blackwells has committed to purchase 3.5 million shares of Braemar’s stock in the open market, financed in part by Braemar.  Braemar will finance Blackwells purchases of shares under a loan agreement with an interest rate of One-Month SOFR +300 basis points and certain other fees that matures July 2029.    Blackwells has also agreed to a multi-year standstill agreement with certain voting commitments. Blackwells began an activist campaign earlier in 2024 on Braemar proposing to nominate four directors to its board.  Braemar emphatically rejected Blackwells’ proposed nominees.  We reported on this here. For more information:  CLICK HERE

Alternative Ramblings Wealth Management Trends Zachary Milam from Mercer Capital has a great article on trends within the broader RIA market. The following chart highlights the continued growth in the number of RIAs, the general uptick in RIA M&A activity, and the reduction in total broker-dealers in the marketplace, over the past decade. The article cites client preferences towards the advisory model compared to the brokerage model. Here at FactRight, we continue to see a noticeable uptick in RIA interest in alternative investment products over the last half decade and an increasing number of investment vehicles we are conducting diligence on are oriented exclusively for the RIA channel. Liquid(ity) Courage The WSJ reports on concerns that liquidity pressures at major non-traded REITs may be a significant headwind on capital raising for peers. We previously reported on Starwood REIT’s modifications to its share repurchase program here. In the aftermath of the reduction in liquidity, Hines, Inc. chief investment officer, David Steinbach noted “How it could sour investor appetite is our biggest risk”. The WSJ further reports: “There’s been some news based on this [Starwood] dynamic,” Jonathan Gray, Blackstone’s president, said at an investor conference in late May. “That creates some increase in redemptions, but nothing like what we experienced back in the beginning of 2023.” With redemptions greatly exceeding fundraising, the total asset value of the funds has fallen to $90 billion from their peak of close to $110 billion last year, according to Stanger. “It will be the middle of next year before they’re raising more than they’re redeeming,” Keving Gannon CEO of Robert A. Stanger, predicted. Indeed, inverted capital raises on these investment vehicles can’t persist indefinitely without asset sales into a tepid market, additional leveraging or reductions in liquidity. Quick Hits iShares for Private Markets? BlackRock Acquires Preqin in $3.2 Billion Deal: Seeks to Index Private Markets  BlackRock CEO Larry Fink says deal could lead to indexing private markets for investors. Florida Governor Rejects Statewide Laws Preempting Local Short-Term Rental Regulations Florida declines to adopt state-wide rules in favor of the existing patchwork of local regulations on short-term rentals.

REITs Ashford Hospitality Trust (NYSE: AHT) Closes Hotel Sale and Provides Update on Strategic Financing and Leverage The hospitality REIT reported that all proceeds from the $87 million sale of the One Ocean Resort in Atlantic Beach, Florida were used for debt reduction and general corporate purposes and that following the repayment of certain debts from the sale, its net debt to gross assets was approximately 66% (a 400-bps reduction from the beginning of 2024). AHT further reported that $98 million remained on its strategic financing with Oaktree entities, as it continues to pay off the strategic financing. AHT noted that it had raised $139 million in gross proceeds from its non-traded preferred stock offering. For additional information: CLICK HERE and CLICK HERE

Alternative Ramblings Oaktree Credit Markets Update WSJ Reports on Concerns that Liquidity Issues at Major REITs may be a significant headwind on capital raising for peers. CIQ Pro: A Real-Estate Fund Industry Is Bleeding Billions After Starwood Capped Withdrawals — WSJ (spglobal.com) Florida State Regulation Preempting Local Short-Term Rental Vetoed by Governor DeSantis Vetoes Bill on Short-Stay Rental Regulations (globest.com) What’s in Your Returns? Institutional Investor has a great article detailing performance reporting in the increasingly popular private equity secondary fund segment. Generally, a secondary transaction on an existing private fund will price at a discount (perhaps 70-95 cents on the dollar) to the private fund’s reported net asset value.  Once the secondary transaction closes, the acquiring secondary fund will report its new investment to its limited partners at the that fund’s reported net asset value as opposed to its initial cost (the 70-95 cents on the dollar), thereby creating an immediate bump (unrealized gains on investments) in reported performance.  All of this is permitted under the Financial Accounting Standards Board guidance, and it can make up a significant portion of the reported returns with Institutional Investor noting that sources from Hamilton Lane indicated that “some 30 percent of the gain in secondaries’ funds is due to the “pop” that the accounting treatment allows”.  Given that illiquidity is a structural component of many alternative investment programs, and theoretically worthy of a premium for investors, this begs the question of how else would such secondary investment funds report the value of their portfolio? Funds in the alternative investment landscape are heavily reliant on passing through reported NAVs from their respective investment fund general partners.  Perhaps some accretion of the discount over time, or utilizing any GP-led transaction pricing as a gauge, or an analysis of liquidity mechanisms at the fund in question may provide greater insight into how useful or accessible the NAV may be to investors. Or maybe, as is often a good rule of thumb, one should look at their holdings of illiquid investments as within a range of values above or below the reported NAV.

REITs Sila Realty Trust Common Stock Begins Trading on the NYSE and Prices Modified Dutch Auction Tender Offer  The share of Sila Realty Trust (formerly known as Carter Validus Mission Critical REIT II) began trading on the NYSE on Thursday, June 13, under the ticker symbol “SILA.” As we previously reported, the Class I, Class T, and Class T2 common stock were automatically converted into Class A common stock on a one-for-one basis and the company was not raising additional capital via a public offering concurrent with the listing. Sila recently announced pricing on a $50 million modified Dutch auction tender offer in which the company will buy all tendered shares at the lowest price per share within a range of $22.60 to $24.00. This compares to a previously reported estimated NAV per share of $29.92. This tender offer will allow for the purchase of up to $50 million in outstanding common stock. If shares tendered for redemption exceed $50 million, the shares will be repurchased on a pro rata basis. The deadline to submit shares under the tender offer is July 19, 2024. Sila most recently reported $2.1 billion in total assets in 136 properties across various medical office building niches, with 5.3 million rentable square feet and 2 undeveloped land parcels. Sila reported a net leverage ratio of 20.5% (accounting for its adjusted fair value estimate of its real estate investments) and no debt maturities until 2028. The REIT raised approximately $1.5 billion in proceeds from the offering of its various share classes, which closed in 2018. Sila’s market capitalization based on the close of trading on June 20, 2024, was approximately $1.2 billion. The company materially limited its share repurchase program in April 2020 to allow for share repurchases only for shareholder hardship, including death and disability. The following chart highlights the trading range for Sila shares since the listing on June 13.

Recently, healthcare real estate assets have been one of the few bright spots in the publicly traded REIT landscape, with healthcare REITs trading at a slight premium to consensus NAV estimates, as highlighted in the following chart from S&P Capital IQ.

For more information: CLICK HERE and CLICK HERE

Private Offerings CAI Secures Financing Extension For Westin Tempe Hotel A link to a recent webinar outlining terms of the financing, discussion of future liquidity plans, and other material developments related to the Westin Tempe hotel is available here. Phoenix area media previously reported that the hotel was scheduled to be auctioned in a foreclosure sale originally scheduled for April 2024, which was subsequently delayed.

REITs Moody National REIT II Reports NAV per Share Decline of 11.3% and Update on Capital Markets Activity Brett C. Moody, the CEO of Moody National REIT II, provided an update on the REIT on June 6, 2024. The REIT reported a decline in NAV per share from $19.45 as of December 31, 2022, to $17.25 as of December 31, 2023. Appraisals supporting the updated NAV per share were performed by Kendall Realty Consulting Group, LLC. The REIT reported that RevPAR increased 5.6% in 2023 to $99.54, lagging behind pre-pandemic levels of $108.29 in 2019. Mr. Moody stated that pending maturities in 2024 and anticipated increases in interest rates of approximately 300 to 500 basis points on refinancing activity would likely weigh on the REIT’s performance. Approximately 38% of the REIT’s $228 million in outstanding indebtedness, as of March 31, 2024, is scheduled to mature in 2024. Management further guided that any reinstatement of shareholder distributions and the share redemption program would be considered when operational cash flow begins to cover the REIT’s operational expenses, including deferred mortgage payments, payroll, and paying back a $50 million loan from Moody National Capital, LLC. The REIT previously suspended distributions and its share repurchase program in April 2020 at the onset of the COVID-19 pandemic. The REIT owns a portfolio of 15 hotels and reported total assets of $412 million as of 2024Q1 with total liabilities of $304 million. For more information: CLICK HERE Vinebrook Homes Trust, Inc. Changes Auditor from EY to KPMG Vinebrook reported the change on June 7, 2024.  EY provided clean audit opinions of Vinebrook’s financial statements included in each of the REIT’s annual reports for 2023, 2022, and 2021.  The board of directors subsequently appointed KPMG as Vinebrook’s independent accounting firm.  Vinebrook is managed by Nexpoint Real Estate Advisors V, L.P. KPMG serves as auditor for other public investment vehicles managed by NexPoint affiliated entities including NexPoint Residential Trust Inc. (NYSE: NXRT), NexPoint Diversified Real Estate Trust (NYSE: NXDT) and NexPoint Real Estate Finance, Inc. (NYSE: NREF). Vinebrook reported that it owns over 23,000 single family rental homes as of 2024Q1 with total assets of approximately $3.5 billion.  Vinebrook has reported some very strong results since it began operations in 2018 with a $25.00 per share private offering as the REIT most recently reported a NAV per share of $57.99 as of 2024Q1. For more information: CLICK HERE Alternative Ramblings SEC Private Fund Rule Rejected by 5th Circuit Court The WSJ reports on the ruling that would have required greater disclosure from private equity and hedge funds. A summary of key provisions of the rule is available here. The Institutional Limited Partners Association was critical of the ruling with ILPA CEO Jennifer Choi noting: “ILPA has viewed the Private Fund Advisers rules as effectively addressing three primary factors that pose actual and meaningful risks to private equity investors: lack of transparency, conflicts of interest, and the lack of effective internal governance mechanisms to protect the capital managed by private funds – which is provided in large part by hardworking public employees, like teachers, firefighters, and police officers. With today’s ruling, and the absence of minimum mandated standards, private funds will be under no obligation to provide critical information related to the fees and expenses charged to fund investors and meaningful performance information, leaving LPs to negotiate for terms that should be common sense. We are also disappointed that the Fifth Circuit did not acknowledge the SEC’s longstanding authority to protect private market investors.” Private Credit State of the State One of our favorite podcasts, the Business Breakdowns series by Tegus, has a two-part series on developments in the private credit space and the expansion of this market since the Great Recession. The series includes interviews with executives at Oaktree and highlights the evolution of product structures, loan structures, and how the regulatory environment including Dodd-Frank and now Basel III are expanding private credit opportunities (notably at the expense of traditional banks). Highly recommended for those invested in or exploring this expanding market. More information is at the link below. Business Breakdowns: The Evolution of Private Credit on Apple Podcasts  Texas Two Step: Stock Exchange Plan Has Prominent Backers Move over New York, Texas may enter the picture as a viable competitor in the exchange business. S&P Capital IQ notes: A group of investors, including BlackRock Inc. and Citadel Securities LLC, is backing a plan to put up a new national stock exchange in Texas that takes aim at what they see as severe rules at Wall Street’s New York Stock Exchange and Nasdaq, TheWall Street Journal reported. The Texas Stock Exchange has raised about $120 million in funds from individual and large investment firms and plans to register with the US Securities and Exchange Commission later this year, the report said, citing TXSE Group Inc. CEO James Lee. The goal is to begin facilitating trades in 2025 and host its first listing in 2026, according to the report. This exchange news is coming on the heels of the establishment of the Texas Business Court system designed to provide specialized courts, with commercially focused judges, to handle certain cases and controversies including corporate governance and civil litigation matters over $5 million.  The business courts are designed to attract additional corporate organization and relocation into the Lone Star state and challenge incumbent corporate domiciles such as Delaware and Maryland. While Dallas is the headquarters of the proposed exchange, as far as the physical location of a trading floor in the electronic age…..rumors spreading round……but now I (and ZZ Topp) might be mistaken.

REITs Sila Realty Trust Announces Listing on NYSE Expected June 13, 2024 Sila, formerly known as Carter Validus Mission Critical REIT II, announced that it expected shares of its Class A common stock would begin trading on Thursday June 13, 2024, under the ticker symbol “SILA”. Upon the listing all outstanding shares of Class I, Class T and Class T2 common stock will automatically convert into Class A common stock on a one-for-one basis. Class A common stock will then be the only class of common stock outstanding. Sila is not offering any additional shares as part of the listing transaction. Sila reported that in effort to support the initial trading price of the common stock upon the listing, it expects to commence a $50 million modified “Dutch Auction” tender offer at a price range to be determined at a future date. Sila most recently reported an estimated NAV per share of $29.92 (adjusted for a one-for-four reverse stock split that was effective May 1, 2024). Sila has guided that the trading prices upon listing may be significantly lower or higher than the estimated NAV per share. Sila most recently reported $2.1 billion in total assets in 136 properties across various medical office building niches with 5.3 million rentable square feet and 2 undeveloped land parcels. Sila reported a net leverage ratio of 20.5% (accounting for its adjusted fair value estimate of its real estate investments) and no debt maturities until 2028. Sila raised approximately $1.5 billion in proceeds from the offering of its various share classes, which closed in 2018. Sila completed an internalization transaction of its external advisor in 2020 in exchange for $40 million in cash, which was payable over a period of three years. On April 15, 2024, Sila’s board of directors approved a daily distribution of $0.00437158 per share (this equates to an annualized distribution of $1.60 per share adjusted for the reverse stock split, and a 5.3% annualized distribution based on the adjusted estimated NAV per share as of December 2023) for shareholders of record on May 1, 2024, to be paid in June 2024. FactRight previously reported on SILA’s efforts list the common stock here and here. For additional information: CLICK HERE and CLICK HERE Healthcare REITs remain one of the more favored sectors among a generally weak publicly traded REIT market. Data from S&P Capital IQ indicates that the 14 listed healthcare-oriented REITs traded at a 1.0% discount to consensus NAV estimates, compared to the 19.1% discount for all U.S. REITs. Additionally, six of the 14 healthcare REITs S&P Capital IQ tracks were trading in the top 10 premiums to consensus NAVs as of April 30, 2024. Such a backdrop, coupled with the 5.4% annualized distribution rate, may provide a more favorable trading environment for Sila shares upon their listing. However, Sila previously limited its share repurchase program, in April 2020, to repurchase shares only for shareholder hardships including death and disability, so one would expect there may be some substantial shareholder liquidity demands upon the listing.

REITs Starwood Real Estate Income Trust (SREIT) Reduces Quarterly Shareholder Redemption and Waives Portion of its Asset Management Fee Beginning in May 2024, SREIT will limit monthly share repurchases to 0.33% of outstanding NAV and limit quarterly redemptions to 1% of outstanding NAV, marking a reduction from the previous 2% monthly and 5% quarterly repurchase limits. In addition to amending the share repurchase plan, SREIT will also waive 20% of its asset management fee (from 1.25% of NAV to 1.0% of NAV) as long as the share repurchase reduction is in place. In a shareholder letter, SREIT guided that it expects the reduction in the share repurchase plan will be temporary and that redemptions would likely be at the reduced level for approximately 6 to 12 months. The REIT further guided that an anticipated lower interest rate environment and improved real estate capital markets conditions may create conditions for the REIT to make asset dispositions, and that it is considering other potential liquidity options. Starwood has taken all management and performance fees in operating partnership units since inception, as opposed to cash, and currently holds approximately 5% of outstanding shares of the REIT. SREIT confirmed that it is maintaining its 5.4% annualized distribution rate on Class I shares throughout the period of reduced shareholder liquidity. SREIT reported total assets of $22.7 billion and outstanding indebtedness of approximately $14.9 billion as of March 31, 2024. Its real estate portfolio is allocated predominantly to multifamily (67% of total portfolio investments at fair value), industrial (13%), office (7%) and real estate loans (6%). SREIT has a weighted average duration of outstanding debt of 4.3 years and reported that only 7% of its outstanding debt is scheduled to mature by the end of 2025. In April, SREIT announced that it had commenced operations on offering up to $1.0 billion in beneficial interests in DST offerings to investors seeking to facilitate a 1031 exchange. For more information: CLICK HERE Ares Industrial Real Estate Income Trust (AIREIT) Announces Perpetual Private Common Stock Offering and Will Close Public Offering in July 2024 AIREIT announced that it intends to commence a perpetual private offering of multiple classes of common stock, including through a distribution reinvestment plan. In conjunction with the announcement, AIREIT reported that it will close its public primary offering of shares effective July 2, 2024. AIREIT noted that it was not currently considering a liquidity event and would remain an active buyer of real estate assets. AIREIT further guided that the close of the public offering was “not reflective of adverse developments at the Company or an unfavorable view of the real estate fundamentals.” AIREIT will continue to file reports as a public reporting company, and shareholders who purchased shares in the public offering will continue to have access to AIREIT’s share redemption program, according to public filings. AIREIT reported total assets of $7.4 billion and total liabilities of $5.4 billion in its most recent quarterly report. The company owns 252 industrial properties comprising over 53 million square feet.

Alternative Ramblings CaliberCos Inc. Receives De-Listing Notice from Nasdaq On May 14, 2024, CaliberCos Inc. reported that due to its stock price trading below $1.00 for 30 consecutive business days, it had received a letter from Nasdaq indicating that it was not in compliance with Nasdaq minimum bid rules for continued listing on the Nasdaq Capital Market. Caliber reported that it has a 180-calendar day grace period through November 11, 2024, to regain compliance with the $1.00 minimum bid requirement. Additional grace periods may be permitted under certain circumstances. Caliber’s current report with the SEC suggests that a reverse stock split may allow Caliber to regain compliance with the listing requirements. However, no other information or other guidance on a prospective reverse stock split was reported. Caliber indicated that if it was unable to regain compliance or obtain additional grace periods from Nasdaq that it expects the common stock would be traded on one of the marketplaces of the OTC Markets Group. Caliber shares have traded down from their initial public offering in May 2023. Caliber issued 1.2 million shares at $4.00 per share in the initial public offering. We reported on the initial listing here. Caliber is a vertically integrated real estate developer and manager specializing in private syndications. Caliber reported total assets of $201 million as of March 31, 2024, with total outstanding debts of approximately $101 million. Caliber’s market capitalization was approximately $22 million as we went to press.

 

For more information: CLICK HERE 

Happy Memorial Day

Greenbacker Suspends Distributions Through 2024 and Provides Broader Strategic Outlook Greenbacker Renewable Energy Company reported in a shareholder letter that it was suspending its distribution for the remainder of 2024 in order to allocate more capital to complete construction of certain projects, including what the company reported as the largest solar project in the state of New York. Management has guided that the company will likely need to invest over $800 million to complete its project pipeline. Greenbacker also reported that it was seeking to sell off certain non-core assets and recycle the capital for reinvestment or return it to shareholders in the form of future distributions or share repurchases. Greenbacker suspended its share repurchase program, with exceptions for certain hardships including death and disability, in September 2023. Greenbacker guided that it anticipates these measures will allow for enhanced revenue generation in the future. Greenbacker forecasted 2027 total operating revenue exceeding $350 million. The company’s 2023 reported operating revenue totaled $181 million. Greenbacker reported total assets of $3.5 billion and outstanding liabilities of $1.6 billion as of its most recent quarterly report. The company also anticipates opening up additional investment opportunities for existing investors, including a potential rights offering for shareholders to purchase additional shares at a discount through a prospective future private offering. Greenbacker also reported a NAV per share of $7.725 for Class A Shares as of May 1, 2024, a decrease of 0.8% from the previously reported NAV per share as of April 1, 2024.  Class A Shares were originally offered at $10.00 per share. An analysis of NAV trends and distribution trends is available here. Greenbacker announced an internalization transaction of its external manager in May 2022. The transaction was valued at up to $300 million.  We reported on this here. For more information: CLICK HERE

REITs Ares Real Estate Income Trust (AREIT) Announces Perpetual Private Common Stock Offering and Closes Public Offering AREIT announced that it intends to commence a perpetual private offering of multiple classes of common stock, including a distribution reinvestment plan. In conjunction with the announcement, AREIT reported that it will close its public primary offering of shares effective July 2, 2024. AREIT noted that it was not currently considering a liquidity event and would remain an active buyer of real estate assets. AREIT further guided that the close of the public offering was “not reflective of adverse developments at the Company or an unfavorable view of the real estate fundamentals.” AREIT will continue to file reports as a public reporting company, and shareholders who purchased shares in the public offering will continue to have access to AREIT’s share redemption program. AREIT reported total assets of $4.7 billion and total liabilities of $3.6 billion in its most recent quarterly report. The company owns 99 properties across the residential, industrial, retail, and office sectors. For more information: CLICK HERE and CLICK HERE

Alternative Ramblings Up to the Great Smoking Lounge in the Sky: Jim Simons Founder of Renaissance Technologies Passes Away  Jim Simons, quantum physicist, mathematician, and noted founder of hedge fund Renaissance Technologies, recently passed away. Mr. Simons won the Veblen Prize in 1976, an award that signifies the highest level of achievement in the field of geometry. We note that Mr. Simons, an enthusiastic smoker, expired at the ripe age of 86, beating the actuarial table for all males, let alone those who partake in the aromatic combustion of the leaf. Renaissance Technology, founded in 1978, is one of the most successful hedge fund managers of all time, with a track record of success that may be unrivaled within the hedge fund universe.  Its flagship Medallion Fund averaged close to a 70% annual return (before fees) since 1988 per Bloomberg.  Net of fees, others have reported annual returns of approximately 39% per year since 1988, according to Gregory Zuckerman’s book The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution. Renaissance is famous for not focusing its hiring on finance people or those with Wall Street experience. Instead, the firm actively recruits individuals with backgrounds in mathematics and the sciences. Much of due diligence is trying to get a clear understanding of a manager’s “special sauce” or the edge they may have in their targeted area of investment over others.  In the case of Renaissance, this essentially boils down to the firm constructing sophisticated computer algorithms that process myriad data feeds, find interesting relationships within the data, and produce actionable investment ideas on specific securities. Simons has noted, perhaps tongue in cheek, that they may not understand why the computer wants to make a specific trade but “The only rule is that we never override the computer. No one ever comes in any day and says the computer wants to do this and that’s crazy and we shouldn’t do it….So you just stick with it, and it’s worked.” And if you were lucky enough to get an opportunity to invest, we hope you did, as $1,000 invested in 1988 would be in the tens of millions of dollars today.  However, Simons closed the fund to outside investors in 1993 and it has been solely for existing investors and employees since. A man with a sense of adventure, Mr. Simons went on a motor scooter road trip from Boston to Bogota following graduation from MIT in 1958, wherein he and his budget conscious traveling companions’ favored accommodations included jails in Central America.

REITs CORRECTION: Sila Realty Trust Announces Plans to List Common Stock on the New York Stock Exchange in Late Second Quarter or Early Third Quarter  We previously reported in error that Sila Realty Trust was seeking to list its common stock on May 1, 2024. However, the company publicly disclosed its intentions to list the common stock late in the second quarter or early in the third quarter. The company executed a 1-for-4 reverse stock split and terminated its distribution reinvestment program on May 1, 2024. We sincerely apologize for the error in our prior reporting. Braemar Hotels & Resorts (NYSE: BHR) Announces Sale of Asset, Repayment of Certain Debts, Authorizes Common Stock Buyback and Preferred Stock Redemptions BHR reported that it had reached an agreement to sell its Hilton La Jolla Torrey Pines property for $165 million. BHR noted that inclusive of $40 million of capex related to the property, the transaction is priced at a 7.2% cap rate based on T12 NOI. The sale is anticipated to close in the third quarter. BHR further reported it is considering selling two other hotels within its portfolio likely later in 2024 or 2025. BHR announced that it had repaid a $30 million loan on its Cameo property, and that asset is now unencumbered. BHR reported that it had refinanced or paid off all its pending 2024 debt maturities. The company also announced that it plans to redeem $50 million in outstanding non-traded and traded preferred stock, utilizing proceeds from the sale of the Hilton Torrey Pines property. Additionally, BHR’s board of directors authorized a common stock repurchase plan of up to $50 million. Share repurchases will begin as soon as practicable and may be consummated through open market transactions, privately negotiated transactions, or other means.  CEO Richard Stockton noted that these preferred stock redemptions, debt repayments, and share buybacks were designed to reduce the company’s dividend and interest expense, enhance its capital structure, provide greater financial flexibility, and create value for shareholders. We note this is a sizeable stock buyback plan, representing over 20% of the company’s current market capitalization.  BHR’s common stock market capitalization was approximately $238 million as we went to press. BHR shares have traded up approximately 10% since the announcement of these strategic initiatives and plans. Additionally, the preferred stock redemption represents just over 10% of its outstanding preferred stock as well. For more information: CLICK HERE Bluerock Homes Trust (NYSE American: BHM) Declares Increased Dividend on Series A Preferred Stock and Increases Floor  BHM’s board declared a regular monthly dividend on the Series A Redeemable Preferred Stock (Series A Preferred Stock) at a 6.0% annual rate. The company’s board also authorized special dividends of a 200-basis point spread above the 1-month term SOFR rate. The board updated the range of its floating special dividends, and they are now subject to a floor of 6.5% and a cap of 8.5%. BHM previously had declared a floor of 6.0% on the Series A Preferred Stock dividends in December 2023. These special dividends are payable with the regular monthly preferred dividend. For more information: CLICK HERE

Alternative Ramblings Westin Tempe Hotel Auction Delayed As Owner Seeks Buyer for the Property The Phoenix Business Journal reports that the trustee auction of the hotel, originally scheduled for April 25, 2024, has been delayed multiple times as hotel owner seeks a buyer for the property. The Phoenix Business Journal further reported that the auction was currently scheduled for May 10. The hotel is currently marketed at a price of $115 million under a 25-year sale-leaseback triple net lease to the current owner CAI Tempe Hotel Partners, LLC.  Marketed terms include an annualized base rent of $7 million with 2% annual rent increases. Living the Dream? Recent results from Schroeders 2024 US Retirement Survey indicated that only 4% of U.S. retirees say that they are “living the dream.”  Common concerns cited as to why the status of the dream is eroding are dominated by concerns of inflation (89% of respondents), healthcare costs (85% of respondents), as well as concerns over whether they have saved enough and how to best generate income and draw down assets. Happy Mother’s Day to all the moms out there!

REITs

Blackstone REIT Sells $1.6 Billion Portfolio of Student Housing Properties to KKR Entities

According to KKR’s press release, the recently announced sale is for a portfolio of 19 student housing properties, comprising over 10,000 beds located across 10 states. The properties will be managed by University Partners, a student housing operator launched by KKR in 2016. Blackstone REIT initially acquired the portfolio in 2018 for $1.2 billion, as part of a 20 asset acquisition in a joint venture with Greystar Real Estate Partners.  Deal terms and pricing multiples on the KKR transaction were not reported.  Blackstone will continue to hold a sizable allocation to the student housing sector post-transaction, primarily related to its 2022 $13.3 billion acquisition of American Campus Communities (formerly NYSE: ACC).  ACC, at the time, was the largest developer, owner, and manager of student housing communities in the U.S. Prior to the KKR transaction, BREIT reported 11% of its portfolio, as measured by asset value, was in student housing assets, including 213 properties with a gross asset value of $14.1 billion.

For more information: CLICK HERE

REITs

Sila Realty Trust Announces Plans to List Common Stock on the New York Stock Exchange on May 1 

The REIT, formerly known as Carter Validus Mission Critical REIT II, reported that it would list its common stock on the NYSE under the ticker symbol “SILA”.  Sila announced that in anticipation of the listing it suspended both its share repurchase program and distribution reinvestment program.  Sila had previously limited the SRP due to hardship including death and “involuntary exigent circumstances”.

In anticipation of the listing Sila announced a 1-for-4 reverse stock split, in which stockholders will receive one share of the company’s common stock for every four shares of common stock they currently hold. Sila most recently estimated a net asset value per share of $7.48 as of December 2023.  Adjusted for the reverse stock split this would translate to $29.92 per share.  Sila previously made a special distribution of $1.75 per share ($5.75 adjusted for reverse stock split) in 2021 related to the $1.3 billion disposition of the REIT’s 29 data center properties.  The special distribution represented approximately 30% of the net proceeds from the data center disposition.  Shares in the REIT, including Class A, T, and I shares, were originally priced at $10.00 per share in an offering declared effective in 2014.  Sila raised approximately $1.5 billion in proceeds from the offering of its various share classes, which closed in 2018. Sila completed an internalization transaction of its external advisor in 2020 in exchange for $40 million in cash, which was payable over a period of three years.

The REIT currently owns 131 real estate healthcare properties and two undeveloped land parcels and reported total assets of $2.1 billion and outstanding debts of approximately $0.5 billion as of year-end 2023.  Sila reported that its properties were generally subject to net lease agreements with a weighted average remaining lease term of 8.5 years.  Approximately 15% of its tenants were rated investment grade as of year-end 2023. The REIT reported impairment losses on real estate of approximately $100 million over the past three years.

On April 15, 2024, Sila’s board of directors approved a daily distribution of $0.00437158 per share (this equates to an annualized distribution of $1.60 per share adjusted for the reverse stock split, and a 5.3% annualized distribution based on the adjusted estimated NAV per share as of December 2023) for shareholders of record on May 1, 2024, to be paid in June 2024.

According to data from S&P Capital IQ, healthcare REITs are generally trading at a 2% discount to consensus NAV.  However, there is quite a dispersion in valuation ranges within the 14 REITs comprising the healthcare sector tracked by S&P Capital IQ, with four REITs, including the largest Welltower (NYSE: WELL), trading at 25%+ premiums to their consensus NAVs.

We note the REIT is not raising any new capital through a public offering in conjunction with the listing of the common stock nor is it staggering the listing of its common stock over a period of 12-18 months, both of which may lower initial pricing volatility related to a listing of shares.  The REIT has not provided guidance on any anticipated trading range for the shares upon listing.  Given that the REIT has placed significant limitations on its share repurchase program for almost half a decade…one expects this could lead to some volatile trading once the shares begin trading on the NYSE. For additional information: CLICK HERE  Ashford Hospitality Trust (NYSE: AHT) Announces Rob Hays to Step Down as CEO. Stephen Zsigray Will Succeed Mr. Hays as CEO. AHT reported on April 18, 2024, that Rob Hays would step down as CEO and President of the REIT effective June 30, 2024.  Mr. Hays has served in various roles at AHT and affiliates for approximately two decades.  Mr. Hays noted that his resignation was in order to pursue a unique business opportunity with his father outside of the real estate industry.  Mr. Hays also voluntarily resigned as a senior managing director of Ashford Inc. (NYSE American: AINC). AHT reported that Stephen Zsigray, who presently serves as Senior Vice President of Corporate Finance and Strategy of the REIT was subsequently appointed by AHT’s board of directors to serve as CEO and President effective June 30, 2024.  Mr. Zsigray has served in various roles at AINC since 2014. For more information: CLICK HERE AHT Closes Sale of Hilton Boston Back Bay for $171 million and Uses Proceeds to Pay Down Debts. AHT reported that all of the proceeds from the sale were used to pay down outstanding debts including $68 million of outstanding debts on the REIT’s strategic financing with Oaktree and $98 million related to the mortgage loan secured by the property.  AHT previously reported that the outstanding principal balance on the Oaktree loan was approximately $183 million in its February 2024 earnings call. AHT also reported pro forma financial statements adjusted for the sale, which are available here. For additional information: CLICK HERE Checking in on Silver Star On April 15, 2024, Silver Star provided updates in a current report on various ongoing matters. Silver Star reported that its subsidiary Southern Star Self Storage Investment Company (Southern Star), is “experiencing operating and management difficulties with respect to the operations of four Southern Star-sponsored Delaware Statutory Trusts.” Silver Star acquired Southern Star in May 2023 for $3 million in cash payable in two $1.5 million installments in 2023 and June 2024.  Former Silver Star CEO Mark Torok previously served as the CEO of Southern Star. Mr. Torok resigned as CEO of Silver Star in April 2023.  We reported on this here.  Silver Star noted that Southern Star was designed “at the behest of its management” to operate in a largely autonomous manner, though it would be consolidated into Silver Star’s financial statements.  Silver Star reported that it was appointing David Wheeler, its Chief Operating Officer and President, to take charge of Southern Star’s day-to-day operations.  Silver Star noted that it was further evaluating the future of Southern Star, including a potential sale of Southern Star, “the sales of specific assets within individual DSTs and dissolution of the respective trusts”, and potential outsourcing of various Southern Star operations. The Company further noted that it is in the process of complying with a subpoena received from the Enforcement Division of the Sec received on February 2, 2024. The Company has not filed its annual report for 2023, as it is currently seeking to appoint a new independent auditor following the resignation of WithumSmith+Brown, PC, one week after its appointment in January 2024. The Company indicated that there is no assurance that it will be successful regarding the shareholder rights “flip in” plan (we previously reported on here) which is one of (many) matters of outstanding litigation between the Company and its former Chairman and CEO Allen Hartman.   The Company reported that they believe Mr. Hartman “is trying to force management and the Board to liquidate the Company in an inadvisable matter.” We humbly ask, is liquidation really a bad idea at this stage? The current strategy by management is to sell off portfolio assets and redeploy proceeds into self-storage assets. We further note that none of the REIT’s common stockholders signed up for a self-storage focus when the REIT was declared effective back in 2010, and was named Hartman Short Term Income Properties XX, Inc. The saga is expected to continue as the REIT reports that they do not anticipate matters between the REIT and Mr. Hartman will be resolved until 2025….if Silver Star was a TV show or movie what would it be? For more information: CLICK HERE

Alternative Ramblings Blackstone Acquires Apartment Income REIT Corp (NYSE: AIRC) in $10 Billion Transaction in Largest REIT Privatization Since a Previous Blackstone REIT Privatization Transaction in 2022  Earlier this month Blackstone and Apartment Income REIT Corp (NYSE: AIRC) announced that they entered into a definitive agreement under which Blackstone Real Estate Partners X (Blackstone X) will acquire all outstanding common shares of AIRC for $39.12 per share in an all-cash transaction valued at approximately $10 billion including the assumption of debt.  This transaction price represents a premium of 25% to AIRC’s closing share price on the NYSE on April 5, 2024, the last trading day prior to the announcement of the transaction, and a 25% premium to the volume weighted average share price on the NYSE over the previous 30 days.  The implied cap rate on the transaction ranges somewhere between approximately 5.5% and 5.9% depending on NOI adjustments made.  Greater detail on the implied cap rate and meaningful analysis and history of AIRC is available here.  Green Street notes that the AIRC portfolio is approximately 60% Class A and 40% Class B, with significant concentrations in certain gateway markets.  S&P Capital IQ reported the transaction price translates into a 26% discount vs consensus NAV as reported by analysts covering the REIT. Blackstone X remains active in acquiring REITs after taking part in the privatization of Tricon Residential for $3.5 billion in a deal announced in January 2024, which affiliate Blackstone Real Estate Income Trust (BREIT….aka REITzilla) took an 11% stake.  Back in 2022, and prior to shareholder liquidity constraints at BREIT, which we note have since been cleared out, BREIT and affiliates completed three public REIT transactions for cumulative deal values of approximately $26.2 billion.  These transactions included the PS Business Parks Inc., American Campus Communities, and the Preferred Apartment Communities Inc. (good ole, APTS) transactions.  It appears REITzilla has a hungry cousin now. Strip Mall Vacancies Reach Multi-Decade Low While much has been written about the U.S. having saturated retail square footage for many decades,  supply growth has generally been tepid in the strip mall sector, with new supply deliveries lower than any time since 2000, per Marcus & Millichap.  The real estate firm reported that half of the new supply is located in Texas and Florida.  This has pushed vacancies down to 4.7% on a national level, the lowest level since 2003.  Retail is far from dead… JP Morgan CEO Jamie Dimon Thinks Interest Rates May Trend Higher Jamie Dimon notes markets are pricing in a 70-80% chance of a soft landing to the economy and expectations of lower interest rates in 2024 and 2025. However, America’s most famous contemporary banker believes there is a distinct possibility that interest rates may be headed higher towards 8.0%.  Mr. Dimon cites persistent government deficit spending, higher healthcare costs and other factors leading to a continued elevated inflationary environment and consequently higher interest rates from the Fed. Passing of Legends Nobel Laureate Daniel Kahneman died in late March 2024 at the age of 90.  Mr. Kahneman and long-time collaborator Amos Tversky are noted as the leading proponents of the field of behavioral economics, including theories on why we often hate losing more than we enjoy winning and dispelling notions that humans are rational economic actors.  Much of Mr. Kahneman’s work is summarized in his 2011 best seller Thinking Fast and Slow. Dicky Betts, co-founder of the Allman Brothers Band, recently passed away at the age of 80.  A few favorites here, here, here, here, here….we’ve got a lot of favorites.  While we can’t confirm if Dicky was born in the backseat of a greyhound bus……well now….we’re just ramblin’.  Rest in peace, Mr. Betts and may your Soulshine on.

REITs

Ashford Inc. (NYSE American: AINC) Announces Plan to Take the Company Private 

Ashford’s independent board members have recommended a plan to terminate the registration of the company’s common stock and to delist its shares from the NYSE American exchange as part of a plan to go private. The proposed plan includes a reverse stock split of 1-for-10,000 shares. Shareholders who hold less than 10,000 shares of AINC stock will have their shares purchased by AINC at $5 per share, which represented an approximate 125% premium to AINC’s closing price of $2.22 per share prior to the announcement of the going private transaction. The company anticipates completing a 10,000-for-1 stock split following the purchase of shares from stockholders holding less than 10,000 shares, so remaining shareholders will hold the same amount of stock as before the proposed transaction. AINC estimates that approximately 31% of the outstanding shares will be cashed out under the proposed transaction, which would reduce the number of outstanding shareholders of record below 300 and allow for the company to remain below SEC reporting thresholds.

Ashford anticipates that it will save approximately $2.5 million on compliance and filing related costs by going private. The plan is anticipated to be completed in the summer of 2024 and will be put to a vote of the stockholders in the coming months. AINC shares traded up significantly following news of the proposed go private transaction, closing at $4.74 on Thursday, April 4.

Ashford previously received a de-listing notice from the NYSE American, which we reported on here, and subsequently filed a plan of compliance with the NYSE American, which we reported on here. Ashford serves as the external advisor for two hospitality REITs, Braemar Hotels & Resorts Inc. (NYSE: BHR) and Ashford Hospitality Trust (NYSE: AHT).

For more information: CLICK HERE

Hines Global Income Trust Acquires Warehouse in the Netherlands

The REIT recently reported that it acquired a 215,000 square foot facility that is currently 100% leased located in Venlo, Netherlands for €19.7 million. This acquisition is an add-on to the REIT’s holdings in the Venlo industrial park, the REIT having first acquired assets in the area back in 2018.  Prior to the acquisition, Hines Global Income Trust owned over 3.2 million square feet of logistics space in the area.

For more information: CLICK HERE

Late Notices

The following REITs recently reported that they would be unable to file their annual reports by the SEC’s reporting deadline of April 1.

Moody National REIT II, Inc., reported that it would need additional time to file its annual reports due to Frazier & Deeter, LLC, the REIT’s independent auditors, needing more time to complete the audit of the REIT’s financial statements.

Lodging Fund REIT III, Inc., which recently filed its 2022 annual report on March 27, 2024.  The REIT remains outstanding on its quarterly reports for the first three quarters of filings for 2023. We reported on this here.

REITs

Lodging Fund REIT III, Inc. Files 2022 Annual Report  

The REIT recently filed its 2022 third quarter report and its annual report for 2022.  The company remains outstanding on its quarterly reports for the first three quarters of filings for 2023.

As we previously reported, certain Legendary Capital affiliated entities and persons, without admitting or denying the SEC’s findings, settled charges with the SEC related to reimbursements of overhead expenses to the REIT.  This included disgorgement of $2.7 million, payment of interest of $0.5 million, and penalties of approximately $1.5 million to investors in the REIT and another Legendary Capital-managed investment vehicle, Legacy Hospitality II, LLC.

Management had indicated that the SEC interactions, which were disclosed in September 2022, had caused delays related to its SEC filings. Corey Maple resigned as CEO of Lodging Fund REIT III in May 2023 and remained as chairman of the board of directors.  Norman Leslie was appointed to serve as CEO following Mr. Maple’s resignation. Mr. Leslie owns and manages NHS, LLC, a hospitality management company that provides hospitality management services for certain properties in the REIT’s portfolio.

FactRight notes that Marcum LLP (Marcum), the public accounting firm retained by the REIT, issued a clean audit opinion related to the 2022 financial statements contained in the recently filed annual report.  Deloitte & Touche LLP (Deloitte), the auditor for the previous reported year in 2021, had also issued a clean audit opinion for the 2021 financial statements.  The REIT’s board of directors dismissed Deloitte in October 2023, and appointed Marcum.

Shares in the REIT were originally priced at $10.00, in an offering that began in 2018. The REIT’s most recently reported an estimated net asset value per share of $10.57 as of December 31, 2022.

For more information: CLICK HERE  

Braemar Hotels & Resorts (NYSE: BHR) Rejects “All Hat, No Cattle” Activist Investor Director Nomination 

The REIT reported on March 25,  it received a notice from Blackwells Capital LLC (Blackwells) in mid-March in which Blackwells sought to nominate four directors to BHR’s board of directors, which currently is comprised of eight people. BHR reported that its board of directors unanimously determined that Blackwell’s nomination notice was defective for failing to adequately state its true objective. BHR reported that it believes the Blackwell nominations are an attempt to effectuate a takeover of the company without paying an adequate price. BHR reported that Blackwells owns 10,100 shares of BHR common stock (0.015% of the total outstanding common stock) at the time of its nomination notice. BHR further reported that it had filed a complaint in the U.S. District Court for the Northern District of Texas to enjoin Blackwells from moving forward with what it deems an illegal proxy contest. Chairman Monty J. Bennett noted:

“…Our first priority is protecting the rights of all shareholders… However, Blackwells has not only disregarded Braemar’s bylaws, it has launched a proxy contest for effective control of the Company’s Board while masking its real intentions an owning only a de minimis number of shares.  We are hopeful that by exposing the behavior of this all hat, no cattle activist fund for what it is and by seeking relief from the Court, we can prevent the damage and distraction that would accompany Blackwells’ waging of an illegal proxy contest.” 

For more information: CLICK HERE

Sila Realty Trust Terminates Chief Accounting Officer and Chief Investment Officer  

On March 26, Sila Realty Trust reported that it had terminated Robert Labenski as its chief accounting officer and that Kay Neely, the REIT’s chief financial officer, would serve in the role until a replacement could be named. Additionally, the REIT reported that Jon Sajeski, its chief investment officer, would no longer be employed by the REIT effective immediately.

Sila Realty Trust recently announced the appointment of Christopher Flouhouse to serve as executive vice president and chief investment officer beginning in May 2024. Mr. Flouhouse previously served as a managing director at Wells Fargo Securities.

For more information: CLICK HERE

Alternative Ramblings

CaliberCos Inc. (NASDAQ: CWD) Announces Delay in Filing its 2023 Annual Report 

The company reported that “management needs additional time to finalize and analyze the disclosure in its Form 10-K.” The Company further reported that it would reschedule its earnings call for a future date. CaliberCos completed an IPO in May 2023, which we reported on here. The company is  also developing one of the largest pickleball facilities in the world in Scottsdale, AZ.

For more information: CLICK HERE 

SEC Fines Advisors over AI Washing 

First there was greenwashing, and now AI-washing has made its way into the lexicon. The SEC recently settled charges against two investment advisers, Global Predictions and Delphia, for making misleading statements regarding their use, or more accurately, their non-use of artificial intelligence in their wealth management practices. The two firms settled their charges for $225,000 and $175,000, respectively. Summaries of the charges are as follows:

According to the SEC’s order against Delphia, from 2019 to 2023, the Toronto-based firm made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process. For example, according to the order, Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.” The order finds that these statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed. The firm was also charged with violating the Marketing Rule, which, among other things, prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact. 

In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “[e]xpert AI-driven forecasts.” 

Baseball is Back!   

FactRight’s favorite the Minnesota Twins, the 2023 American League Central division champions, open the new campaign with an expectation of 86 wins and a one-in-33 shot to win the World Series at certain sports books.

We’ll check back in around Memorial Day. Of course, no one wins the pennant by Memorial Day, but plenty of teams have lost it by then. Happy Easter to all our readers!

REITs

MacKenzie Realty Capital, Inc. Announces Anticipated Listing and Suspension of Share Repurchase Program 

On March 12, MacKenzie Realty Capital, Inc., announced that it is seeking to list its common stock on the OTCQX market and later listing the shares on the NYSE-American market once a trading history and public float is demonstrated. In anticipation of the listing, MacKenzie has suspended its dividend reinvestment and share repurchase programs effective immediately.

MacKenzie reported total assets of $204 million and total equity of approximately $103 million as of December 31, 2023. With 13.2 million shares of common stock outstanding, this equates to a book value per share of $7.75 per share. The company reported share repurchase activity at an average price of $7.38 across 128,589 shares of common stock in 2023. MacKenzie has provided no guidance on potential share pricing or timing of the listing event.

For more information: CLICK HERE

CNL Healthcare Properties Inc. Announces Lower Estimated NAV Per Share

On March 14, CNL Healthcare Properties Inc. reported an estimated net asset value per share of $6.28 per share as of December 31, 2023. The estimated NAV marks a decline of $0.64 (9.3%) from the prior year. The REIT offered shares at an original price of $10.00 per share between 2011 and 2015. CNL Healthcare declared a special distribution of $2.00 per share in 2019 and following the distribution had reported annual NAV per share of $7.99, $7.81, $7.38, and $6.92, in each successive year through 2022. The REIT, which owns 69 senior housing communities and a vacant land parcel, reported total assets of approximately $1.4 billion and total debts of approximately $579 million as of December 31, 2023.

For more information: CLICK HERE

Pacific Oak Strategic Opportunity REIT Inc. Announces Sales of 454 Acre Plot in North Las Vegas for $195 Million

On March 10, 2024, Pacific Oak reported that it had entered into purchase and sale agreement with KB Home Las Vegas, Inc. and Tri Pointe Homes Nevada, Inc. to sell one of its land holdings. The land is part of a planned community known as The Villages at Tule Springs.  The sale is anticipated to be completed in two phases, with the first phase closing in July 2024, and the second phase closing in July 2025, subject to certain closing conditions.

Pacific Oak, which began operations in 2010, reported total assets of $1.4 billion and total debts of $1.0 billion, with a weighted average remaining debt term of approximately 2.2 years as of September 30, 2023. The REIT owns a portfolio of ten office properties, approximately 2,500 residential homes, two apartment properties, and three other investments in undeveloped land totaling approximately 250 acres.

For more information: CLICK HERE

Ashford Hospitality Trust (NYSE: AHT) Reports Sales of Hotels in Continued Efforts to Deleverage its Balance Sheet and Amends Bylaws to Lower Quorum Threshold for 2024 Annual Meeting 

On March 11, AHT reported the sale of a Residence Inn located in Salt Lake City, Utah for $19.2 million. AHT used proceeds to repay approximately $19.0 million in debt related to the property, which was also secured by two other hotels in AHT’s portfolio. This follows the previously announced sale of the Hilton Boston Back Bay hotel for $171 million, which was announced on February 29he Hilton sale is anticipated to close in March 2024. CEO Rob Hays noted that “this sale is an early step toward the recently announced plan to pay off our strategic financing. We have several assets in the market at various stages of the sales process and look forward to providing more updates in the coming weeks.” We previously reported on AHT’s plan to pay off the strategic financing with Oaktree here.

AHT, through resolution by its board of directors, amended its bylaws to reduce the quorum from a majority of stockholders to at least one-third of stockholders entitled to cast a vote at the 2024 annual meeting of stockholders. The amendment to the Bylaws pertains only to the 2024 annual meeting. AHT reported that an increasing number of retail stockholders have become shareholders in recent years, which presumably may weigh on shareholder participation and the company’s ability to conduct the annual meeting. AHT also amended its bylaws to allow board members to continue to participate on the board after age 70 without receiving annual waivers from the board.

For more information: CLICK HERE, CLICK HERE, CLICK HERE and CLICK HERE

Alternative Ramblings

Building Stockholder Value and Burning Short Sellers

Palantir Technologies Inc. (NYSE: PLTR) CEO Alex Karp has some, well, interesting ancillary motivations for generating returns for stockholders and burning short sellers.  In a recent interview with CNBC, Mr. Karp says almost nothing makes him happier than thwarting short sellers and preventing them from engaging in certain activities. Palantir, which focuses on developing software for the public and private sector, has generally been successful in frustrating short sellers as its common stock has gained approximately 150% since its IPO in 2020.

Thank you to all of you who attended our recent due diligence conference in Scottsdale. It was great to catch up with many of you in person.  I hope the event was productive for all attendees and if you have any feedback you’d like to share, please let me know.

REITs

Blackstone REIT Clears Out Redemption Backlog

On March 1, 2024, BREIT reported in a letter to shareholders that it redeemed all $961 million of shareholder redemption requests received in February 2024. This marks the first monthly redemption request that was fully fulfilled dating back to the fourth quarter of 2022. Over the past 15 months, BREIT has redeemed approximately $15 billion in shares tendered for redemption, a truly staggering figure. For a little context, there are less than 20 publicly traded REITs in the world with a market capitalization greater than $15 billion.

For more information: CLICK HERE

Hines Global Income Trust Inc. Announces Completion Of $77 Million Capital Raise on Multifamily DST Offering

On March 6, 2024, Hines Global reported that it completed its $77 million offering of DST interests in the HREX Multifamily I DST, which launched in September 2023. HREX Multifamily I DST owns the EMME property, a 14-story, 199-unit class A multifamily located in Chicago’s West Loop area. The REIT completed another DST offering, the HGIT 200 Park Place DST offering in December 2023, which raised $152 million through the sale of DST interests. The REIT’s operating partnership retains fair market value purchase options to acquire the DST properties beginning two years after the close of the DST offerings.

For more information: CLICK HERE

Alternative Ramblings

NexPoint Residential Trust, Inc. (NYSE: NXRT) Announces Sale of 734 Unit Houston Apartment Complex, Reporting Strong Returns

On March 5, 2024, NXRT announced that it had closed on the sale of a 734-unit apartment complex.  NXRT reported that proceeds from the sale will be used to continue its efforts to lower leverage by repaying all outstanding principal on its corporate credit facility. Per data from S&P Capital IQ, the REIT had debt-to-gross properties of approximately 69% as of December 31, 2023. NXRT acquired the property in 2016 and reported a 22.1% IRR on the investment with a 2.98x multiple on invested capital.  Not too shabby.

For more information: CLICK HERE

Ashford Inc. (NYSE American: AINC) Announces Acceptance of Compliance Plan by NYSE American

On March 1, 2024, Ashford announced that the NYSE American accepted its plan of compliance for continued listing on the exchange. The company previously reported that it received notice from the NYSE American that it was not in compliance with certain listing requirements on the exchange, namely being below the stockholders’ equity requirements given reported losses in two of its three most recent fiscal years. We previously reported on this here. Ashford reported that it received notice from NYSE American that it’s plan of compliance was accepted and the company was granted a plan period through June 20, 2025. During the plan period, Ashford will be subject to quarterly review to determine progress under the plan. If Ashford does not regain compliance by June 20, 2025, the NYSE American may initiate delisting proceedings.

For additional information: CLICK HERE

REITs

Bluerock Homes Trust (NYSE American: BHM) Announces Common Stock Share Repurchase Plan 

BHM reported that its board of directors approved a new plan to repurchase up to $5.0 million in outstanding Class A common stock in open market transactions.  The repurchase plan will be in effect for one year and may be discontinued at any time.  The pace of repurchases will depend on a variety of factors including general business and market conditions and other corporate considerations.  BHM had a total market capitalization of approximately $54 million as of February 22, 2024.  BHM has a Series A Preferred Stock offering in the market which the board of directors has announced a series of monthly special dividends that effectively make the preferred dividend a floating rate dividend based on a 2% spread to the 10-Year U.S. Treasury rate subject to a 6% floor.

For more information: CLICK HERE

Alternative Ramblings

Westin Tempe Hotel Heading for Foreclosure Sale in April 2024

The 290-room hotel was recently constructed and opened for business in October 2021.  ConnectCRE reports that a $5 million loan payment was missed in December 2023 and that Hall Structured Finance, which originated the $86.5 million construction loan, has filed a notice of trustee sale on the hotel and that barring resolution of the outstanding payments or a refinancing, the hotel is scheduled for a foreclosure auction on April 24, 2024.    The hotel was developed by Las Vegas-based CAI Investments LLC.

Earlier this week we confirmed the notice of trustee sale filing with the Maricopa County Recorder. However the link to the relevant record, is currently unavailable on the recorder’s website reported that “the resource you are looking for might have been removed, had its name changed, or is temporarily unavailable.”

REITs

American Healthcare REIT, Inc. raises $672 million in gross proceeds with public offering priced at $12 per share and lists on the NYSE with ticker symbol “AHR” in largest REIT IPO in the post-pandemic era.

AHR was formed through a combination of Griffin-American Healthcare REIT III (GAHR III), Griffin-American Healthcare REIT IV (GAHR IV), and American Healthcare Investors in 2021 after which AHR became internally managed following a $131.7 million internalization transaction paid in common stock. The REIT owns and operates approximately $4.6 billion in medical office buildings, senior housing, skilled nursing facilities and other healthcare-related facilities. Share classes in GAHR III and GAHR IV were originally offered to investors at $10.00 per share, these shares will be converted into the listed common shares trading under the symbol “AHR” 180 days following the listing. The REIT completed a one-for-four reverse stock split in November 2022. The REIT reported an estimated NAV per share of $9.29 as of December 31, 2021 ($37.16 adjusted for the reverse stock split) and most recently $31.40 as of December 31, 2022. We note that the most recent valuation is stale and that interest rate movements in the subsequent period likely have weighed on the estimated NAV per share. AHR anticipates using proceeds from the offering to repay outstanding debts on its credit facility which total approximately $700 million. A webinar discussing the transaction will be held at 4pm ET on February 12.

The following chart highlights trading activity on the listed shares this past week.

This listing event represents a substantial negative return for investors in the original non-traded common stock offerings who are subject to a lock-up for 180 days from the listing. Further, the pricing of the shares at $12.00 and initial trading ranges of approximately $12.63 to $13.26 represent substantial discounts to AHR’s most recently reported estimated NAV per share and substantially below those of other publicly-traded REITs in the healthcare space, which in aggregate were trading at a slim 0.1% premium based on consensus NAV estimates compiled by S&P Global Market Intelligence highlighted in the following chart. Given the pricing dynamics of the issuance of new shares at $12.00, and the dilution to existing shareholders as AHR’s share count increases approximately 95%, one wonders if a liquidation would have been a more beneficial exit strategy for the original non-traded common stock investors.

This marks the second listing transaction from REITs that have had less than favorable results for original non-traded common stock investors following the listing. In April 2023 Peakstone REIT (formed through a combination of Griffin Capital Essential Asset REITs I and II (GCEAR I and GCEAR II)) also traded substantially below its estimated NAV per share adjusted for a one-for-nine reverse stock split ($66.78). Shares were originally offered by GCEAR I and GCEAR II at $90.00 (adjusted for the reverse stock split) in offerings that were declared effective in 2009 and 2014 respectively. We reported on the Peakstone listing here. Unlike the current AHR offering, Peakstone’s listing did not include raising any new money through issuing new shares, which may provide a less turbulent trading environment as 180-day lock-up periods expire on AHR shares.

Silver Star Reports Formal Order of Investigation from the SEC and Reiterates Commitment to Pivoting to Self-Storage Strategy

Silver Star reported on February 5, 2023, that the SEC issued a formal order of investigation on February 2, 2024. The SEC’s Fort Worth Regional Office advised the company that it would be issuing a subpoena requesting certain documents. The REIT previously reported in November 2023, details of certain interactions with the SEC related to voluntary information requests pertaining to certain of the REIT’s, its affiliates’, and current and former officers’ and directors’ activities. We reported on this here. At that time the REIT noted that they were proceeding “as if the SEC Matter is now an active investigation.”

Additionally, Gerald Haddock, the Chairman and Co-CEO of the REIT, noted “the best way to protect and build shareholder value is to oppose these unwarranted efforts to liquidate the company, which would result in a fire sale of assets.” Mr. Haddock further stated “We remain steadfast in our commitment to advance our transition into self-storage while undertaking an orderly disposition of assets that no longer fit with the Company’s business model. Any actions that slow these processes are not in the best financial interests of Silver Star shareholders.”

We humbly note that an orderly disposition of the REIT’s assets and a return of the net proceeds to the shareholders, as opposed to a reinvestment of proceeds into self-storage assets that was not the original strategy of the REIT, would more likely be in line with shareholders reasonable expectations.

A chronology of other recent developments at Silver Star is listed below:

• WithumSmith+Brown, PC, which was engaged by the REIT on January 8, 2024, had subsequently declined to stand as the REIT’s audit firm.  In December 2023, Weaver and Tidwell, L.L.P. declined to stand for re-election as the auditor of the REIT, having previously completed the REIT’s 2021 and 2022 audits, which included a going concern notice regarding the REIT’s ability to refinance certain outstanding debts.   Silver Star is currently seeking to engage an audit firm.
• The Circuit Court for Baltimore City, Maryland granted a preliminary injunction in favor of Allen Hartman enjoining the REIT from counting and analyzing consents received on the board of directors’ consent solicitation in lieu of an annual meeting.  Silver Star reported that it continues to evaluate options related to the consent solicitation and further noted that regardless of the outcome on the consent solicitation that a majority of the existing directors, including all members of the executive committee (Gerald Haddock (Chairman and Co-CEO), Jack Tompkins and James Still) will continue to serve as directors of the REIT.
  • Silver Star previously filed the consent solicitation as part of a proxy proposal to shareholders in November 2023, which we reported on here.

We note that it is unlikely that the turbulence at Silver Star will subside any time soon in light of the flurry of litigation following the board of directors’ exercise of “flip-in” provisions designed to thwart Mr. Allen Hartman’s efforts in conflict with the board of directors.  Papa John’s and its founder John Schnatter had a similar saga around certain similar anti-takeover provisions approximately a half decade ago.  The New York Times article here provides a summary of those developments.

Ashford Hospitality Trust Provides Update on Plan to Pay Off Strategic Financing from Oaktree

On January 31, 2024, the REIT filed a press release providing details on its plan to pay off certain financing from Oaktree that is scheduled to mature in January 2026.  The REIT anticipates a combination of asset sales, mortgage debt refinancings and additional proceeds from its non-traded preferred stock offerings to contribute to paying off the debt.  AHT reported 12 hotels in its portfolio that it is holding available for sale and are actively marketing with a goal of using net proceeds from any such sales to pay down the Oaktree loan and further deleverage its balance sheet.  The REIT also noted that it was looking to complete refinancings on three hotels that had individual debt financing as well as refinance a pool of 17 hotels to unlock proceeds available to repay the Oaktree loan.

AHT reported on its 2023Q3 earnings call that approximately $180 million was outstanding on the Oaktree loan.

For additional information: CLICK HERE

Braemar Hotels & Resorts Provides Update on 2024 Debt Maturities

The REIT reported on February 7, 2024, that it has refinanced or extended approximately 90% of its 2024 debt maturities, comprising a total of approximately $300 million in outstanding debt.  BHR noted that this included a new $110.6 million mortgage loan at SOFR + 3.75% on its Capital Hilton property.  BHR further reported a partial paydown of its Hilton La Jolla Torrey Pines loan to approximately $66.6 million in remaining principal balance and that the lender has provided a six-month forbearance agreement on the loan as BHR considers alternatives including refinancing or potentially selling the asset.  BHR reported that it extended its Ritz-Carlton St. Thomas and Pier House Resort and Spa loans by an additional year on each loan without any principal paydown.

CEO Richard Stockton noted that given the REIT’s liquidity “we plan to fully repay the remaining $30.0 million loan associated with the Cameo Beverly Hills.  We expect a more favorable refinancing environment going forward, which will continue to reduce the Company’s interest expense on these and other future refinancings.”

For additional information: CLICK HERE

REITs

Inland Real Estate Income Trust, Inc. Chairman Daniel Goodwin Passes Away 

Inland Real Estate Group of Companies, Inc. Appoints Tony Chereso as CEO

On January 19, 2024, the REIT announced that its chairman Daniel Goodwin passed away at the age of 80.  Mr. Goodwin served as the founder, chairman and CEO of the Inland Real Estate Group of Companies, Inc. (Inland) dating back to 1968.  The DiWire provides further reporting here.  The board of the REIT subsequently appointed Robert Parks to serve as a director on the board.  Mr. Parks serves as a manager at Inland, is one of its original principals, and has served on various boards and in executive roles at multiple Inland entities over the years.

The Inland board of directors appointed current Inland CFO (and former FactRight and Investment Program Association CEO) Tony Chereso to serve as CEO.

Our condolences to the Inland family for their loss of an industry pioneer and we note that they are in great hands with Tony going forward.

For more information: CLICK HERE

Silver Star Board Triggers Flip-In Poison Pill Provision and Announces Recently Engaged Auditor has Stepped Away

Silver Star continues to be in the news with increasing hostility between the board of directors and former Chairman and CEO Allen Hartman.  The pace of developments seems to be escalating as the board recently announced the exercise of certain “flip-in” provisions that would effectively double the share count of all shareholders except for certain entities affiliated with Allen Hartman, who owned approximately 13.2% of shares prior to the flip-in event.  The DiWire provides further reporting on the matter here.

We note that typically flip-ins are designed to deter outside investors from effecting a takeover by providing notice of prospective dilution to their interests if they were to seek to acquire shares.  However, in this case Mr. Hartman is an existing shareholder, and has been throughout the entire period from the contemplation of the flip-in provisions.  One anticipates this will result in further litigation between the parties.

Additionally, Silver Star reported that WithumSmith+Brown, PC, which was engaged by the REIT on January 8, 2024, had subsequently declined to stand as the REIT’s audit firm.  In December 2023, Weaver and Tidwell, L.L.P. declined to stand for re-election as the auditor of the REIT, having previously completed the REIT’s 2021 and 2022 audits, which included a going concern notice regarding the REIT’s ability to refinance certain outstanding debts.

For more information: CLICK HERE 

CNL Healthcare Properties Inc. Urges Shareholders to Reject Discounted Tender Offer

The REIT announced that its board recommends shareholders reject Comrit’s tender offer of $3.94 per share, which marks a 43% discount to the most recent NAV per share of $6.92 as of December 31, 2022.  The REIT further announced that it anticipates updating its NAV per share in mid-March 2024, based on an estimated value as of December 31, 2023.  The REIT reported that it engaged Robert A. Stanger & Co., Inc. to assist in establishing a net asset value.

CNL also has scheduled a webinar on March 14, 2024.

The REIT suspended its shareholder redemption plan effective July 11, 2018, as part of its evaluation of strategic alternatives.  The REIT previously sold 70 medical office buildings in 2018 for approximately $1.45 billion as part of its plan to pursue greater shareholder liquidity and made a special distribution to shareholders of $2.00 per share ($347.9 million of the total net sales proceeds) in 2019, and used the remainder to repay debts, maintain liquidity, and other corporate purposes.  The REIT owns 69 senior housing communities and a vacant land parcel and reported total assets of approximately $1.4 billion as of September 30, 2023,

For more information: CLICK HERE and CLICK HERE

Moody National REIT II, Inc. Urges Shareholders to Reject Discounted Tender Offer

The REIT announced that its board recommends shareholders reject Comrit’s tender offer of $10.89 per share, which marks a 44% discount to the most recent NAV per share of $19.45 as of December 31, 2022.

The REIT suspended distributions to shareholders in March 2020 and repurchases of shares in April 2020 at the onset of the pandemic.

For more information: CLICK HERE

Interval Funds

Wildermuth Fund Seeks Shareholder Approval of Advisory Agreement as part of its Liquidation Strategy

Wildermuth filed a definitive proxy seeking shareholder approval of its advisory agreement with BW Asset Management Ltd. (BW), a subsidiary of Kroll LLC, as part of its liquidation plan announced in June 2023.  BW was appointed by the board to oversee the liquidation of the Fund in November 2023.

We previously reported on these developments here.

For more information: CLICK HERE

Alternative Ramblings

Blackstone Acquires Tricon Residential (NYSE: TCN) in $3.5 billion Transaction

Tricon, a Canadian real estate firm, and the third largest publicly-traded single-family rental platform, by market capitalization, will go private in the transaction.  Tricon owns approximately 22,000 single-family homes and a build-to-rent development pipeline, certain Canadian multifamily assets, and provides certain property management and development services.  This creates some opacity on the valuation metrics, but the transaction comes in at an approximately 5% cap rate on forward 12-month NOI and values Tricon’s SFR portfolio at approximately $300k per door per.  This marks an approximate 30% premium to Tricon’s closing share price prior to the transaction announcement.  The deal is subject to shareholder and court approval in Canada. BREIT will maintain an 11% ownership stake following the transaction per reports from Blackstone.  Blackstone also anticipates completing $1 billion of Tricon pipeline development projects and investing an additional $1 billion in existing assets over the coming years.

The single-family rental space has not been without controversy over concerns of the institutionalization of the sector pressuring housing affordability for would-be buyers.  Tricon’s CEO Gary Berman had a memorable line in this episode of 60 Minutes, where he noted “You can rent the American Dream.” Mr. Berman noted in the interview that corporate landlords account for 2% of all rental homes in the U.S

For more information: CLICK HERE

Short Term Rental Headwinds

The LA Times reports that weakening demand and more restrictive licensing regimes are constricting the short-term rental (STR) market in Palm Springs, California (the sight of the recent PGA American Express tournament which amateur Nick Dunlap won last weekend, kind of a big deal as the last amateur to win a PGA event was Phil Mickelson in 1991).   Key regulatory developments tempering the short-term rental market include caps on the number of STR licenses in a county, municipality, or neighborhood (20% of homes in a residential neighborhood in Palm Springs), and restrictions on transferring rental licenses on a sale of the underlying property.  Regulatory regimes are becoming more common in many popular tourist spots and may vary in scope from outright zoning bans on STRs in single-family residential neighborhoods, to requiring the owner to be present throughout the guests’ entire stay (New York City, that’s a hard pass!), though enforceability may continue to prove challenging.   Overall, the net effect in Palm Springs has been a significant reduction in valuations and transaction activity on houses as prospective buyers may not be able to obtain licensing to continue to operate the property as a short-term rental.  This may be in line with local goals of improving affordability for longer-term residents and workers.

Oakland Packed Up to Go: In-N-Out to Close First Location in its 75-Year History

The Associated Press reports that the world’s greatest burger chain (my words not the AP’s) is citing safety concerns for employees and guests as the primary driver of the closure of its only hacienda of hamburgers in Oakland, California.  In-N-Out chief operating officer Denny Warnick noted “we feel the frequency and severity of the crimes being encountered by our customers and associates leave us no alternative.” The AP further noted:

“The In-N-Out slated for closure is in a busy business corridor that attracts travelers headed to the airport and baseball fans who attend A’s games at the Coliseum.”

Busy with Oakland A’s fans!? Busy might not be the best descriptor…ticket sales have slumped in the post-Covid era, with average attendance per game dipping below 10,000 fans in two of the past three years and ranking at the bottom in overall attendance across the big leagues over the same period.  Weak attendance and an aging stadium have led the A’s to seek greener pastures in Las Vegas as their lease at the Coliseum expires after the 2024 season.  In-N-Out will be ready to serve it up animal style to A’s fans if they complete the move to Las Vegas.

REITs 

American Healthcare REIT Board is Neutral on Third Party Tender Offer 

On January 11, 2023, American Healthcare REIT responded to a third-party tender offer from Comrit seeking to purchase up to 228,136 shares of the REIT at a 58% discount to its most recently estimated NAV per share.  The board of the REIT made no recommendation to shareholders to accept or reject the Comrit tender offer.  The board cited uncertainties on the likelihood of achieving a liquidity event including the prospective listing of the common stock on the NYSE that was disclosed in a registration statement back in September 2022.  THe REIT suspended its share repurchase plan in November 2022.  The board further noted that secondary auction trades from September to December 2023, on CTT Auctions were in a range of $14.36 to $15.25 per share, 9-16% higher than the Comrit tender offer price.   

The board’s neutrality on this discounted offer is part of a perhaps growing trend of board neutrality on discounted tender offers.  Recently, in November 2023, Sila Realty Trust’s board of directors was also neutral on a discounted third-party tender offer, we reported on this here with additional color.   

For more information: CLICK HERE 

Regulation A 

Arrived Homes, LLC CFO Resigns  

On January 12, 2024, Arrived Homes, LLC announced that Joel Mezistrano resigned as CFO and principal accounting officer.  Sue Korn was appointed to serve as CFO and principal accounting officer in the wake of Mr. Mezistrano’s resignation.   

Arrived Homes, formed in July 2020,  serves as the Manager of a series of offerings in the SFR and vacation rentals market that allows individual investors to directly invest in single family rentals and vacation rental properties through a series LLC structure.  The Arrived platform has grown substantially and had over 225 properties in its respective series generating over $4 million in annualized revenues with consolidated assets of approximately $70 million.   

For more information: CLICK HERE, CLICK HERE and CLICK HERE  

Alternative Ramblings 

Spot Bitcoin ETFs Receive SEC Approval…BTC to the Moon!? 

The SEC approved the registration of eleven ETFs, including the conversion of Grayscale Bitcoin Trust the largest investment vehicle that currently holds bitcoins.  We’ve commented on Grayscale Bitcoin Trust in the past and how its structure created barriers to efficient pricing of its holdings with substantial premiums and discounts at various points in time.   The ETF conversion should theoretically close that pricing discount/premium gap, which it appears anticipation of the news announcement has largely accomplished as the following chart highlights.  

Cathy Wood upped her bullish thesis on the digital ducat increasing her price target from $1 million to $1.5 million by 2030 on news of the SEC’s approval of spot ETFs.   

BlackRock Acquires Global Infrastructure Partners in $12.5 Billion Acquisition  

Axios reports that this may be the largest acquisition of a private equity firm in history, and BlackRock’s largest acquisition since 2009.  GIP has over $100 billion in AUM, including over $50 billion in renewable energy assets and infrastructure debt investments.  Bayo Ogunlesi, the head of GIP will oversee all infrastructure assets at BlackRock following the acquisition and will step down from his director role at Goldman Sachs.   

In other infrastructure news, Cantor Fitzgerald’s interval fund Cantor Fitzgerald Infrastructure Fund has had some positive capital raising momentum in 2023 and recently made its first allocation to a private infrastructure fund, which forms a core part of its investment thesis.  Stay tuned for FactRight’s forthcoming supplement on the Cantor Fitzgerald Infrastructure Fund in the coming week.   

Peakstone (NYSE: PKST) Receives Upgrade from Hold to Outperform from ScotiaBank 

Our sources indicate that Scotiabank recently upgraded is coverage of Peakstone Realty Trust (fka Griffin Essential Asset REIT II) from hold to outperform and upwardly adjusted the price target from $20 to $23.   This is still a far cry from the adjusted NAV per share from the reverse stock split of $66.78, which we reported on here.  The following chart highlights PKST’s trading since its listing in April 2023.   

BDCs 

Prospect Capital Corporation (NYSE: PSEC) Announces Launch of Floating Rate A4/M4 Preferred Stock

On December 29, 2023, PSEC filed a prospectus supplement launching two new preferred stock offerings the Series A4 and M4. The Series A4 and M4 will feature a floating rate preferred dividend that is calculated as a 200-basis point spread to the one-month SOFR. The Series A4 and M4 preferred distribution is subject to a floor of 6.5% and a ceiling of 8.00%.  Based on the current one-month SOFR rate this would translate to a preferred distribution of 7.32%.  The previous Series A3/M3 preferred stock has a preferred distribution rate of 6.50%. The Series A4/M4 is pari passu with all other preferred stocks previously issued by PSEC.

The Series A4/M4 includes certain redemption limitations not contained in PSEC’s previous series of non-traded preferred stocks, this includes a redemption limit of 2% monthly, 5% quarterly and 20% in a given year. All redemptions of the Series A4/M4 preferred stock will be made in cash.  PSEC’s previous non-traded preferred stocks were not subject to a redemption limitation and redemptions could also be made, at PSEC’s discretion, in whole or in part in common stock of PSEC based on a five-day volume weighted average price of PSEC common stock.

Stay tuned for an updated FactRight report on the new series of A4/M4 preferred stock in the coming week.  This also continues a trend emerging in the last quarter of multiple preferred stocks in the channel featuring floating rates, including Bluerock Homes Trust, see below, announcing the payment of special dividends on its Series A Redeemable Preferred Stock.

For more information: CLICK HERE

REITs 

Cantor Fitzgerald Income Trust Reports Decline in NAV of 8%, Shareholder Redemption Backlog and Reaffirms Current Distribution Amount

On December 19, 2023, CFIT announced that it had completed a full review of portfolio valuations, which contributed to a decline in per share NAV from $24.26 (Class I shares) as of September 30, 2023, to $22.32 as of November 30, 2023.  Cantor noted that the decline in its NAV was consistent with decreases in values across the commercial real estate landscape as evidenced by Green Street’s Commercial Property Price Index (CPPI), which on an unlevered basis declined approximately 10% over the 12-month period ending October 31, 2023.  Increased cap rates used on valuation assumptions for certain office property assets were significant drivers in the reported decline in NAV per share.

The REIT reaffirmed its annualized distribution of $1.55 per share, equating to an annualized distribution rate of 6.94% on Class I shares. Cantor Fitzgerald noted that same store annualized rental income increased 4.9% in the twelve months ending September 30, 2023.

On December 19, 2023, the REIT reported that share repurchase requests in November exceeded the applicable limit under the repurchase program. The REIT repurchased 300,521 shares in November for approximately $7.3 million, representing 61% of total repurchase requests in the period.

We applaud Cantor Fitzgerald for taking this step in reducing NAV per share to reflect the realities of the commercial real estate landscape. One need only look at weaker pricing of publicly traded REITs, slowing transaction volume, higher costs of debt financing and increasing cap rates over the past 16 months to be aware of this reality.  We note that the Green Street CPPI as of January 5, 2024, notes that unlevered commercial real estate ended 2023 down 10% and in aggregate was down 22% from its March 2022 peak, as highlighted in the chart below.  In perpetual life investment program valuation considerations are critical, both to ensure an equitable price for shareholders seeking liquidity and also for those shareholders that remain in the investment vehicle.

For more information: CLICK HERE

Bluerock Homes Trust, Inc. (NYSE American: BHM) Announces Enhancement to Dividends on its Series A Redeemable Preferred Stock

On December 27, 2023, the REIT announced that its board had authorized special dividends on its recently launched series of preferred stock. The special dividends will be paid in addition to the existing preferred dividend of 6.0%. The special dividend will seek to include a 2% spread over the 10-year U.S. Treasury rate subject to a floor of the 6.0% preferred dividend on a monthly basis. Therefore, any month in which the 10-Year U.S. Treasury rate exceeds 4.0%, preferred stockholders would receive a special dividend. The 10-year yield was 3.99% as we went to press today.

BHM was formed as a spin-off of the single family rental assets from Bluerock Residential Growth REIT (formerly NYSE: BRG) following the sale of its multifamily assets to Blackstone in a deal announced in December 2021.

For more information: CLICK HERE

Lodging Fund REIT III Extends Maturities on Two Loans

On January 3, 2024, the REIT reported that it entered into modifications on two loans to extend maturities. The first loan, a line of credit with Western State Bank, extended the maturity date from November 15, 2023, to April 30, 2024. The modification also reduced the amount available from $5.0 million to $4.67 million and required the REIT’s operating partnership to pay a $0.3 million principal curtailment. The second loan, with NHS, LLC (an entity controlled by the REIT’s CEO Norman Leslie), was modified to extend the maturity date from July 6, 2023, to January 31, 2024, and change current interest payments to accrued interest due and payable on the maturity date.

The REIT has not filed its quarterly or annual reports with the SEC since the second quarter of 2022.

For more information: CLICK HERE

Silver Star General Counsel Resigns Subsequently Appoints New General Counsel

Silver Star reported on December 29. 2023, that Michael Racusin resigned as general counsel and secretary of the REIT effective January 5, 2024. Mr. Racusin’s resignation was not due to any disagreement with the REIT or its board of directors regarding its operations, policies, or practices.

Silver Star subsequently appointed Adrienne Collins to serve as general counsel and secretary effective January 17, 2024. Ms. Collins’ employment contract includes severance pay if her employment is terminated without cause due to a change in control of Silver Star within 12 months.

The REIT also filed suit against former Executive Chairman and CEO Allen Hartman, and certain related entities, in December 2023. The petition, which can be found here, alleges fraud, fraud in real estate transactions, civil conspiracy to commit fraud, slander of title, tortious interference, fraud by nondisclosure, negligent misrepresentation, breach of fiduciary duties, civil conspiracy to beach fiduciary duty, and breach of contract related to Mr. Hartman’s executive and board roles at Silver Star.

We note the second sentence of the petition verbatim:

(Mr. Hartman) “spent his time and money on political endeavors (including travelling to the Capitol for the January 6 riots and supporting Michael Flynn’s challenges to the 2020 Presidential election) and faith-based endeavors, instead of his company responsibilities.”

Silver Star noted that it believes that Mr. Hartman’s, and certain affiliates actions, “including self-dealing and misuse of Company resources, breaches of fiduciary duty, and fraudulent litigation and lis pendens actions, have caused the Company to incur substantial damages. The legal proceedings aim to address the alleged misconduct comprehensively and to position the Company to recover damages caused by the Hartman Defendants.”

For more information: CLICK HERE, CLICK HERE and CLICK HERE

Hines Global Income Trust, Inc. Announces Temporary Resignation of Director as Search Continues for an Additional Independent Director

Humberto Cabanas resigned from the board in November 2023. Mr. Cabanas was an independent director, and his resignation was not due to any disagreement with the board. Following Mr. Cabanas resignation, the REIT does not have a majority of independent directors. Laura Hines-Pierce voluntarily resigned from the board effective December 31, 2023, to re-establish a majority of independent directors while the nominating and corporate governance committee works to identify and appoint a new independent director. Ms. Hines-Pierce will be re-appointed to the board following the identification and appointment of a new independent director. Ms. Hines-Pierce serves as the Co-Chief Executive Officer of Hines, the REIT’s sponsor.

The REIT further reported that the nominating and corporate governance committee appointed John Niemann, Jr. to serve as the temporary chair of the valuation committee, and Douglas Cameron to serve as temporary chair of the conflicts committee. The board anticipates that once a new independent director has been appointed, they will reassess committee composition.

For more information: CLICK HERE

KBS Real Estate Investment Trust III, Inc. Hands Back San Francisco Office Tower to Lender

On January 4, 2023, the REIT reported KBS handed the keys to 201 Spear Street back to the lender in December 2023. The REIT defaulted on a $125 million loan secured by the property in November 2023. KBS reported that the asset was currently valued “at substantially less than the outstanding debt”. The default represents 7% of the REIT’s outstanding debt as of 2023Q3. KBS has guided that this deed-in-lieu of foreclosure may lead to accelerations in approximately $649.5 million in other outstanding debts under other outstanding loan agreements.

KBS further reported that it defaulted on a $606 million loan facility scheduled to mature in December 2023, which was subsequently modified to extend into February 6, 2024. KBS made a principal paydown payment of $5 million to secure the six-week extension. Under the modification all excess cash from the six properties secured by the loan facility will be swept into a cash sweep account for the lender. This loan comprises approximately 34% of the KBS outstanding debts.

KBS REIT III has total leverage of 67% on a debt-gross properties basis, with approximately 2/3 of its $1.7 billion in debts originally scheduled to mature in 2023 and 2024. KBS has guided that they will evaluate future distributions on a quarterly basis, management has indicated in the “near term it is likely that we will not pay distributions for some amount of time until there is improvement in the debt and capital markets.” Due to uncertainties of the REIT’s ability to extend or refinance significant maturities the REIT has included a going concern notice in its quarterly reports in 2023.   KBS REIT III has provided an updated estimated NAV per share of $5.60 as of December 12, 2023, this marks a decline of 38% from the estimated NAV per share of $9.00 as of September 2023.

For more information: CLICK HERE

Ashford Inc. (NYSE American: AINC) Receives Letter of Non-Compliance from NYSE American

Ashford Inc. received a de-listing notice from the NYSE American LLC on December 20, 2023, The company was in non-compliance with listing standards requiring stockholders’ equity of $2 million or more if the company has reported losses from continuing operations in two of its three most recent fiscal years and has a market capitalization of less than $50 million. The company reported a stockholders’ deficit of $295.7 million as of September 30, 2023, and losses in three of its four most recent years. AINC’s market capitalization was approximately $13 million as of January 4, 2024. AINC shares have traded down from $13.52 as of January 1, 2023, to close at $3.82 on January 4, 2024.

AINC must submit a plan of compliance by January 19, 2024, detailing how it anticipates regaining compliance by June 20, 2025.

AINC reported that it will comply with the NYSE American’s requests and submit its plan of compliance, and further noted that the notification does not affect the company’s business, operations or reporting requirements with the SEC.

AINC serves as the external advisor for two hospitality REITs, Braemar Hotels & Resorts Inc. (NYSE: BHR) and Ashford Hospitality Trust (NYSE: AHT).

For more information: CLICK HERE

REITs

Sila Realty Trust Board of Directors Makes No Recommendation Related to Discounted Third Party Tender Offer from Comrit

Comrit recently announced a tender offer to purchase shares in Sila Realty Trust at a price of $5.62 per share, which represents a discount of approximately 30% from the REIT’s most recently estimated NAV per share of $8.13 as of March 31, 2023. Comrit previously made an offer earlier in 2023 at $5.21 per share, which Sila’s board of directors urged shareholders to reject. This adds a wrinkle given the board is now making no recommendation and is neutral on the current discounted offer.

FactRight notes that it is atypical for a REIT’s board to remain neutral on a discounted third-party tender offer, which is understandable given the board’s fiduciary duties to stockholders. Generally, boards of directors recommend rejecting discounted tender offers, and we are only aware of one other board remaining neutral on a third party tender offer. Sila’s board notes a couple of factors that color its decision including the limited shareholder liquidity presently available and that it has engaged a third party to furnish an updated estimated NAV per share. Sila noted that there is no guarantee that the board will establish an updated estimated NAV per share. The REIT has limited shareholder redemptions to hardship, including death and disability, since the Covid-19 pandemic in 2020.The REIT has not provided firm guidance on any future path to increased shareholder liquidity.

Based on 2022 data from the REIT, the Comrit offer is priced at an implied cap rate of approximately 9% and the most recent estimated NAV per share is priced at an approximately 6.5% cap rate. Shareholders have until December 29, 2023, to accept the Comrit offer.

For more information: CLICK HERE

Vinebrook Homes Trust, Inc. Completes $392 Million Securitization Transaction

On December 11, 2023, Vinebrook reported that it had closed on a securitization transaction involving a collateral pool of 2,776 homes. The securitization provides $392 million in proceeds for Vinebrook and key terms included a 5-year interest only term with a 4.75% interest rate. The securitization includes certain affirmative and negative covenants, requires Vinebrook to maintain certain cash reserves, and restricts certain uses of cash generated from operations of the collateral pool. Certain subsidiaries of Vinebrook will retain $39 million of the securitization pass-through certificates for risk-retention purposes.

For more information: CLICK HERE

Silver Star Properties REIT, Inc. Appoints Executive Chairman Gerald Haddock as Chief Executive Officer 

On December 11, 2023, the REIT reported that its board of directors appointed Executive Chairman Gerald Haddock to serve as CEO and named David Wheeler, who was serving as interim CEO, president and co-CEO.

For additional information: CLICK HERE

Ares Real Estate Income Trust Appoints New CFO 

On December 12, 2023, the REIT reported that it appointed Taylor Payl to serve as its CFO and treasurer.  Mr. Paul has served as chief accounting officer of the REIT since 2018 and has served in various roles at Black Creek (the predecessor of the REIT’s current sponsor, Ares) since 2006.

For additional information: CLICK HERE

 

Private Equity

GPB Capital Holdings, LLC Monitorship Converted to Receivership

On December 13, 2023, GPB Automotive Portfolio, LP and GPB Holdings II, LP, both reported that GPB Capital Holdings, LLC (GPB CH, the general partner for each of the aforementioned entities) had its court-imposed monitorship converted into a receivership by the United States District Court for the Eastern District of New York. The SEC had sought the order in filings in June 2023. In 2021 the same court had placed Joseph Gardemal III as an independent monitor over GPB CH. The court recently appointed Mr. Gardemal III to serve as the receiver, whereby he will propose a plan to distribute GPB CH and affiliates assets to investors. The order converting the monitorship into a receivership also bars new litigation against GPB CH and affiliates so as to preserve assets for investors. The WSJ has further reporting on the matter available here.

For more information: CLICK HERE and CLICK HERE

 

Alternative Ramblings

Sea Change: Federal Reserve Forecasts Rate Cuts in 2024 and REITs Catch a Bid

In recent statements, Fed Chairman Jerome Powell noted that with inflation moderating, the Fed anticipates 3 interest rate cuts in 2024. This news sent broader equities markets to all-time highs. One of the largest sector beneficiaries of the dovish comments has been the real estate sector. The MSCI Real Estate Index rose approximately 5% since the news as reflected in the chart below from CNBC.

Crime that Doesn’t Pay

The SEC recently filed a complaint concerning a (misguided) attempt at profiting from the manipulation of WeWork stock through a fraudulent tender offer.  The complaint against John Larmore, the person behind the fraudulent tender offer, alleges that Mr. Larmore acting through an entity called Cole Capital Funds, LLC (not the Cole Capital that raised funds from retail investors for various REITs and merged with American Realty Capital in 2013) purchased out of the money calls and filed a fraudulent tender offer in which Cole Capital Funds, LLC announced that it had made an offer to take WeWork private at a price of $9.00 per share.  Unfortunately for Mr. Larmore, he did not actually profit from the scheme as his tender offer press release was released at 5:12 pm EDT and left little time for the stock to move on the fraudulent news, and for him to exercise his out-of-the money call options that expired the same day at 5:30 pm EDT.

The complaint also includes charges stemming from Mr. Larmore’s alleged misappropriation of investor funds from his management of certain ArciTerra funds that raised capital from retail investors in the 2010s. The misappropriation allegedly began in January 2017. The DIWire provides additional color on the story here.

Life lesson (and totally NOT LEGAL ADVICE) If you are going to engage in a fraudulent scheme to manipulate a stock…make sure your fraudulent press release is actually released while you still have time to exercise your options, that’s stock manipulation 101!

NAV Loans: Financial Innovation or Harbinger of Peak Private Equity?

Ted Seides of Capital Allocators has a podcast on the trend in NAV loans in private equity funds that is a great 15 minute listen.  NAV loans are loans to private equity funds that subordinate the limited partner interests in the respective fund and represent an innovation in capital formation for private equity funds not present in previous market cycles. The use of NAV loans is an innovation in financing in that it represents additional fund level leverage for private equity funds in addition to the typical borrowing at the underlying portfolio level.  This effectively cross collateralizes leverage at the private equity fund level, which is atypical amongst private equity funds and injects additional risk across the fund. The use of proceeds from the NAV loans varies and may include recapitalizing existing portfolio companies, making additional investments, or provide leveraged distributions to fund investors among others. Typical interest rates on NAV loans have generally been in the low-teens which makes the cost of leveraged distributions quite high. This is also notable in that the use of NAV loans presumably is done after consideration (and likely rejection by lenders) of providing additional leverage to the individual portfolio companies and thus represents a last-ditch effort to further lever a portfolio.  Like all financial sector innovation (which seemingly happens later in a cycle), this has been met with some skepticism, as Mr. Seides believes the advent of NAV loans may be a leading indicator that private equity may be at peak levels given the elevated interest rate environment.

Watch out Taylor Swift….Blackstone Announces the Alternatives Era Tour

Blackstone recently posted a holiday video that well…..the cringe is real!

REITs Silver Star Properties REIT, Inc. Independent Board Directors Release Statement and Broadens Investment Mandate Silver Star Discloses SEC Interactions On November 27, 2023, Silver Star posted a transcript of a message from independent director Gerald Haddock, which includes details of recent events at Silver Star and the independent directors’ recommendation to continue to support their membership on the board of directors. Mr. Haddock was appointed executive chairman of the board of directors in September 2023. Mr. Haddock notes that he and the independent directors became increasingly concerned with internal guidance that Allen Hartman (the REIT’s then CEO and chairman of the board) was giving to the board over the past couple of years. Mr. Haddock noted that Mr. Harman “was always busy, but not on company matters.” And was involved in “developing succession plans for young, inexperienced family members and thereby destroying morale for those seasoned long-term executives we wanted to keep.” Mr. Haddock further noted the independent board members became increasingly concerned with the REIT’s distribution coverage and shareholder liquidity, and the board moved to stop distributions in 2022 until the shareholder liquidity matter could be resolved. FactRight notes that the shareholder redemption program was previously oversubscribed and limited to shareholder hardship beginning in July 2020. The board suspended the redemption program indefinitely in July 2022. Mr. Haddock noted that the board discovered “cash shortages were resulting in part from the relationship that existed with tenants in both renewal and new lease situations as well as with respect to tenant improvements.” Mr. Haddock indicated that this shortfall had led the REIT into certain borrowing from Hartman vREIT XXI (Hartman XXI, an affiliate of Silver Star) and that the borrowing from Hartman XXI was “not approved” by the Silver Star board and was also “in violation of Hartman XXI’s charter.” Silver Star reported $15.3 million in notes payable to related parties in its most recent quarterly report. The independent directors noted that they made the decision to remove Allen Hartman as CEO after Silver Star’s investment bankers “told us that if Mr. Hartman is at the helm, Silver Star will not be able to raise any capital.” After consideration of other alternatives, the independent directors then determined to approve the strategy of selling the REIT’s legacy assets and redeploy the proceeds into self-storage assets. The independent directors noted they then began a process of negotiating “an orderly and fair separation between the REIT and Hartman and his affiliates.” No agreement was subsequently reached as Mr. Hartman wanted to realize a higher valuation on his shares in Silver Star than other shareholders would be able to obtain. Mr. Haddock noted that the decision to enter Hartman SPE into Chapter 11 bankruptcy was done in an effort to allow the sale of certain REIT assets that were subject to certain legal claims that Mr. Hartman was making related to these assets. Mr. Haddock reported that Silver Star was able to sell $152 million in assets in 2023 and will have approximately $370 million to invest in self-storage assets and “other attractive assets” in other sectors, likely in the state of Texas. Silver Star Discloses SEC Interactions On November 28, 2023, Silver Star reported that on June 6, 2023, the REIT received a “document hold” request from the SEC’s Fort Worth office and further voluntary information requests regarding certain of the REIT’s, its affiliates’, and current and former officers’ and directors’ activities and corresponding disclosures. Silver Star reported that it has complied with these requests from the SE. In August, the SEC requested additional information related to the REIT’s internal review of certain matters pertaining to former CEO Allen Hartman. Silver Star reported that on November 22, 2023, its counsel spoke with a representative of the SEC’s Fort Worth office in which the SEC indicated it is continuing to review various matters pertaining to Silver Star. Silver Star noted that “as a result of that conversation, and out of an abundance of caution, the Company is proceeding as if the SEC Matter is now an active investigation.” In July 2023 Silver Star sent the DI Wire a letter demanding the retraction of an article that stated that the SEC had initiated an investigation into certain matters at Silver Star. We reported on this here. The DI Wire article is still available on their website and may be viewed here. We have previously reported on developments at Silver Star here, here, here, and here. For more information: CLICK HERE Silver Star subsequently filed a definitive proxy proposal seeking investor approval on four separate matters. These include: Re-elect the three independent directors comprising the REIT’s executive committee (Gerald Haddock, Jack Tompkins, and James Still). Ratify Weaver and Tidwell, L.L.P. to serve as Silver Star’s public accounting firm. Conduct an advisory consent approving compensation arrangements for certain executives. Reduce the frequency of advisory consents on executive compensation from annually to every three years. The advisory votes contained in proposals three and four above are non-binding on the REIT. Shareholder votes are due by January 27. For more information: CLICK HERE   Lightstone Value Plus REIT II, Inc. Announces Tender Offer in Response to Third Party Tender Offer On November 22, 2023, the REIT announced that its board of directors approved a tender offer for up to 860,000 shares at a price of $6.00 per share. The REIT reported that this is in response to an unsolicited tender offer of the same amount of shares priced at $5.51 per share from West 4 Capital LP, an unaffiliated entity of the REIT. These offers are substantially below the most recent estimated NAV per share of $10.12 that the REIT reported as of December 31, 2022. The board of directors recommends that stockholders not tender their shares in either the West 4 Capital LP offer or the REIT’s own tender offer. The REIT had previously suspended its share redemption program in March 2020. The REIT reopened the share redemption program in May 2021 for stockholder hardship including death or disability and would limit such redemptions to 0.5% of outstanding shares in a given year. For more information: CLICK HERE and CLICK HERE

Interval Funds Wildermuth Fund Appoints New Advisor to Guide Liquidation Process and Announces Resignation of Founder Alternative Liquidity Capital Announces Tender Offer of Wildermuth Fund Shares at $2.50 per Share  On November 2, 2023 the Wildermuth Fund filed a prospectus supplement that reported that both Daniel Wildermuth and Carol Wildermuth resigned from the board of trustees and from their officer roles at the Fund. Mr. Wildermuth further resigned as chairman of the board and the advisory agreement with Wildermuth Advisory, LLC, was terminated. The remaining board members appointed BW Asset Management Ltd, a subsidiary of Kroll, to serve as the interim investment advisor to the Fund. BW Asset Management will earn a management fee of 1.5%, which was the same management fee as under the previous management agreement. The Fund reported that Mitchell Mansfield is serving as the portfolio manager of the Fund. Mr. Mansfield leads the funds and asset management services for the restructuring arm of Kroll. The Wildermuth Fund reported total assets of $103.8 million as of June 30, 2023, according to its most recently filed Form NPORT-P. The Fund’s most recently reported NAV per share was $10.00 as of August 14, 2023. Wildermuth Fund previously announced in June 2023 that its board had approved a plan of liquidation for the Fund. No estimated timeline of the completion of the liquidation has been provided. Alternative Liquidity Index, LP has announced an offer to purchase up to 238,000 shares of the Wildermuth Fund for $2.50 per share, a 75% discount to the most recently reported NAV per share. The offer expires December 20, 2023. Additional information on the offer is available here. For additional information: CLICK HERE and CLICK HERE  NexPoint Real Estate Strategies Fund On November 14, 2023, the Fund filed a prospectus supplement reporting that Matthew Goetz no longer serves as a portfolio manager for the Fund.  James Dondero and Matthew McGraner continue to serve as portfolio managers on the Fund. For more information: CLICK HERE  Alternative Ramblings Trustee Assignment for GWG Liquidating Trust Tainted by Love? The Wall Street Journal reports that former bankruptcy judge David Jones “backed his romantic partner as a candidate for a trustee assignment [for the GWG Liquidating Trust] without disclosing their relationship before he resigned from the bench last month.” This is kind of a legal ethics no no. Per the WSJ, Judge Jones spoke favorably about Elizabeth Freeman during certain mediated discussions and said she would be a good choice to become the liquidating trustee per people familiar with the matter. Judge Jones then approved an agreement between GWG and its stakeholders regarding her appointment. The WSJ noted that Mr. Jones confirmed that he and Ms. Freeman were living together without disclosing their relationship in court and that they have owned a house together in the Houston area since 2017. Mr. Jones subsequently resigned from his position as a bankruptcy judge. Ms. Freeman became GWG’s liquidating trustee following the approval of the plan of liquidation by another bankruptcy judge in June 2023. Further details on the matter are available here. CaliberCos Inc. (NASDAQ: CWD) Announces Joint Venture to Develop 11 Acre Pickleball Facility in an Opportunity Zone Outside of Scottsdale, AZ On November 13, CaliberCos announced the joint venture with PURE Pickleball™ to develop the facility as part of the 100-acre Riverwalk Development Project in the Salt River Pima Maricopa Indian Community.  The multiphase project will initially include 28 indoor pickleball courts and a “first-of-its-kind Championship Court” with a wraparound 500 seat stadium. An additional 16 outdoor courts are anticipated in additional phases. The developers claim the facility will be one of the largest pickleball facilities in the world. USA Pickleball (apparently the national governing body for pickleball?) chief operating officer Justin Maloof noted that the organization anticipates making the facility the permanent headquarters and official national training center for USA Pickleball. After watching more of the National Pickleball Championships on television than I’d care to admit, this… actually sounds interesting.  I may need to give this game a shot. Mezzanine Debt Foreclosures Increasing According to the Wall Street Journal, mezzanine debt lenders have filed a record number of foreclosure notices. This is based on the WSJ’s analysis of 15 years of UCC foreclosure-sale notices on commercial-property loans published in national and regional newspapers. Broadridge Expects Assets for Broker-Dealers to Grow at a Faster Rate than for Wirehouses or RIAs through 2027 The report has some interesting updates on the U.S. advisor industry, including insights that paint an optimistic picture of asset growth for independent broker-dealers, as Broadridge anticipates CAGR on the channel increasing at a faster pace than the wirehouse and RIA channels through 2027, as highlighted in the chart below. Results from the Broadridge Financial Advisor Survey also highlight increased utilization of alternatives, with increases from 56% to 67% of advisors surveyed year-over-year, and growth across multiple alternative sectors. Broadridge further reported ESG investment awareness continues to increase at double digit percentages amongst the investor base, however percentage of clients invested in ESG strategies increased only 1% year-over-year. Broadridge reported that demand for such products “continues to rise overall, particularly among younger, female, and more affluent investors.”

REITs Silver Star Properties REIT CEO Resigns After Appointment Three Months Ago   On November 2, the REIT reported that Steven Treadwell resigned as CEO effective October 27, 2023.  Mr. Treadwell was appointed CEO in August 2023.  Shortly thereafter the REIT announced a special dividend of a preferred share purchase right and provided guidance on prospective refinancing activity.  Following Mr. Treadwell’s resignation, David Wheeler was named interim CEO. Mr. Wheeler has served as president of the REIT on an interim basis since early 2023, which has been a tumultuous time for the REIT with the appointment and subsequent resignation of Mark Torok as CEO and the removal of Allen Hartman as executive chairman of the board.  We’ve reported on these matters here, here, and here.  Silver Star reiterated its commitment to pivot to a self-storage focused strategy and that it will continue its efforts to recruit an experienced self-storage executive to lead its operations.  Mr. Wheeler noted that Silver Star had sold $152 million in property in 2023 and anticipates completing additional sales in the future that will leave approximately $370 million available (at an approximate 50% loan-to-value) to redeploy into self-storage assets. For more information: CLICK HERE Lodging Fund REIT III, Inc. Dismisses Deloitte & Touche and Appoints Marcum LLP as Independent Public Accounting Firm On October 27, the REIT reported that its board of directors had both dismissed Deloitte & Touche LLP (Deloitte) and appointed Marcum LLP to serve as its independent public accounting firm on October 24, 2023. Deloitte had served as the REIT’s audit firm for 2020 and 2021 and provided clean audit opinions of the REIT’s financial statements in each year. Concurrent with its dismissal, Deloitte filed a letter with the SEC stating that it had no disagreements with the REIT related to its financial statements, disclosures, practices, or accounting principles. The REIT has not filed quarterly reports with the SEC since the second quarter of 2022, nor has it filed its annual report for the year ending 2022. The REIT has reported that uncertainties related to the SEC matter disclosed on September 23, 2022, have led to delays in filing its quarterly and annual reports. We previously reported on the SEC matter here as well as the SEC settlement with former CEO Corey Maple related to certain reimbursements of REIT overhead expenses in a manner that was inconsistent with disclosures made to investors. For more information: CLICK HERE CaliberCos Inc. (NASDAQ: CWD) Reports Growth in AUM in Third Quarter Call On November 9, 2023, Caliber, a manager and operator of real estate assets, reported continued growth in its asset management business, with AUM up approximately 20% year-over-year to $822.5 million and asset management revenue up 26% over the same period. Caliber notes that they are targeting cumulative fundraising of approximately $750 million for 2024 through 2026 and an AUM target of $3 billion by year-end 2026. CEO Chris Loeffler noted: We believe the real estate market is currently at an inflection point, where the number of distressed real estate opportunities will grow.  We took several important steps during the quarter to ensure our organization has the requisite capacity to capitalize on this environment, including increasing our bench strength in our wholesale sales channel, and investment management, and financial analysis teams. For more information: CLICK HERE and CLICK HERE Sila Realty Trust, Inc. Announces Departure of Chief Administrative Officer The REIT announced that Jason Reed, its chief administrative officer, was notified “his employment shall no longer be in effect as of, December 31, 2023.” No information regarding a replacement officer or migration of duties was noted in the SEC filing announcing the departure. For more information: CLICK HERE Lightstone Value Plus REIT V, Inc. Completes Sale of 306-Unit Multifamily Property for $71 million The REIT announced that net proceeds of the transaction of approximately $33.8 million were placed in escrow to potentially facilitate a 1031 exchange transaction.  No additional details were furnished in the SEC Filing. Braemar Hotels & Resorts (NYSE: BHR) Reports Urban Hotel Performance Continuing to Rebound BHR reported its urban hotel segment revenues increased 8% year-over-year in the third quarter as corporate travel has continued to rebound in 2023, with portfolio group revenue up 15% over the same prior year period.  Additional details are available here, and the 2022Q3 earnings call transcript is available here. (That True North reference in the transcript should read Troon North–obviously the transcript recorder isn’t a bowler.) Alternative Ramblings Yardi Matrix 2023 Q4 Multifamily Supply Forecast notes that multifamily construction starts likely peaked late in the second quarter of 2023.  Similarly multifamily starts (not based on total unit count) are also down to approximately pre-pandemic levels, per data from the U.S. Census Bureau, as highlighted in the chart below. Additionally, individual market supply data was furnished by Yardi Matrix, with forecasts for 2024 as well.  The typical hotspots in the Sunbelt continue to see substantial supply growth as a percentage of existing multifamily stock. Yardi Matrix national forecast for additional multifamily units is muted through 2028, with levels substantially below anticipated deliveries in 2023.  Yardi cited a weakening economic environment, tight financing conditions, and record levels of new supply coming online as materially reducing anticipated construction activity over future years.

REITs Starwood Real Estate Income Trust, Inc. Reports Oversubscribed Redemption Requests in the Third Quarter  On October 17,  the Starwood REIT reported that it received aggregate repurchase requests of 3.6%, 3.9%, and 3.3% of outstanding shares in July, August, and September 2023.  These redemption requests exceeded the REIT’s 2% monthly and 5.0% quarterly redemption limitations. The REIT redeemed 2.0% of outstanding shares in both July and August, and 1.0% in September. Redeeming shareholders received redemptions of 55%, 51%, and 33% of their redemption requests in each respective month, as redemptions were conducted on a pro rata basis. We note this continues a trend prevalent at some of the largest NAV REITs in the market, including Blackstone, RREEF and others, which we’ve reported on here and here.  We further note there are signs that redemption demand, while still exceeding redemption limitations, is declining. For more information: CLICK HERE Comrit Offers to Purchase Pacific Oak Strategic Opportunity REIT Shares at 38% Discount to Most Recent NAV  In October, the REIT shareholders received a third-party tender offer from Comrit at $6.50 per share.  The offer is to purchase approximately 0.46 million shares of common stock (or 0.4% of the total outstanding shares). The tender offer is priced at a 38% discount to the REITs most recently reported estimated NAV per share of $10.50 as of September 30, 2022. The REIT’s management team has recommended shareholders reject the third-party tender offer. We note the $10.50 price per share is based on a valuation that is over a year old, with significant dislocation in public REIT markets in the ensuing year that cloud valuations of the portfolio. The REIT’s redemption program has remained oversubscribed, with approximately 14.0 million shares seeking redemption and only 0.3 million shares being redeemed in the first six months of 2023. For more information: CLICK HERE Hines Global Income Trust, Inc. Director Resigns On October 25, the REIT reported that Humberto “Burt” Cabañas gave notice of his resignation from the board of directors. Mr. Cabañas had served as an independent director at the REIT since 2014. The REIT reported that the resignation was not due to any disagreements with the REIT on its operations, policies or practices of the REIT’s management or board of directors. For more information: CLICK HERE

Alternative Ramblings CMBS Trustee Files Lawsuit to Have Court Appoint Receiver to Take Control of Certain Park Hotels (NYSE: PK) Assets in San Francisco  PK announced that the trustee of the CMBS loan filed a lawsuit, through its special servicer, to have a receiver appointed to take control of the Hilton San Francisco Union Square and the Parc 55 San Francisco hotels that PK ceased making debt services payments on earlier in 2023. According to PK’s SEC filings, the terms stipulated between the special servicer and PK would allow the to-be-appointed receiver to market the hotels until September 1, 2024. If a sale transaction is not signed during that period, the assets would be handed over to the lender through a non-judicial foreclosure. PK anticipates the appointment of a receiver within the next few business days. Some Quick Hits from REIT Earnings Call Season Prologis (NYSE: PLG) The REIT reported during its recent earnings call, that management has noted some weak rent growth expectations in certain geographies, including Southern California (and specifically the Inland Empire), Indianapolis and Houston. Invitation  Homes Inc. (NYSE: INVH) The REIT noted in its earnings call that it returned to substantial acquisition activity in the single-family rental (SFR) space after a tepid period as a net seller of SFR assets from late 2022 to early 2023.  The REIT is also in discussions to manage a large portfolio of SFR assets for Starwood Capital. Mid -America Apartment Communities (NYSE: MAA) The REIT reported in its earnings call that recent deliveries of merchant developer completed apartments and aggressive leasing concessions related to these deliveries were altering supply-demand dynamics in certain markets, largely in the Sunbelt. However, management affirms that they believe this is a short-term dynamic and long-term demand in these markets should continue to outpace supply.

REITs RREEF Property Trust, Inc. Reports Oversubscribed Redemption Requests in the Fourth Quarter On October 10, 2023, RREEF reported that it had received redemption requests in excess of its 5% quarterly limit. The company noted that it redeemed all requests tendered prior to October 9, 2023, and subsequently redeemed 62.2% of requests received on October 9, 2023. Shareholders seeking liquidity must be resubmitted on or after January 1, 2024. This marks two consecutive quarters of oversubscribed redemption requests at RREEF, a trend that has been persistent across many large NAV REITs in the market beginning in the latter half of 2022. For more information: CLICK HERE Lodging Fund REIT III, Inc. Extends Credit Facility  On October 10, 2023, the REIT reported that it reached an agreement to extend the maturity of a $4.67 million credit facility with Western State Bank. The credit facility, which is secured by three specific hotel assets and limited partnership units of the REIT’s operating partnership, was previously scheduled to mature on September 15, 2023, and was extended to November 15, 2023. This credit facility’s maturity was previously extended multiple times in 2022 and earlier in 2023. For additional information: CLICK HERE  Carter Multifamily Growth & Income Fund II Suspends Distributions and Subordinates Advisor Fees The DIWire reports that Carter Multifamily Growth & Income Fund II suspended distributions to investors and that its advisor had agreed to defer and subordinate all of its asset management fee until investors receive a return of their invested capital. These changes are to begin in October 2023. For more information: CLICK HERE

Regulation A+ Red Oak Capital Funds II, IV, V, and Red Oak Income Opportunity Fund Enter into Merger Agreement to Form Series LLC On October 5, 2023, the referenced funds (collectively the Red Oak Funds) entered into a merger agreement in which each fund will become a series of Red Oak Capital Fund Series, LLC, the successor issuer of the Red Oak Funds. Each of the Red Oak Funds had previously issued various bonds to investors through Regulation A offerings. Red Oak reports that the consolidation of the individual funds into a series LLC is designed to streamline reporting and compliance costs across the individual funds. Each of the respective Red Oak Funds will continue to operate as a separate series of the successor issuer. The successor issuer will also assume the duty to file reports with the SEC for each of the respective series related to securities issued by the Red Oak Funds. Red Oak Capital Fund III, LLC, is not included in the merger agreement. For more information: CLICK HERE and CLICK HERE Alternative Ramblings PIMCO Hands Back Keys to 20 Hotels Pacific Investment Management Company is walking away from a 20-hotel portfolio, according to Bloomberg. The portfolio is held in a joint venture that included a $240 million mortgage that was obtained in 2017. A recent appraisal on the portfolio indicated a 16% decline in the value of the portfolio, to approximately $273 million. The mortgage is reportedly in special servicing. The Real Deal provides additional commentary here. This news comes on the heels of both Park Hotels & Resorts, Inc. and Ashford Hospitality Trust making similar announcements related to certain hospitality assets earlier in 2023. C’mon Dude, `: VICI Properties (NYSE: VICI) Acquires Portfolio of Bowlero Entertainment Centers at 7.3% Cap Rate VICI Properties announced that it had acquired the real estate assets of 38 Bowlero entertainment centers for approximately $433 million. This marks the first bowling-related acquisition for the casino gaming operator. The sale-leaseback transaction is priced at a 7.3% cap rate with an initial 25-year term and six 5-year tenant renewals. Rent under the lease increases at the greater of 2.0% or CPI (capped at 2.5%).  The lease is guaranteed by the Bowlero Corp (NYSE: BOWL), which sports a $1.9 billion market capitalization and manages over 328 bowling centers across the U.S., Canada, and Mexico. Anyone Looking to Sell a Self-Clearing Broker-Dealer? If anyone in our audience is interested in selling such a broker-dealer, please reach out to us.  We would be glad to connect you with interested parties.

REITs

Blackstone REIT Redemption Requests Decline 28% to Lowest Level Since Proration Began in October 2022

Blackstone Real Estate Investment Trust, Inc., (BREIT, or REITzilla to some) reported that total shareholder redemption requests continued their decline month-over month, as highlighted in the chart below courtesy of Armada ETF Advisors. BREIT redemption requests are at their lowest level since proration of share redemptions began in October 2022. Monthly redemption requests peaked at approximately $5.3 billion in January 2023 and have begun to moderate through the summer of 2023. BREIT’s share redemption program allows for redemption of up to 2% of outstanding shares on a monthly basis and up to 5% of shares on a quarterly basis. However, BREIT retains discretion in whether to repurchase a lesser amount, or no shares at all, in any given period. BREIT reported that it had fulfilled $625 million (approximately 30%) of the September redemption requests, which equates to 1% of outstanding shares in August 2023, consistent with BREIT’s practice of repurchasing 1% of outstanding shares in the final month of each quarter, after purchasing 2% of outstanding shares in each of the first two months of each quarter.

We note if these trends continue, it is possible that BREIT may clear its redemption backlog by the end of 2023 or early 2024. This would total over $12 billion in share redemptions in approximately one and a half years, a staggering amount considering there are less than two dozen publicly traded REITs with market capitalizations in excess of $12 billion.

For more information: CLICK HERE Inland NAV REIT Receives Notice of Effectiveness from the SEC IPC Alternative Real Estate Income Trust, Inc. received a notice of effectiveness on September 28, 2023.  The NAV REIT focuses on healthcare-related properties, student housing, and self-storage properties. The REIT was seeded with approximately $446 million in assets from affiliates, including approximately $399 million in healthcare assets and $36 million in student housing properties. For more information: CLICK HERE Manufactured Housing Properties Inc. CFO Resigns in July 2023 Manufactured Housing Properties Inc. (MHP) reported that Vira Turchinyak resigned from her position as chief financial officer on July 28, 2023. MHP reported that the resignation was not due to any disagreement with the company’s operations, policies, or practices.  Raymond Gee, MHP’s chairman and chief executive officer, has been appointed to serve as CFO.  We note that Ms. Turchinyak was appointed CFO in January 2023, taking over from Chelsea Gee who resigned in January 2023.  Ms. Gee is married to Richard Gee, who serves as a director on MHP’s board of directors and is the son of Raymond Gee. For more information: CLICK HERE Business Development Companies FS Specialty Lending Fund (f/k/a FS Energy & Power Fund) President Eric Long Resigns as Fund Begins Strategy Change On September 29, 2023, Mr. Long notified the fund’s board of his resignation as president.  The fund reported that Mr. Long’s resignation was not due to any disagreement with the company’s operations, policies or practices. We previously reported on the fund’s shift in strategy here.  FS Specialty Lending Fund announced the name change and shift in strategy from its previous focus on investing in U.S. energy and power companies to a diversified strategy across public and private credits in a broader set of industries. We noted that shareholder approval of this strategy shift was not required, as the investment strategy was a non-fundamental policy of the fund. For more information: CLICK HERE Prospect Capital Corp. (NASDAQ: PSEC) Announces Change in Audit Firm On September 29, 2023, PSEC reported that its audit committee appointed Deloitte & Touche LLP to serve as the company’s independent registered public accounting firm effective for the fiscal year ending June 30, 2024. PSEC reported that it had concurrently dismissed BDO USA, P.C. as its auditor.  BDO had served as PSEC’s auditor dating back to 2005. PSEC reported that there were no disagreements with BDO on any matters, except for the disclosure of the material weakness in PSEC’s internal controls over financial reporting as disclosed in its 2022 annual report, which were remediated per disclosures in the 2023 annual report.  BDO filed a letter with the SEC agreeing with the statements made in PSEC’s filing with the SEC. For more information: CLICK HERE PSEC had earlier reported in late August that it would be unable to file its annual report in a timely manner as PSEC and BDO required additional time to complete the audit. PSEC filed its annual report on September 8, 2023. BDO provided a clean audit opinion that PSEC’s financial statements present fairly, in all material respects, the financial position of the company as of June 30, 2023, and 2022. BDO did identify a critical audit matter related to the valuation of level 3 assets, which was also disclosed in PSEC’s previous annual report for the year ending June 30, 2022. Impact Investing TriLinc Global Impact Fund, LLC, Files 2022 Annual Report On September 29, 2023, TriLinc filed its annual report for the year ending December 31, 2022, within the timeline of its previous guidance following the change in the fund’s auditor to KPMG LLP. KPMG’s audit opinion for the 2022 annual report noted that the financial statements present fairly, in all material respects, the financial position of TriLinc as of December 31, 2022.  Stay tuned for further details as we digest the annual report. For more information: CLICK HERE Alternative Ramblings Anyone Looking to Sell a Self-Clearing Broker-Dealer? If anyone in our audience is interested in selling such a broker-dealer, please reach out to us. We would be glad to connect you with interested parties. Sovereign Partners Acquires Manhattan Office for Fraction of Price Clarion Acquired the Property for a Decade Ago The RealDeal reports that Sovereign Partners acquired a 20-story midtown Manhattan office building for approximately $125 million in an all-cash deal. (The seller, Clarion Partners, previously paid approximately $230 million for the property in 2013.) Sovereign Partners’ acquisition values the asset at $450 per square foot, whereas Clarion purchased the property at a price of approximately $800 per square foot.  According to data from Green Street, Clarion had invested $15 million in capex into the building and a further $12 million in tenant improvements were made at the building during its holding period. This marks the second major NYC office purchase for Sovereign Partners in 2023 following its Tower56 acquisition in February 2023. Multifamily Construction Hitting a Lull The WSJ reports that multifamily construction starts fell 41% from the same month a year ago. This comes on the heels of a multifamily construction boom with more units expected to be delivered this year than in any year since the 1980s. Higher interest rates, and flat to declining rent on new units are attributable to the decline in multifamily starts. Construction loan interest rates have approximately doubled over the past year, deteriorating prospective investor returns on new projects. Similarly, shifting dynamics and uncertainty on exit pricing is dampening equity investor enthusiasm for such projects. The following charts highlight total units in multifamily construction starts and deliveries of units over the past few years.

Impact Investing

TriLinc Global Impact Fund, LLC, Provides Portfolio Update and Status of Audit for 2022 Annual Report

On September 22, 2023, TriLinc provided updates on the status of its audit for 2022, noting that it is currently underway with KPMG LLP, which was engaged on June 27, 2023. TriLinc anticipates filing the annual report by September 29, 2023. We note that TriLinc has not filed any financial statements with the SEC since the third quarter of 2022. As we went to press TriLinc had not filed the annual report.

TriLinc reported that while the 2022 audit has not been completed, preliminary estimates of net asset value (NAV) per share was $5.968 as of December 31, 2022, and $5.687 as of June 30, 2023 were reported in the most recent current report.  As of September 30, 2022, TriLinc reported a NAV per share of $6.84. However, TriLinc cautioned against undue reliance on these estimated NAV per share figures as they are subject to review by KPMG and have not been finalized.

We previously reported on the appointment of KPMG as TriLinc’s auditor in June 2023, and TriLinc’s history with other audit firms. These include RSM, which did not complete an audit of TriLinc’s financial statements, and BDO, which served as auditor from 2019 through 2021 and identified critical audit matters related to TriLinc’s valuation of portfolio investments. Additionally, in 2019, Moss Adams LLP declined to stand for reappointment as auditor for the company.

TriLinc focuses on making impact investments across the developing world through the use of various sub-advisors. Investments include term loans, trade finance participations, and equity investments. TriLinc raised approximately $361 million in equity proceeds in an offering that commenced in 2013 and closed in 2017.  TriLinc reported total assets of $333.8 million as of September 30, 2022, in its most recently filed quarterly report with the SEC. TriLinc reported that as of July 31, 2023, it had approximately $398.5 million in total financing commitments with a weighted average loan size of approximately $8 million and a weighted average duration of 0.76 years.

For more information: CLICK HERE

REITs

Brookfield Real Estate Income Trust Inc. Director Resigns

Brookfield reported on September 28, 2023, that Zachary Vaughan resigned from the board of directors.  No additional information related to Mr. Vaughan’s resignation from the board of directors was disclosed.

For more information: CLICK HERE 

Interval Funds

Cantor Fitzgerald Sustainable Infrastructure Fund Changes Name to Cantor Fitzgerald Infrastructure Fund

On September 22, 2023, the fund filed a prospectus supplement that noted the name change.  No change was made to the fund’s investment objectives or strategy, as the fund will continue to seek to maximize total return, with an emphasis on current income, while investing in issuers that are helping to address certain United Nations Sustainable Development Goals through their products and services.  Additionally, the fund will continue to target investments in private institutional infrastructure funds and public infrastructure securities.

For more information: CLICK HERE 

REITs

Silver Star Properties Announces Chapter 11 Bankruptcy Filing of Subsidiary

Silver Star reported that its subsidiary, Hartman SPE, LLC (the SPE), voluntarily filed for bankruptcy under Chapter 11 on September 13, 2023.  Silver Star noted that the filing was made in order “to improve its ability to sell its remaining legacy assets” which consist of various office, retail, and industrial assets.  Additionally, Silver Star reported that it completed the sale of its Prestonwood property, on September 8, for net proceeds of approximately $25 million.  Silver Star anticipates that the filing will assist in the orderly sale of its assets to pay its creditors, refinance its maturing SASB loan with Goldman Sachs Mortgage Company, which is scheduled to mature October 9, 2023, and reposition the portfolio into self-storage assets.  The bankruptcy filing constitutes an event of default under the SASB loan.  Silver Star reported that the bankruptcy filing follows “failed efforts amicably to resolve intercompany ownership matters” in a process dating back to December 2022.  Silver Star noted that it has “diligently pursued mediation and sought legal remedies in response to (former CEO and Chairman) Allen Hartman’s efforts to secure more favorable terms through the use of controversial legal tactics.”

Silver Star has sold eight assets in 2023 for net proceeds of approximately $108 million and reported that it is under contract on the sale of an additional $131 million in assets which are “expected to close in an amount sufficient to reach the $200 million loan balance required for refinancing from our replacement lender.”  We previously reported on multiple material developments at Silver Star here.

For more information: CLICK HERE and CLICK HERE 

Alternative Ramblings

Sovereign Partners Sells Connecticut Office Complex for $29.75 million 

Boston Real Estate Times reports that the transaction is the largest office property sale in Connecticut in 2023.  The office complex traded hands in 2019 for $19.95 million, marking approximately $10 million more than the acquisition price. Sovereign Partners invested over $3 million in building infrastructure and tenant amenities during its period of ownership.  FactRight notes that given the broader office market dynamics over the last few years, and recent transactions in certain other markets, this is an impressive bit of dealmaking in a challenging market.

W.P. Carey to Exit Office Market with Spin-Off and Sale of Additional Office Properties

W.P. Carey (NYSE: WPC) announced that its board of directors approved the spin-off of 59 office properties currently held by the REIT into a newly created publicly traded REIT named Net Lease Office Properties.  The spin-off is expected to be completed in November 2023.  W.P. Carey further noted that it would also seek to sell 87 additional office properties that it currently holds that would not be part of the spin-off.  The REIT announced that it expects to complete the sale of the 87 properties by January 2024.

W.P. Carey CEO Jason Fox noted:

“While we’ve meaningfully reduced our office exposure in recent years, the plan we’ve announced this morning vastly accelerates our exit from office — enhancing the overall quality of our portfolio, improving the quality and stability of our earnings, and incrementally benefiting our credit profile.  Ultimately, with a clear path to monetizing our legacy office assets, we believe we will achieve a lower cost of capital and be better positioned for long-term value creation for our shareholders.”

For more information: CLICK HERE 

What’s in a Name?

The Securities and Exchange Commission adopted amendments to the Investment Company Act “Names Rule” this past week.  From the SEC’s press release:

The Names Rule currently requires registered investment companies whose names suggest a focus in a particular type of investment to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”). 

The amendments to the Names Rule will enhance the rule’s protections by requiring more funds to adopt an 80 percent investment policy, including funds with names suggesting a focus in investments with particular characteristics, for example, terms such as “growth” or “value,” or certain terms that reference a thematic investment focus, such as the incorporation of one or more Environmental, Social, or Governance factors. 

The amendments will also include a new requirement that a fund review its portfolio assets’ treatment under its 80 percent investment policy at least quarterly and will include specific time frames – generally 90 days – for getting back into compliance if a fund departs from its 80 percent investment policy. 

Given the new rule perhaps the Sweater Cashmere Fund (actually a thing!) may need to change its name or at least materially change its portfolio holdings.  The Wall Street Journal reports more on the new rule here.

Cantor Fitzgerald Appoints Danny Salinas to Serve as CFO

Mr. Salinas joins Cantor Fitzgerald after serving in various roles including as CFO at TD Securities and over a decade in various roles at TD Bank Group.  Institutional Real Estate reports on the news here.

Minnesota Nice

A Minnesota kid out fishing on Lake of the Woods caught a wallet with $2,000 in cash and returned it to the Iowa farmer who lost it the previous year.  In true Minnesota fashion, the fisherman’s cousin netted the wallet.  That’s a pro move, always be ready on the net!

REITs

SEC Announces Settlement with Legendary Capital and Principal Corey Maple. Total Disgorgement, Interest and Penalties of Approximately $4.8 million

On August 28, 2023, the SEC announced it had settled charges against the REIT advisor, and certain affiliates (collectively Legendary), and principal Corey Maple “for their roles in directing two REITs to reimburse overhead expenses in a manner that was inconsistent with disclosures made to investors.” The SEC order finds that “from 2014 to 2020, the Respondents improperly directed Lodging Opportunity Fund Real Estate Investment Trust and Lodging Fund REIT III, Inc., (collectively the Funds) to reimburse approximately $5 million of overhead expenses.” The SEC’s order also noted that Legendary Capital entities and Mr. Maple represented that certain sponsoring entities would be responsible for the overhead expenses from managing the Funds, including payroll and office rent, and that the Funds would not be responsible for such overhead expenses.

Without admitting or denying the SEC’s findings, certain Legendary entities and Mr. Maple have agreed to a cease-and-desist order, and to pay total disgorgement of $2.7 million, interest of $0.5 million and penalties of approximately $1.5 million to harmed investors. The SEC also noted that Legendary will also retain an independent consultant to review internal policies, procedures and controls relating to the reimbursement of fees and expenses of the REITs they manage.

The SEC summary is available here and the full order is available here.

Lodging Fund REIT III, Inc. filed a current report disclosing the settlement of the SEC investigation here. As we previously reported, Mr. Maple resigned as CEO of Lodging Fund REIT III, Inc. in May 2023, while continuing on as Chairman of the REIT.

Peakstone Realty Trust, Inc. (NYSE: PKST) Terminates Administrative Services Agreement with Griffin Capital, LLC and Affiliates

PKST reported that it delivered a termination notice for human resources support services provided by affiliates of Griffin Capital, LLC effective as of October 6, 2023. PKST previously internalized its external advisor, and the administrative agreement was a last remaining vestige of its former structure as an externally advised REIT. PKST common stock listed on the NYSE in April 2023 and peaked around $40 per share before trending lower as shown in the following chart. 

For more information: CLICK HERE

Ares Industrial Real Estate Income Trust Inc. Expands Board with Two Additional Directors

Ares announced that effective August 16, 2023, Mr. David Fazekas and Ms. Dawanna Williams were appointed to serve as directors on the Board. Mr. Fazekas previously served in real estate roles at RREEF Deutsche Bank and serves currently as a Partner and Head of Ares Industrial Management. Ms. Williams is the founder of Dabar Development Partners based in New York City. Ms. Williams qualifies as an independent director.

For more information: CLICK HERE

Silver Star Properties REIT, Inc. Appoints Gerald Haddock as Executive Chairman of the Board and Announces Special Dividend Preferred Share Purchase Right

Silver Star Properties REIT, Inc. (Silver Star) reported on August 18, 2023, that its board of directors authorized a special distribution to common stockholders of one preferred share purchase right for each outstanding share of common stock. The preferred share purchase right entitles each common shareholder to purchase one one-fifth of a share of Series A Junior Participating Preferred Stock at a price of $5.00 per one one-fifth of a share of preferred stock. The purchase right expires on August 17, 2024. Silver Star reports that the preferred stock preferred dividend “when, as, and if declared” will be five times the dividend declared per share of common stock, including prospective liquidating distributions. The preferred stock will also feature five votes and will vote alongside the common stock, potentially diluting the existing common stock voting base. Further information and the articles supplementary of the Series A Junior Participating Preferred Stock can be found here and here. We note that Silver Star has not paid distributions to common stockholders since the second quarter of 2022 in an effort to preserve capital. Silver Star has previously noted in its quarterly reports a going concern notice related to certain debts coming due in October 2023, and recently provided guidance on anticipated refinancing activity. We reported on this here.

Silver Star also announced details of Mr. Haddock’s compensation package which includes 400,000 restricted stock units upon the successful completion of “both an IPO or other method of listing the company’s shares on an established securities exchange and a capital infusion by selling securities”. Mr. Haddock has served as an independent director on the board of Silver Star and its predecessor Hartman Short Term Income Properties XX, Inc. since May 2020.

Following the appointment of Steve Treadwell as CEO effective August 21, 2023, this marks a wholesale change in senior leadership positions at the REIT.

We have reported on other significant developments at Silver Star here, here, here, here, here and here.

For more information: CLICK HERE

Procaccianti Hotel REIT, Inc. Announces Pro Rata Share Redemptions

On August 22, 2023, Procaccianti announced that its board of directors determined that it had reached its redemption limit under its amended and restated share repurchase plan for the quarter ending June 30, 2023.  Procaccianti limits redemptions under its amended repurchase plan to 5% of the outstanding shares in the trailing 12-month period and redemptions are subject to funds available from proceeds from its distribution reinvestment plan, and any other funds authorized by its board of directors. Procaccianti announced that it would redeem, on a pro rata basis, 19.7% of share redemption requests made in the quarter ending June 30, 2023. Procaccianti reported that it would continue to honor redemption requests due to the death of a shareholder in full. Procaccianti terminated its public and private offerings in August 2021. The company reported total assets of approximately $112 million as of June 30, 2023, with outstanding mortgage debts of approximately $65 million. Procaccianti owns interests in five select-service hotels located in four states with 559 total rooms.

For more information: CLICK HERE

BDCs and 1940 Act Funds

Prospect Capital Corp. (Nasdaq: PSEC) and Priority Income Fund Announce Late Filing of Respective Annual Reports

On August 29, 2023, Priority Income Fund (Priority) and PSEC both reported that they would be unable to file their respective annual reports for the fiscal year ended June 30, 2023, in a timely fashion. Priority and PSEC noted that they and their independent public accounting firm “require additional time to complete the documentation of the audit of the company’s financial statements.” Both Priority and PSEC reported that they anticipate filing the annual report within the extension period of 15 calendar days.

BDO USA, P.C., Priority and PSEC’s independent auditors, filed a letter with the SEC agreeing with the statements in both Priority and PSEC’s announcement of the late filings.

PSEC additionally announced financial results for the period ending June 30, 2023, and confirmed its dividend to common stockholders through October 2023 and for preferred stockholders through November 2023. The earnings release is available here.

For more information: CLICK HERE, CLICK HERE, CLICK HERE, and CLICK HERE

REITs

Silver Star Properties REIT, Inc. Appoints New CEO, Provides Guidance on Refinancing Activity

Silver Star announced that Steve Treadwell will become CEO effective August 21, 2023. Mr. Treadwell is a graduate of the U.S. Air Force Academy and has approximately a decade of experience in executive roles in the self-storage industry prior to his appointment as CEO of Silver Star.

Silver Star also reported that it anticipates closing on the refinancing of its SASB Loan around September 1, 2023. Silver Star noted that upon the close of the refinancing it “expects to have a loan to value ratio of approximately 50%; and upon the Company completing its repositioning, to have around $400 million to invest in its repositioning and exchange listing process.” We note that the SASB Loan, which has $259 million in outstanding principal, had an initial maturity of October 2020, subject to three one-year extensions. The SASB loan bears interest at LIBOR plus 1.8%. An interest rate cap arrangement caps LIBOR at 3.75% through the October 2023 extended maturity date. Uncertainty as to Silver Star’s ability to refinance this loan led to a going concern notice included in Silver Star’s annual report for calendar year 2022. Silver Star reported total outstanding debt of approximately $309 million as of March 31, 2023, in its most recent quarterly report. Debt-to-total assets (inclusive of depreciation) was 68%, adding back depreciation debt-to-total assets was 48%.

Overall, we note that this recently reported news is a welcome set of positive developments for the REIT and provides a roadmap for stability in light of the impending SASB Loan maturity and shift in strategy from office, retail, and industrial assets to a self-storage focus.  Recent developments at Silver Star have included management changes, with the appointment and subsequent resignation of CEO Mark Torok, and per an article from The DI Wire, a possible SEC investigation into certain matters at the REIT. Note Silver Star disputes the accuracy of The DI Wire article. We reported on these matters here, here and here.

For more information: CLICK HERE

Alternative Ramblings

Earnings season has been in full swing over the past two weeks. A couple of interesting notes from select earnings calls across the REIT landscape in the past couple weeks:

Avalon Bay (NYSE: AVB): The Class A multifamily REIT reported that year-over-year same-store operating expenses (8.2% as of the second quarter 2023) increased at a pace greater than same-store rent growth (6.2%).  The REIT updated 2023 yearly guidance to 6% rent growth and 6.5% operating expense growth, in light of increased operating expenses.

Given inflationary pressures in the broader economy, the operating expense forecasts for operating properties has been a keen focus at FactRight and it appears there are signs that these inflationary pressures may be catching up, and in certain cases exceeding, the substantial rental growth that has been experienced in the multifamily space over the past couple years.

Extra Space Storage Inc. (NYSE: EXR) notes a bit of weakening in its ability to drive rent growth over the most recent reported quarter. CEO Joseph Margolis noted that “[t]he challenge is there’s not sufficient enough customers to give us pricing power.”  EXR noted that new customer rates were 3% lower in March and 8% lower in April 2023, relative to the same periods in 2022. EXR lowered its same-store revenue and Core FFO guidance for 2023.

Braemar Hotels & Resorts Inc. (NYSE: BHR) reported stronger revenue growth in its urban hotel properties, with the segment reporting total revenue growth of 13% in the second quarter of 2023 over the same period in 2022.  BHR reported increased occupancy and RevPAR 20% and 26%, respectively, in the urban segment in the first six months of 2023 over the same period in 2022.  Same store total occupancy and RevPAR, across the entire BHR portfolio, was up 9% and 2%, respectively, in the same six-month period. The metrics were buoyed by the urban properties, but there was modest weakening in the resort segment (occupancy and RevPAR down 4% and 6%, respectively, over the same prior year period).

The Cult of Pickleball

An Arizona mall adds pickleball courts to attract traffic to the mall.  Just the latest in experiential additions to once static retail big box stores. We have yet to partake in this pickleball frenzy…

Take a Load Off Robbie

Robbie Robertson passed at the age of 80. In a career spanning multiple decades, Robertson wrote this gem with The Band, in addition to work with Eric Clapton, Tom Petty, Bob Dylan, Ringo Starr, Neil Diamond and multiple soundtracks with Martin Scorsese. RIP to a legend.

REITs

Blackstone Real Estate Income Trust Sells Simply Self Storage to Public Storage in $2.2 Billion Transaction and Reports Ninth Month of Consecutive Redemption Backlog While Overall Redemption Request Volume Decreases

Public Storage (NYSE: PSA) announced the deal to acquire Simply Self Storage from BREIT in a deal that is anticipated to close in the third quarter of 2023. The sale includes 127 self storage properties, located across 18 states, comprising 9 million net rentable square feet.

BREIT additionally reported in a shareholder letter that a shareholder who began submitting redemption requests when proration began in 2022 has received over 90% of their money back. BREIT has redeemed over $8 billion in shareholder redemption requests since November 2022. BREIT reported that it had received $3.8 billion in redemption requests in June 2023, which was 29% lower than redemption requests at their peak in January 2023. BREIT reported they redeemed $628 million in shares in the June redemption offer. Based on BREIT’s NAV and 5% redemption limitation and assuming no additional shareholder redemption requests, the backlog may be cleared by the end of 2023.

All told if BREIT ends up clearing the backlog this will be approximately $12 billion in redemptions in approximately one year. Staggering numbers, we note that currently there are only 20 publicly traded REITs globally that have a market capitalization greater than $12 billion.

RREEF Property Trust Reports Third Quarter Redemptions Exceed 5% Quarterly Limit

On July 26, 2023, RREEF Property Trust reported that recent redemptions requests received prior to July 24, 2023, had been fully redeemed. Redemption requests made on or after July 24, 2023, were repurchased on a pro rata basis, with investors receiving 34.4% of their requested amount. RREEF previously reported in its first quarter report that first quarter redemptions exceeded the 5% quarterly limit and that investors redeeming after February 23, 2023, received a pro rata repurchase of 43.9% of their requested amount. Redemptions also exceeded the limit in the fourth quarter of 2022.

For more information: CLICK HERE

Bonds

GWG Holdings Reorganization Plan Approved by Bankruptcy Court

On August 1, 2023, GWG Holdings, Inc.’s bankruptcy reorganization plan was confirmed by the bankruptcy court. All creditors of GWG will now hold interests in the GWG Wind Down Trust (the WDT), through six separate classes of non-transferable interests in the WDT. Elizabeth Freeman was named trustee of the WDT. The WDT assets include GWG’s interests in FOXO Technologies, Inc. (NYSE: FOXO), Beneficient (NASDAQ: BENF), and a portfolio of life insurance policies. Additionally, the WDT is the sole beneficiary of the litigation trust that was created, which will pursue various legal claims, including claims against former GWG directors and officers. The WDT has reported that it is currently pursuing strategies to maximize the value of the assets and distributions will be made as assets are liquidated.

Further information and updates will be posted to www.gwgholdingstrust.com.

For more information: CLICK HERE

Alternative Ramblings

Barry Sternlicht Founder of Starwood Capital: Commercial Real Estate in a Class 5 Hurricane

Starwood Capital Group founder and chairman Barry Sternlicht made the meteorological analogy in a recent interview with Bloomberg. Sternlicht notes that while underlying fundamentals in the multifamily and industrial/logistics sector remained strong, and that levels of leverage in both sectors were manageable, Sternlicht had a decidedly less optimistic view of some parts of the office sector noting:

The nice buildings will stay rented and my guess is at pretty good rates. And the B and C stuff is going to be—maybe fields of grain or something. It’ll be very pretty. We’ll have all these little mid-block parks in New York City because there won’t be anything else to do with those buildings

Sternlicht cited rising interest rates from Federal Reserve policies, the prospect of an economic downturn, and bankers’ reluctance to continue to finance deals as the causes of strains specifically within the office sector. Sternlicht included an anecdote that Starwood recently approached 33 lenders to finance a certain deal and only received two offers. Additionally, Sternlicht noted the work from home trends are a uniquely American phenomenon, with white collar workers in Asia and Europe largely returning to the office in greater numbers. One expects that smaller residential square footage and denser cities with more established public transportation systems are likely contributing to the return to office dynamics in both Europe and Asia compared to many Americans foregoing traffic jams on their commutes with WFH.

Speaking of Work From Home Productivity

Forbes reports on a study from researchers at UCLA and MIT have concluded that workers randomly assigned to work from home are 18% less productive than those in the office.

CrowdStreet CEO Out Amid Reported Missing Investor Capital From Real Estate Offering

Various media outlets, including the WSJ and the Real Deal report that a couple of deals sponsored by Nightingale Properties, which raised approximately $60 million through CrowdStreet’s crowdfunding platform, have approximately $60 million in investor funds that have gone missing. The funds were raised to purchase two office properties in Atlanta and Miami Beach that reportedly never closed. CrowdStreet has raised approximately $4 billion in investor funds through its crowdfunding portal over the past decade. Anna Phillips, who was appointed by investors to serve as an independent manager in investigating the Nightingale Properties’ missing funds noted “The bottom line is that the money that was raised by both entities has been misappropriated.” Tore Steen, co-founder and (former) CEO of CrowdStreet noted in an interview with The Real Deal, that “CrowdStreet did not commit the fraud here” and that CrowdStreet does not take custody of investment funds and was not required to place funds into escrow. The WSJ reported that the Nightingale deals’ respective operating agreements included clauses that all disputes would be adjudicated by a “Rabbinical Court” and that Nightingale failed to disclose a complete prior performance track record in its offering documents, omitting two previous deals that had negative investor returns.

In the wake of this news, CrowdStreet co-founder Tore Steen has been replaced as CEO by Jack Chandler, the former chair of BlackRock’s global real estate team.

More information on this story is available here, here, here, and here.

Fraud…..Ain’t What it Used to Be?

Well, at least wire fraud. The WSJ reports multiple prosecutions for wire fraud related to various college admissions scandals, Bridgegate, a hedge fund case involving confidential government information, and a KPMG PCAOB audit exam—in which the number two auditor for KPMG sought improper access to certain information from the PCAOB concerning which KPMG audits would be inspected to allow for KPMG to better prepare for its examinations—have collapsed amidst recent rulings on appeal. The general takeaway from the cases cited, per the WSJ, is that fraud was not found where money or property was not taken. In the noted cases, college admissions, confidential government information, or traffic jams, did not constitute money or property.

Perhaps a more expansive, ad hoc (non)definition of fraud akin to Justice Potter Stewart’s famous “I know it when I see it” declaration in the Jacobellis v. Ohio obscenity case may be in order?

Institutional Infrastructure Secondary Fund Formation Heating Up

Secondaries Investor reports that fund formation in the infrastructure space was heating up with Hamilton Lane, Ares, Pantheon, Goldman Sachs, Ardian, and other institutional firms launching infrastructure funds, seeking to raise cumulatively over $10 billion in capital. These funds are targeting secondary transactions in the infrastructure space, including energy infrastructure and development projects. Interest in the space is buoyed by tax incentives in the Inflation Reduction Act that provides tax credits for certain renewable energy sources and alternative fuels development. Pricing on infrastructure funds, per a report from PTJ Partners, cited by Secondaries Investor, was at a robust 89 cents on the dollar, exceeded only by private credit trading at 90 cents on the dollar. This buoyant pricing may attract additional LPs that need liquidity to sell their interests to secondary funds. PTJ Partners anticipates secondary infrastructure activity may double to approximately $30 billion by the end of the decade.

REITs

Silver Star Properties REIT, Inc. Sends Letter Demanding the DI Wire Retract Recent Article

On July 19, 2023, Silver Star Properties, Inc. issued a letter addressed to The DI Wire following its publication of an article that stated that the SEC had initiated an investigation into certain matters at Silver Star.

Silver Star’s letter stated that The DI Wire’s article was:

“….highly misleading and misrepresents the role of the [SEC] in any inquiry to the Company.  To be clear the SEC does not have an active investigation regarding the Company. Further, it is unclear how the DI Wire received this information as it was not a party to any such communications.”

Silver Star further demanded that The DI Wire retract the article and identify the source of the article and individuals who provided information that formed the basis of the article.

We have reported on recent developments at Silver Star related to board level and executive changes, including the removal of founder Allen Hartman from the board in March 2023, and the appointment and subsequent resignation of former CEO Mark Torok in less than nine months. Silver Star’s executive committee previously noted that it is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.” We previously reported on these matters here.  Silver Star previously announced a shift in strategy from a focus on office, industrial, and retail properties to self-storage properties, which included the acquisition of a self-storage investment company managed by the former CEO Mr. Torok.  Silver Star has disclosed in recent quarterly reports that there is “substantial doubt about the Company’s ability to continue as a going concern” related to its ability to refinance a $259 million loan maturity in October 2024.

TheDIWire.com article was live on their website as of the time of the Weekly Update going to press.

For more information: CLICK HERE

BDCs

FS Energy & Power (FSEP) Fund Terminates Distribution Reinvestment Program

On July 19, 2023, FSEP announced that its board of trustees terminated the distribution reinvestment program effective September 15, 2023.  After mid-September, all distributions of FSEP will be paid in cash.

FSEP further announced that it would change its name to the FS Specialty Lending Fund on September 29, 2023. The name change coincides with the fund’s previously announced shift in strategy from investing predominantly in U.S. energy and power companies to a more diversified credit strategy of public and private credits across multiple industry sectors. We reported on this announcement here. The fund anticipates pursuing a liquidity event, which may include a listing of the common stock on an exchange, merger, or sale of substantially all of its assets by approximately September 2026.

FSEP was launched with a public offering at $10.00 per share, which was declared effective in 2011. FSEP most recently reported a NAV per share of $3.78 as of March 31, 2023. NAV per share eroded approximately $3.50 per share in 2014 and 2015 as energy sector disruptions lead to increasing default activity. Distributions per share were approximately $0.71 per year from inception through 2017, at which point distributions were reduced to $0.50 in 2018 and 2019, and further reduced to $0.17 per share in 2020, and $0.12 per share in 2021 and 2022. FSEP reported total assets of $2.2 billion and outstanding debts of approximately $0.5 billion as of March 31, 2023. FSEP suspended its share repurchase program in March 2020, and it has remained suspended.

For more information: CLICK HERE and CLICK HERE

Quick Hits

Caliber Appoints Dan Hansen to Board of Directors

On July 12, 2023, CaliberCos Inc. (NASDAQ: CWD) announced the appointment of the former chairman, president and CEO of Summit Hotel Properties Inc. (NYSE: INN) to its board of directors. Mr. Hansen had previously served in an advisory capacity to Caliber’s board of directors.

Pacific Oak Strategic Opportunity REIT Inc. Urges Shareholders to Reject Discounted Third-Party Tender Offer

On July 19, 2023, the REIT’s board recommends shareholders to reject a third-party tender offer from  West 4 Capital LP priced at $5.51 per share. Pacific Oak previously reported a NAV per share of $10.50 as of September 30, 2022. The share redemption program has been significantly oversubscribed in recent years, with approximately 14.3% of total shareholders in the queue for redemptions. FactRight notes that the REIT has leverage of approximately 78% debt-to-gross properties with approximately 40% of debts maturing in 2023. Pacific Oak has been transitioning from an office sector focus and shifting into single-family rentals and apartments. The portfolio is comprised approximately 33% office, 30% single family rentals and apartments, and 32% land based on the fair value of holdings as of March 31, 2023.  As of 2015, the portfolio was approximately 72% office focused and 16% land. The REIT anticipates selling approximately $400 million in assets in 2023 and 2024, including approximately $200 million in land.  Pacific Oak reported total assets of $1.5 billion as of March 31, 2023. FactRight notes that based on the Pacific Oak’s reported annualized NOI in a recent investor presentation, the $5.51 per share offer price translates to a 13.2% implied cap rate (based on NOI attributable to JV investments) and 11.9% excluding the JV investments.

Alternative Ramblings

1031 Bridge Financing 

Seyfarth Shaw LLP published an interesting article on bridge financing in 1031 exchange programs.  This article is timely given the slowdown in 1031 equity capital raising from 2022, and with 1031 deals staying on the shelf longer, the terms of the bridge financing are coming into sharper focus for 1031 investors. The article provides a key launching point for prospective investors to understand dynamics and key considerations between sponsors, bridge lenders, and primary lenders, including areas where deal terms and structures may differ, including pledging DST interests to the bridge lender, forced sale provisions, and the use of personal guarantees on bridge financing.  Seyfarth notes that if the bridge lender has the right to foreclose on the sponsor’s interests in the trust manager (and take over management of the asset), than the sponsor “would likely” need to disclose this provision to investors.  One would hope sponsors would err on the side of over-disclosure on such terms. Seyfarth Shaw’s article is a must read for anyone in the 1031 space.

REITs

Ashford Hospitality Trust (NYSE: AHT) Announces Principal Paydown and Extension of Some Loans, and Anticipates Handing Keys to Certain Hotels Back to Lenders

On July 7, 2023, AHT announced that certain loan pools with maturities in June 2023 did not meet debt yield tests that were required for a one-year extension of the loan pools. These included the KEYS A through F loan pools. However, under the terms of the loan pools, AHT had the right to pay down principal to comply with the debt yield tests in order to meet certain loan extension requirements, which it did for three of the six loan pools to the tune of $129 million. AHT further reported:

[I]n the interest of protecting stockholder value and liquidity, the Company has elected not to make the required paydowns to extend its KEYS Pool A loan, KEYS Pool B loan or KEYS Pool F loan, thereby defaulting on such loans.

AHT noted that following efforts to obtain modifications to these loans that “the most likely outcome will be a consensual transfer of these hotels to the respective lenders.” The company marketed hotels in two of the loan pools and did not receive any bids above the existing loan balances. AHT noted that “it believes it’s in the best interest of its common and preferred stockholders to not make the required paydown of approximately $255 million” for the relevant loans. A total of 19 hotels are encumbered by these pool loans.  The current interest rate for the non-extended loans is approximately 8.8%. AHT reported that the 12-month NOI debt yield on these hotels was 5.6% through the first quarter. The company anticipates savings of approximately $80 million in capital expenditures on these hotels through 2025. AHT reported that these hotels comprised approximately 10% of its trailing 12-month hotel EBITDA, and that with the removal of these hotels, AHT’s RevPAR is anticipated to increase by approximately 3%. AHT owned 103 hotels as of its most recent quarterly filing. AHT CEO Rob Hays stated:

Proactively choosing not to extend three of these loan pools improves our balance sheet by lowering leverage and materially improves our future cash flows. The combination of the paydowns and the removal of the debt associated with the pools we are not extending will lower our debt by approximately $700 million, or more than 18%.

For more information: CLICK HERE and CLICK HERE

Impact Investing

TriLinc Global Impact Fund, LLC Announces Appointment of KPMG as Auditor

On June 26, 2023, TriLinc Global Impact Fund, LLC (TriLinc) announced that KPMG had agreed to serve as its independent registered public accounting firm. On February 28, 2023, RSM US LLP informed TriLinc that it resigned effective immediately as its auditor.  RSM had not completed an audit of any of TriLinc’s financial statements at the time of its resignation.  BDO USA LLP (BDO) served as TriLinc’s auditor for its annual reports from 2019 through 2021.  BDO identified the valuation of the Company’s investments as critical audit matters in both 2020 and 2021.  BDO resigned as TriLinc’s auditor in May 2022. Moss Adams LLP, the previous auditor, declined to stand for reappointment in March 2019.

TriLinc has not filed its annual report for the year ending December 31, 2022, or its first quarter report for 2023Q1.  TriLinc focuses on making impact investments across the developing world through the use of various sub-advisors.  Investments include term loans, trade finance participations and equity investments.  TriLinc raised approximately $361 million in equity proceeds in an offering that commenced in 2013 and closed in 2017.  TriLinc reported total assets of $333.8 million as of September 30, 2022, in its most recently filed quarterly report with the SEC.

For additional information: CLICK HERE

 

REITs

Silver Star Properties REIT, Inc. Announces Employment Agreement with David Wheeler to Serve as Interim President

On June 20, 2023, Silver Star Properties REIT, Inc. (Silver Star) announced it had reached agreements for the retention of certain executives, details on the arrangements are as follows:

Mr. Wheeler will receive an annual base salary of $375,000, a monthly expense allowance of $3,400, and be eligible for certain bonus, incentive and other compensation in addition to a grant of 40,000 performance units in Silver Star.

Additionally Silver Star reported that it had reached a one-year employment agreement with Michael Racusin to serve as senior vice president, general counsel and corporate secretary.  Mr. Racusin will receive an annual base salary of $275,000 and be eligible for certain bonus, incentive and other compensation in addition to a grant of 25,000 performance units in Silver Star.

As we’ve previously reported Mark Torok, who was appointed CEO in October 2022, subsequently resigning in April 2023. Silver Star also acquired the equity interests in Southern Star Self-Storage Investment Company (Southern Star), for $3 million in cash and 301,659 restricted stock units, in a transaction that was completed in May 2023.  Southern Star was founded and owned by Mr. Torok.  We reported on this transaction here.

Silver Star has recently been in the news multiple times with board level changes, including the removal of founder Allen Hartman from the board in March 2023. The executive committee previously noted that it is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.” We previously reported on these matters here.  Silver Star also announced a shift in strategy from a focus on office, industrial and retail properties to self-storage properties.  The Company further reported that it is pursuing a liquidity event through a future public listing.

Silver Star reported total assets of $451 million as of its most recent quarterly filing.  Silver Star has disclosed in recent quarterly reports that there is “substantial doubt about the Company’s ability to continue as a going concern” related to its ability to refinance a $259 million loan maturity in October 2024.

For more information: CLICK HERE

Bluerock Homes Trust, Inc. Preferred Stock Offering Declared Effective

On June 29, 2023, Bluerock Homes Trust (NYSE: BHM) received a notice of effectiveness on its 6.0% Series A Redeemable Preferred Stock.  The offering is for 20 million shares at a purchase price of $25.00 per share.   BHM was spun out of Bluerock Residential Growth REIT following its sale to Blackstone, which was announced in December 2021 and closed in 2022.  BHM focuses on single family rentals homes and reported total assets of $642 million, including 4,160 homes held through ten consolidated operating investments and seven preferred equity investments, as of June 30, 2023. BHM had a market capitalization of approximately $61 million as of June 29, 2023.

For more information: CLICK HERE

 

Sponsors

CaliberCos Inc. Announces Expansions of Internal Wholesale Team

On June 26, 2023, CaliberCos Inc. (Nasdaq: CWD) announced that it has expanded its wholesale team which now is comprised of seven individuals.  Caliber previously announced that it engaged Skyway Capital Markets to serve as the exclusive managing broker dealer for Caliber’s funds.  Caliber recently completed its initial public offering in May 2023, which was upsized to 1.2 million shares priced at $4.00 per share.  Shares closed at $1.90 in trading on Thursday June 29, 2023.

For more information: CLICK HERE

 

Alternative Ramblings

U.S. Supreme Court to Hear Case on Taxation of Unrealized Gains

Remember when U.S. Treasury Secretary Janet Yellen was talking about taxing unrealized gains back in 2021? The U.S. Supreme Court has agreed to hear a case on this very matter in its fall docket. The case Moore v. U.S. is related to the mandatory repatriation provisions of the 2017 Tax Cuts and Jobs Act.

As ScotusBlog.com provides additional background here:

The 2017 Tax Cuts and Jobs Act, Congress enacted a one-time “mandatory repatriation tax” in an effort to obtain tax revenue from large earnings that corporations held abroad. The MRT classifies a U.S.-taxpayer-controlled foreign corporation’s (CFC) “accumulated post-1986 deferred foreign income” as part of the corporation’s taxable income during 2017. And under the MRT, U.S. shareholders owning 10% or more of such a foreign corporation could be required to pay a one-time tax due to their obligation to “include in [their 2017] gross income” their “pro rata share” of the CFC’s relevant “income for such year.” Essentially, the tax requires 10% shareholders to pay a tax on their share of the corporation’s retained earnings even though that money has not been distributed to them.

Scotusblog.com provides further details here:

Charles and Kathleen Moore own a 13% stake in an Indian corporation formed to supply affordable equipment to small farmers in poor regions of India. The corporation has earned profits every year, but in keeping with its founders’ vision, it has reinvested its earnings into expanding the business instead of distributing dividends to its shareholders. In 2018, the Moores learned that under the 2017 law, they had to pay a one-time tax for their share of the company’s lifetime earnings in the amount of $14,729. This surprised the Moores, who had never received any dividends from the company and lacked the authority to compel a dividend payment.

The Moores paid the tax and sued the government, asserting that the MRT is unconstitutional because it imposes a direct tax that is not apportioned, rather than a permissible income tax. The district court granted the government’s motion to dismiss, holding that the MRT is a “taxation of income” falling within Congress’s power under the 16th Amendment.

The Moores now seek review, saying that the 9th Circuit’s decision “shatters what had been an unbroken judicial consensus dating back to Eisner v. Macomber that the 16th Amendment’s exemption from apportionment is limited to taxes on realized gains.” The Moores note that the issue is directly relevant to the constitutionality of a wealth tax that some in Congress have been advocating in recent years.

This decision will decide on whether income is limited to realized income as opposed to unrealized or “paper gains”. The decision will have wide reaching effects on potential future tax policies and either pave the way for wealth taxes or nip such ideas in the bud.

REITs

Ares Industrial REIT (AIREIT) Increases Common Stock Distribution 60% and Reports a Decrease in NAV per Share

On June 14, 2023, AIREIT’s board of directors authorized an increase in the monthly common stock distribution to $0.05 per share beginning in the third quarter of 2023. This marks an increase of approximately 60% from the previous monthly distribution amount. AIREIT also reported a NAV per share of $14.5133 as of May 31, 2023, which is a decrease of approximately 6.9% from the NAV per share as of March 31, 2023.

For more information: CLICK HERE

BDCs

Prospect Capital Corporation (PSEC) Adopts Preferred Stock Dividend Reinvestment Plan to Issue DRIP Shares at Discount 

On June 12, 2023, PSEC adopted a preferred stock dividend reinvestment plan (DRIP) to allow for preferred stockholders to opt-in to receive preferred dividends payable in additional shares of preferred stock. Preferred stock issued under the DRIP would be issued at a 5% discount from the stated value of $25.00 per share. The change to the DRIP will be effective beginning July 19, 2023.

For more information: CLICK HERE

Alternative Ramblings

Pennsylvania REIT Board Level Turbulence….Buckle Up

A corporate governance conundrum is emerging at Pennsylvania REIT, a micro-cap retail focused REIT founded in 1960 that emerged from bankruptcy in 2020. The following chart highlights common stock underperformance in recent years, due to structural challenges to the retail sector, including increasing competition from e-commerce and the impact of the COVID pandemic.

In the recent 2023 board election cycle, seven of the nine incumbent trustees on the board failed to receive a majority vote of a quorum of the common stockholders, and subsequently tendered their resignations. The REIT also has two trustees, Kenneth Hart and Christopher Swann (founder and CEO of Cygnus Capital) who are elected on behalf of the REIT’s preferred stockholders. Mr. Hart and Mr. Swann were elected with a majority vote of the outstanding preferred stock. The Weekly Update notes that incumbent directors not receiving a majority vote is a relatively rare event for REITs. When it occurs, generally the practice is the affected board member will tender their resignation to the board and then undergo some level of review by the remaining board members or a board committee, who will decide to either accept or reject the resignation of the board member. Results may vary from this inquiry.

However, in the case of Pennsylvania REIT, how does a board evaluate a resignation letter, if substantially all of the board members themselves have not received a majority vote from the quorum of shareholders? In this instance, apparently with significant acrimony. Per the REIT’s governing documents, the nominating and corporate governance committee (NCG Committee) of the board is empaneled to review any resignation letters from board members. However, given that none of the members of the NCG Committee were elected by a majority of a quorum of the outstanding shares, the board determined that it would itself, as a whole, consider each individual resignation letter instead of the NCG Committee. The board further noted that it pursued this course of action because no trustees received a majority vote from the common stockholders. The REIT reported that “[i]n each case, the applicable trustee did not participate in the deliberation or decision regarding his or her resignation offer.” One can only imagine how robust this discussion was. Unsurprisingly, the board reported that it had determined that all the trustees should remain on the board.

The saga has continued with the trustees elected by the preferred stockholders, Mr. Hart and Mr. Swann, submitting an open letter to shareholders in which they stated:

“In our view, the voting results of common shareholders at the 2023 Annual Meeting was an unequivocal message from shareholders that they are dissatisfied with the performance of the Trust and desirous of change at the Board level. We suspect common shareholders fully appreciated the consequences of their vote and that a majority of the Board would need to tender their resignations.”

This seems to be a very reasonable interpretation of the common stockholder voting results. Additionally, Messrs. Hart and Swann wrote that they believed the other seven trustees did not follow the REIT’s governing documents in supplanting the NCG Committee review of the resignations and engaging in a board level approval party, noting that, per the governing documents, such non-majority vote receiving trustees are not to participate at the NCG Committee or any other board action regarding the resignation letters. Hart and Swann noted that the proper course of action through the REIT’s governing documents was to form an independent committee of trustees who received a majority vote cast by shareholders, which would be solely Mr. Hart and Mr. Swann. They further noted that the REIT’s governing documents do not distinguish in this matter between trustees voted on by common stockholders or preferred stockholders. The two trustees also noted that Institutional Shareholder Services had recommended that shareholders vote against six of the nine trustees on the board, save for CEO and chairman Joseph Coradino.

The remainder of the board issued a rebuttal letter to Messrs. Swann and Hart which demonstrated the situation is beginning to get a bit testy. The other trustees wrote that they had obtained an opinion from external legal counsel that guided the board process in supplanting the NCG Committee. The board rebuttal letter stated:

“In fact, both of you participated in the Board discussion regarding the Guideline process that you are now challenging, but at the time failed to raise an objection. Moreover, your decision to now raise these issues in a public forum, we believe, is not the proper way for a Board member to act and causes us a concern that you have a different agenda.”

The rebuttal letter also stated concerns the board had with Messrs. Swann and Hart as directors representing the preferred stockholders, noting there were certain “diverging and conflicting interests” between the preferred stockholders and the common stockholders that the rest of the incumbent board is (or maybe isn’t) re-elected by. The rebuttal letter also raises a point that further delay in resolving the election matter would destabilize the REIT and “clearly is not in the best interests of the shareholders and other stakeholders.” This is perhaps a tenuous contention, as those same shareholders essentially submitted a vote of no confidence in substantially all members of the board.

I don’t want to minimize the practical implications of a mass board resignation and how that might disrupt the operations of a REIT. However, given the incredibly limited participation of shareholders in corporate governance, if shareholders do express their displeasure with board members, or in this case practically the whole board, and the same members of the board summarily dismiss those concerns, you have a real governance problem. Additionally, the tensions between preferred stockholders and common stockholders can be substantial, especially in situations where the issuing entity has become distressed, so the remaining board members’ concerns have some merit as well. A protracted board level conflict on this matter, wasting resources of the REIT, is also a sub-optimal trajectory too. Stay tuned for any further developments.

Corporations are People My Friend

The town of Seaford, Delaware, recently amended its charter to grant certain legal entities, including corporations, LLCs, trusts, and partnerships the right to vote in local elections. The law would go into effect upon approval by both houses of the Delaware legislature. CBS News reports that in the town of 8,000, a total of only 340 votes were cast in a recent April election. The town also reported that 234 entities that would be permitted to vote are located in the town. Interestingly, a number of other towns in Delaware have already allowed certain legal entities to vote. One property manager who controlled multiple LLCs reportedly voted 31 times in a Newark, Delaware, town referendum.

Public Painting

The Wall Street Journal reports that Artex is launching a $55 million initial public offering of an entity that owns a Francis Bacon painting. Shares will be offered at $100 and offered by a Luxembourg LLC that will list on a specially created art stock exchange in Liechtenstein. Trading is anticipated to begin in July 2023. A competitor to Artex, Masterworks, has raised approximately $700 million in various single art asset investment vehicles and features a secondary market through an alternative trading system that allows existing investors to list shares in individual art pieces for purchase by other existing investors. Artex is planning on conducting IPOs on upwards of $1 billion of artwork in the coming quarters. No word if any of Bob Ross’s masterpieces are in the queue for future offerings.

Partners at Loggerheads Blooms Into Operational Due Diligence Risks

The usually benign world of corporate governance had a little flare up as the Wall Street Journal reports that Two Sigma, a $60 billion quant-trading hedge fund complex, has experienced such levels of friction between founders John Overdeck and David Siegel that it felt necessary to recently note such disclosures in its filings with the SEC. Mr. Overdeck and Mr. Siegel are the only two members of Two Sigma’s management committee and must come to agreement on certain key matters per the firm’s operating agreement, which has reportedly become increasingly difficult.

The following is the material risk identified in Two Sigma Advisers, LP’s recent Form ADV Part 2 Brochure filed with the SEC:

Certain Risks Associated with Management and Governance Challenges. There have been a variety of management and governance challenges at the Adviser. The Management Committee of the Adviser’s general partner (the “Management Committee”) has been unable to reach agreement on a number of topics, including: (i) defining roles, authorities and responsibilities for a range of C-level officers, including for the various roles of the members of the Management Committee and Chief Investment Officers; (ii) organizational design and management structure of various teams; (iii) corporate governance and oversight matters; and (iv) succession plans. These disagreements can affect the Adviser’s ability to retain or attract employees (including very senior employees) and could continue to impact the ability of employees to fully implement key research, engineering, or corporate business initiatives. If such disagreement were to continue, the Adviser’s ability to achieve Client mandates could be impacted over time.  

REITs

Gladstone Land Corporation to List Series C Preferred Stock 

On May 30, 2023, Gladstone Land Corporation (Nasdaq: LAND) announced that it applied to list its Series C Preferred Stock on the Nasdaq Global Market on or about June 8, 2023, at which point it would freely trade. Pursuant to the announcement, LAND terminated its Series C Preferred Stock redemption program effective May 30, 2023. The farmland-focused REIT raised $255 million in proceeds from the Series C Preferred Stock in an offering that commenced in April 2020 and closed in December 2022. The Series C Preferred Stock has a 6.0% preferred dividend and a liquidation preference of $25.00 per share. Following the close of the Series C Preferred Stock offering, the company began offering Series E Preferred Stock with a 5.0% preferred dividend.

LAND previously listed two series of preferred stock that raised capital through the independent broker-dealer and RIA channel: the 6.0% Series B Cumulative Redeemable Preferred Stock (Nasdaq: LANDO) and the 5.0% Series D Cumulative Redeemable Preferred Stock (Nasdaq: LANDM), both of which had a $25.00 offering price per share. The following chart highlights the trading history of LAND’s common stock and its two publicly traded preferred stocks. The two series are currently trading at discounts to their liquidation preference of approximately 6% to 13%, respectively.

We note that increases in the interest rate environment over the past year have generally led to preferred stocks of various REIT and BDC issuers to trade at discounts to their stated values, as these securities tend to trade like bonds.   

For more information: CLICK HERE 

Michael Weill Informs Board of Healthcare Trust, Inc. of Intention to Resign as CEO Contingent Upon Closing of Internalization Transaction and Merger of Affiliated REITs 

On May 30, 2023, Healthcare Trust, Inc. announced that Michael Weill notified the board of his intention to resign from his role as CEO contingent upon the completion of the merger and internalization that was announced by Global Net Lease, Inc. (NYSE: GNL) and the Necessity Retail REIT, Inc. (Nasdaq: RTL). We previously reported on the recently announced internalization and merger transactions here. GNL, RTL and the company are currently externally advised by affiliates of AR Global Investments, LLC. Mr. Weill has indicated that he intends to stay on as a director on the board of Healthcare Trust, and that if the merger and internalization transactions are not completed, he intends to continue on as CEO of the company. The company reported that AR Global has recommended that the board consider Michael Anderson, AR Global’s general counsel, to succeed Mr. Weill as CEO and president of the company in the event of his resignation.   

For more information: CLICK HERE 

 

Alternative Ramblings 

Friday Night Lights (and Smoke!) 

Recently added to the Weekly Update’s bucket list……Texas has a high-school barbecue competition.   

REITs

Global Net Lease (NYSE: GNL) Announces Internalization Transaction of Advisory Functions from AR Global affiliates for approximately $375 Million and Announces Merger with the Necessity Retail REIT (NYSE: RTL)

On May 23, 2023, Global Net Lease (GNL, fka American Realty Capital Global Trust, Inc.) announced that it had reached an agreement to internalize the asset and property management functions provided by affiliates of AR Global, LLC for a package of consideration including $325 million in GNL common stock and $50 million in cash. The respective REITs also announced a stock-for-stock merger in which RTL stockholders will receive 0.67 shares of GNL for each share of RTL, which represents a 35% premium to the 30-day volume weighted average price of RTL. Following the close of the merger, RTL stockholders are anticipated to own 39% of GNL, GNL stockholders will own 45% and GNL’s external advisor and affiliates will own approximately 17%. The combined entity would own over 1,300 properties with an aggregate real estate value of approximately $9.6 billion. The owners of the former external manager will be prohibited from selling their shares for a period of six months. GNL also amended its bylaws to remove requirements that two directors on its board be managing directors related to affiliates of AR Global, the amended and restated bylaws require one managing director of affiliates of AR Global serve on the board.

GNL has also granted a waiver to its share ownership limitations to the owners of the former external manager, to allow for them to exceed the 8.9% limitation. GNL has reported that the internalization is anticipated to generate $54 million in annual cost savings related to the combined entity. The obligation of GNL and AR Global affiliates to complete the internalization transaction is predicated on the completion of the proposed merger, receipt of GNL stockholder approval, the absence of injunctions or legal orders restraining the transaction and receipt of requisite consents from certain credit agreements including commercial mortgage-backed securities financing GNL and RTL respectively. GNL and RTL have been subject to a 20-year external advisory contract with affiliates of AR Global.

The merger represents a shift in investment thesis for GNL and RTL investors. GNL’s portfolio is comprised predominantly of industrial, office, and distribution facilities, whereas RTL’s portfolio is comprised of largely retail assets. The combined entity portfolio is anticipated to consist 27% of multi-tenant retail, 31% single tenant industrial and distribution, 20% single tenant office and 22% single-tenant retail. The preceding figures are based on annualized straight-line rents related to the properties.

Following the close of the merger, GNL will be headed by Co-CEOs Michael Weill (current RTL CEO) and James Nelson (current GNL CEO). Per GNL’s SEC filings, it is anticipated that Mr. Nelson will retire in 2024, at which point Mr. Weill will become sole-CEO. A 2022 profile on Mr. Weill can be found here in Cigar Aficionado. The merger is subject to a 30-day go-shop period in which RTL, through its special committee of directors of the board, may evaluate other potential proposals. Termination fees, payable by RTL to completed,he event the merger is not completed range from $16 million to $40 million, depending on the reasons for not completing the merger. The merger is also subject to shareholder approval by GNL and RTL shareholders. Each company is expected to file joint proxy statements in the future, with further information related to the proposed transactions.

Additional coverage of this internalization and merger, and further information commentary on recent events at GNL from activist investor and shareholder Blackwells Capital LLC’s website dedicated to its activism on AR Global: StopARGlobal.com. In April 2023, Blackwells nominated two directors to GNL’s board, which are currently awaiting shareholder vote results, GNL postponed its annual meeting from May 18, 2023, until July 21, 2023. Further coverage from CoStar is available here, GlobeSt here, and the DiWire here.

For additional information: CLICK HERE

Lodging Fund REIT III, Inc. CEO Corey Maple Resigns as CEO, will Continue as Chairman

On May 25, 2023, the REIT reported that Mr. Maple had resigned as CEO effective May 19, 2023. Norman Leslie was appointed by the Board to serve as CEO. Mr. Leslie has served as president of the REIT since August 2019. Mr. Leslie also founded, owns, and manages NHS, LLC, a hospitality management company that provides hospitality management services for certain properties in the REIT’s portfolio.

The company is late on multiple periodic filings with the SEC including its third quarter 2022 report, annual report for 2022, and first quarter 2023 report. The REIT reported that it was unable to finalize its financial statement preparation and review process due to the uncertainty related to the SEC matter disclosed in September 2022. The SEC matter pertains to an SEC investigation related to the company’s reimbursement of and financial accounting for certain expenses incurred by Legendary REIT III, LLC (the REIT’s external advisor), as well as the adequacy of disclosures related to those policies and practices. On September 12, 2022, SEC staff issued a “Wells notice” advising that they had made a preliminary determination to recommend to the SEC that it bring an enforcement action against the external advisor for possible violations of the securities laws. Mr. Maple also received a Wells notice as part of the same investigation. Mr. Maple and the external advisor maintain that their actions were appropriate and have retained counsel to defend them in this process.

In February 2023 Brian Hagen retired from the board of directors. The REIT reported that Mr. Hagen’s resignation was not a result of a disagreement with the company on any matter relating to its operations, policies or practices. The REIT announced in March 2023 that affiliates of NHS had provided a $600,000 loan to the REIT’s operating partnership which bears interest at 7.0% and matures in July 2023.

The company reported a revised net asset value per share of $10.57 effective January 6, 2023. Shares in the REIT were sold in a private offering at $10.00 dating back to 2018.

The company reported ownership of 14 hotels in its most recent quarterly report filed as of June 30, 2022, and has subsequently closed on additional hotels located across (an expansive and expanding definition of) the heartland of the United States. A map of the REIT’s properties is below.

For more information: CLICK HERE

Bonds

Court Appointed GWG Holdings Inc. CEO Jeffrey Stein Urges L Bondholders to Approve the Plan of Reorganization

On May 25, 2023, GWG Holdings Inc. filed a link to a video message from Mr. Stein in which he urges L Bondholders to approve the company’s plan of reorganization. Mr. Stein noted that the plan, which is supported by GWG, the L Bondholder Committee, and an ad hoc group of broker dealers, is designed to maximize the value of GWG’s assets through an orderly monetization of its assets through the creation of two liquidating trusts as opposed to a quicker liquidation of assets in a Chapter 7 liquidation proceeding. The liquidation under the plan of reorganization is anticipated to take multiple years. Mr. Stein noted a Chapter 7 liquidation was likely if bondholders do not approve the plan of reorganization. The first is a wind-down trust which will hold GWG’s interests in the life insurance policies, the Beneficient interests, and the FOXO Technologies interests.   The second is a litigation trust that will hold, and prosecute, certain litigation claims including claims against certain former GWG directors and officers and D&O insurance policies. Under the reorganization plan the L Bondholders will receive the most senior interests in the respective trusts. Bondholder votes on the plan of reorganization are due by May 31, 2023. A summary of the treatment of L Bondholders under the proposed plan of reorganization is available here. The following chart, from the Summary of the Treatment of L Bondholders Document, highlights the reorganization plan valuation range compared to a potential Chapter 7 liquidation scenario:

Additional information related to the plan of reorganization can be found here and here.

Alternative Ramblings

Caliver Cos Inc. Completes Upsized IPO and Begins Trading on the Nasdaq

The company, which manages various real estate-related investment vehicles, closed an initial public offering of 1.2 million shares at a public offering price of $4.00 per share on May 17, 2023. The shares trade on the Nasdaq under the ticker symbol “CWD”. The company has reported that proceeds from the IPO will be used to increase its capitalization and financial flexibility and facilitate future access to the capital markets and for other general corporate purposes. Shares in the based alternative asset manager initially traded up before declining to slightly lower than the IPO price on significantly lower volumes as the chart below indicates. The company’s market capitalization is approximately $50 million based on the latest stock trades with approximately 55% of the stock held by insiders.

Institutional Investors Pausing on Single Family Home Purchases

Fortune reports that institutional firms in the housing market are significantly reducing acquisitions in light of higher interest rates and rent growth deceleration combining for lower projected returns on new acquisitions.  John Burns Research and Consulting reported that institutional buyers purchased 90% fewer homes in the first two months of 2023 compared to 2022.  Invitation Homes (NYSEL INVH) and American Homes 4 Rent (AMH) became net sellers of homes in the first quarter of 2023.

Swift Diligence Part II

Taylor Swift, who previously balked at endorsing FTX after she reportedly conducted due diligence and asked FTX executives “Can you tell me that these are not unregistered securities?”, is apparently a fan of investing in closed-end funds trading at discounts to their respective NAVs.

BDCs

FS Energy & Power Fund Changes Name to FS Specialty Lending Fund, Announces Shift in Strategy, Anticipates Distribution Increases, and Expects to Seek a Liquidity Event Within 3 Years

On May 17, 2023, FS Energy and Power Fund (FSEP) reported that its board of trustees approved the name change and a shift in the investment strategy from its previous focus on investing in U.S. energy and power companies to a diversified strategy across public and private credits in a broader set of industries. Shareholder approval of the shift in strategy is not required as it is a non-fundamental policy of the fund.

FSEP reported that FS/EIG Advisor, LLC, will continue to manage the fund, noting that Andrew Beckman, Head of Liquid Credit & Special Situations at FS Investments, will assist FSEP’s advisor in the transition and management of the portfolio as it focuses on a more diversified credit portfolio.

FSEP further noted that they anticipate seeking a liquidity event, which may include a merger, sale of the portfolio, listing of the common stock on a national securities exchange or other transaction within the next three years. Any liquidity event is dependent on the pace of FSEP’s transition to its new investment strategy and rotation of its existing portfolio.

FSEP also noted that the fund’s goal in transitioning the portfolio composition to a broader credit strategy was designed to create a sustainable distribution rate of approximately 9.0%, compared to the 3.0% distribution rate FSEP achieved in 2022. FSEP guided this would include increasing income-accruing securities to approximately 90% of the portfolio, compared to the current portfolio’s 77%. FSEP guided that energy exposures would be approximately 20% or less of its portfolio holdings following the strategy shift. FSEP further noted a “targeted enhanced distribution schedule” which contemplates a distribution rate of between 7.5% to 15.0% over the coming three years. Management indicated that a portion of these distributions would represent a return of capital, in efforts to help “accelerate liquidity for shareholders in the near-term.” The fund further anticipates suspending its distribution reinvestment plan in light of the enhanced distribution schedule.

FSEP was launched with a public offering at $10.00 per share, which was declared effective in 2011. FSEP most recently reported a NAV per share of $3.78 as of March 31, 2023. NAV per share eroded approximately $3.50 per share in 2014 and 2015 as energy sector disruptions lead to increasing default activity. Distributions per share were approximately $0.71 per year from inception through 2017, at which point distributions were reduced to $0.50 in 2018 and 2019, and further reduced to $0.17 per share in 2020, and $0.12 per share in 2021 and 2022. FSEP reported total assets of $2.2 billion and outstanding debts of approximately $0.5 billion as of March 31, 2023. FSEP suspended its share repurchase program in March 2020, and it has remained suspended.

For more information: CLICK HERE and CLICK HERE

 

REITs

Starwood Real Estate Income Trust, Inc. Announces Sean Harris As New CEO; Chief Investment Officer Christopher Graham Leaves Board of Directors and Role as Chief Investment Officer

On May 9, 2023, Starwood REIT announced that Mr. Harris, who has served as president of the REIT since January 2021, will serve as CEO and become a director on the board of directors effective immediately. John McCarthy, Jr. previously served as CEO since the REIT’s inception in 2017. Mr. McCarthy will remain as a director on the board and was appointed to serve as vice chairman. Additionally, Christopher Graham, who served as the REIT’s chief investment officer and as a member of the board, will no longer serve in either of those capacities.

For additional information: CLICK HERE

 

Alternative Ramblings

Grave Dancer Dances No More  

The Weekly Update commemorates the recent passing of legendary REIT investor and pioneer Sam Zell. Mr. Zell was the founder and chairman of Equity Residential (NYSE: EQR) and numerous other REITs in a career dating back to the late 1960s. Sam Zell’s grave dancer reputation is attributable to this interesting paper he penned in the 1970s.

Mr. Zell was always good for a colorful comment in the press, and did not fail to deliver this past month when he noted work from home is “a bunch of bulls$&t!”

RIP Grave Dancer.

REITs

Silver Star Properties CEO Mark Torok Resigns 7 Months Following Appointment as CEO and One Month After Silver Star Closes on the Acquisition of Mr. Torok’s Former Firm, Southern Star Self-Storage

Silver Star Properties (Silver Star) reported Mr. Torok’s resignation was not the result of any disagreements with the policies, practices, or operations of the REIT. Silver Star previously announced, in April 2023, that it had acquired Southern Star Self-Storage Investment Company, for $3 million in cash and 301,659 restricted stock units.  As part of the transaction Mr. Torok signed a three-year employment agreement, which included a base salary of $550,000 per year and approximately $1.3 million performance units per year. We reported on this here.

The Executive Committee appointed David Wheeler to serve as Silver Star’s interim President and announced that they had engaged an executive search firm to find a permanent CEO “with substantial experience in a public market.” Mr. Wheeler previously served as executive vice president and chief investment officer of the REIT.   Mr. Torok’s resignation comes approximately 7 months after he returned to Silver Star as CEO in October 2022.  Mr. Torok previously served as  Silver Star’s chief operating officer, general counsel, and corporate secretary from 2015 to 2021, prior to submitting his resignation on April 9, 2021. Mr. Torok’s departure is the latest significant shift from the REIT, including the recent shift in strategy, and other significant leadership changes at the REIT, including the departure of Allan Hartman from the chief executive officer role in October 2022, and as chairman of the Board in March 2023, and announcing that it is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.” We have reported on these developments here, here, here, here and here.

Silver Star owns a portfolio of 44 office, retail and industrial properties located primarily in the Houston and San Antonio MSAs.  Silver Star recently reported a NAV per share of $6.25 as of 2022Q4, based on a weighted average capitalization rate used for valuation purposes of approximately 7.6%.  Silver Star reported that “the process has already begun to list the Company’s common stock for trading on an established securities exchange” would continue in the wake of Mr. Torok’s resignation.

For more information: CLICK HERE

KBS Real Estate Investment Trust II, Inc. Announces Final Liquidating Distribution

KBS Real Estate Investment Trust II, Inc. (KBS REIT II) announced that the final liquidating distribution of $0.73 was paid to stockholders on April 25, 2023.  The distribution was made following the close of the Union Bank Plaza office building in downtown Los Angeles, which was previously reported here.  The final sale price of the asset was $104 million. KBS REIT II originally acquired the asset for $208 million in 2010 and completed a $20 million renovation during its ownership period.

KBS REIT II stockholders previously approved a plan of liquidation in March 2020, and the REIT subsequently made five liquidating distributions totaling $2.10 per share from March 2020 through December 2021. The Union Bank Plaza sale was the final asset in the REIT’s portfolio. KBS REIT II’s board approved an estimated liquidation value of $0.93 per share in August 2022, following the aforementioned distribution. On April 4, 2023, the board approved a liquidating distribution of $0.73 per share following the sale of the Union Bank Plaza. Cumulative liquidating distributions totaled $2.83 per share (although KBS REIT II also made a special distribution of $4.50 per share in 2014, and $0.45 in 2019). Total non-operating distributions have been $7.78. KBS REIT II originally had a 6.5% distribution rate, to common stockholders, beginning in the fourth quarter of 2009 and made cumulative non-special and non-liquidating distributions of $5.85 through 2020 and prior to the announcement of the plan of liquidation. Total operating, special and liquidating distributions totaled $13.63 since inception of the REIT and through its liquidation. KBS REIT II raised approximately $1.8 billion in common stock proceeds in an offering that was initially declared effective in 2008 and priced at $10.00 per share. 

ExchangeRight Income Trust Files Form 10 Registration with the SEC

The REIT’s Registration Statement notes that it does not seek to offer shares to the public through a public offering, yet the REIT will be subject to the Exchange Act and file an annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.  The company has previously offered shares through private offerings to accredited investors. ExchangeRight Income Trust was formed in 2019 and owns 336 properties across 35 states that were 99.8% leased as of year-end 2022.

ExchangeRight Income Trust has also facilitated 721 UPREIT transactions for investors in certain DST programs sponsored by ExchangeRight, who collectively own approximately 33% of the operating partnership units of the REIT’s operating partnership through which it holds its real estate assets.  The REIT reported total assets of $1.1 billion as of year-end 2022 and reported leverage of approximately 56% on a debt-gross properties basis.

Blackstone REIT Redemption Requests Continue to Exceed Redemptions in April 2023

Blackstone REIT (BREIT) continues to have oversubscribed redemption requests from shareholders in April 2023.  In accordance with its share repurchase plan, BREIT repurchased 2% of outstanding shares in April 2023, which was approximately 29% of the $4.5 billion in redemption requests it received during the month.  This equates to approximately 6.5% of outstanding shareholders seeking an exit from the $142 billion REIT.  BREIT noted the volume of redemption requests was consistent with the previous month and 15% lower than the redemption requests received in January 2023.  BREIT reported that it has redeemed $6.2 billion worth of shares since redemption requests have been oversubscribed in the latter half of 2022.  Lost in the redemption request headlines is solid performance within BREIT’s portfolio, with 2023Q1 same-property NOI growth estimated at 9%, year-over-year.

We humbly ask……where is the third-party tender offer for this oversubscribed redemption program?

Alternative Ramblings

The Federal Reserve Announced Another Increase and Appears to Soften Language on Further Rate Increases

The Federal Funds Rate target is now 5.00-5.25%, marking the first time it has exceeded 5.00% since 2007. This has materially increased the costs of capital across the global economy. One market with some interesting pricing dynamics related to this shift is the leveraged loan market. The following chart highlights reductions in leveraged loan pricing and consequently increased yields on these credits, layered with the federal funds target rate increases over the past year. This increase in interest rates has not resulted in material increases in the default rates of leveraged loans which remain below their historical averages of approximately 2-2.5%. Fitch Ratings has recently forecast a default rate of between 2-3% in 2023, and 3-4% in 2024.

First Republic Bank Second Largest Bank Failure in the Last Quarter Century

The following table highlights the largest bank failures since 2008, with positions two through four all within 2023, as depositors became concerned about bank solvencies as interest rates have risen and certain fixed income holdings of banks correspondingly decreased in value.  JPMorgan chase acquired First Republic in a deal that will wipe out the First Republic common stockholders and result in an estimated $13 billion hit to the FDIC deposit insurance fund, which is exceeded by the $20 billion hit from the Silicon Valley Bank failure, which are the two largest historical payouts from the FDIC deposit insurance fund.

Charlie Munger on Real Estate and Banking

Mr. Munger, he of 99-years of experience, noted “a lot of real estate isn’t so good any more” and that “we have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties.  There’s a lot of agony out there.”  Mr. Munger’s comments also highlighted that he believes many commercial real estate loans will ultimately turn bad given higher refinancing costs and banks becoming more reluctant to lend over the past six months.  Munger noted “It’s not that damned easy to run a bank intelligently, there are a lot of temptations to do the wrong thing.”

Further thoughts from Charlie Munger and his long-time business partner Warren Buffet will be available at the Berkshire Hathaway annual stockholders meeting tomorrow May 6, 2023.  Remarks and Q&A begin at 8:45 am CT.

REITs

Peakstone Realty Trust (fka Griffin Realty Trust) Begins Trading on the NYSE

Peakstone (NYSE: PKST) recently conducted a webcast on April 20, 2023, which is available on replay here, to discuss its recent listing on the NYSE and its volatile trading since listing (with trades ranging from approximately $8 to $47 per share).  We previously reported on the PKST listing and recent developments at the company, including the reverse stock split, board turnover, and dividend cuts here.

Silver Star Properties (fka Hartman Short Term Income Properties XX, Inc.) Announces NAV per Share of $6.25 as of the Fourth Quarter 2022

Silver Star owns a portfolio of 44 office, retail and industrial properties located primarily in the Houston and San Antonio MSAs. The weighted average capitalization rate used for valuation purposes was approximately 7.6%.  Public filings noted that the REIT retained LaPorte CPAs and Business Advisors as its valuation expert to establish the NAV per share. The valuation comes amidst a name change, shift in strategy, and significant leadership changes at the REIT, which was originally known as Hartman Short Term Income Properties XX, Inc.  We have reported on these developments here, here, here and here.

Silver Star is currently late on filing its 2022 annual report, which was not available as we went to press here.

For more information: CLICK HERE

Alternative Ramblings

Swift Diligence: It’s a (Crypto) Story….and She Said No

Ms. Taylor Swift, currently in the midst of a world tour, reportedly turned down overtures from FTX to feature in a $100 million marketing sponsorship deal. Ms. Swift reportedly asked FTX, “Can you tell me  that these are not unregistered securities?” per attorney Adam Moskowitz.

We are still amazed at the FTX Larry David Super Bowl ad, in which Mr. David mocks FTX, saying “I don’t think so” when prompted that FTX is a safe way to get into crypto.

If you’re going to San Francisco…you may not be able to catch a bid on your (formerly) trophy office tower

The Wall Street Journal reports that 350 California Street, a 22-story office tower in the financial district of San Francisco, may go for 80% less than the $300 million broker estimates from 2019. The Journal reports that the tower is currently 75% vacant following its primary tenant Union Bank leaving its space.    This level of vacancy will likely preclude any debt financing from traditional lenders, and may force an all-cash offer.  The Journal reports that some local brokers say it’s possible that no deal will done for want of bidders.

Trepp reports that approximately $80 billion of office backed loans are coming due this year, which will need to be refinanced at higher interest rates given the increasing interest rate environment of the past year. Adding further stress is greater vacancies and lower utilization of office space in general. The Wall Steet Journal reports that Wells Fargo reported that its total office building loan non-accruals increased from $186 million in the fourth quarter of 2022 to $725 million in the first quarter of 2023.

San Francisco has seen office vacancies rise significantly since the onset of the COVID-19 pandemic in 2020, as the chart below highlights.

Shadow Banks Seek to Fill Void from Commercial Banks and CMBS Issuance is Down 82% Year-Over-Year

Bloomberg reports that private lenders are seeking to gain inroads as traditional sources of real estate lending, including commercial banks and the CMBS bond markets, falter in early 2023.  Banking liquidity issues at regional banks, as highlighted by the collapse of Silicon Valley Bank and Signature Bank, and an uncertain outlook on certain real estate sectors, including office and retail, have made certain regional banks skittish on continuing to make loans on commercial real estate. Bloomberg notes that regional banks issue approximately 70% of total commercial real estate loans made by US banks. CMBS issuance has declined approximately 82% year-over-year according to Bloomberg, opening the door for private lenders, including Carlyle, Castlelake, King Steet, HighVista, Palladius, and others to fill the gap.

Vornado Suspends Dividend Until the End of 2023 and Authorizes $200 Million Stock Buyback 

Vornado Realty Trust (NYSE: VNO) announced on April 26 that it will postpone dividends on its common shares until the end of 2023, at which point the dividend may be payable in a combination of cash and securities, in the board of trustees’ discretion. Vornado’s board also announced that it had authorized a $200 million stock buyback plan, which is a significant portion of the overall $2.8 billion market capitalization. The board noted cash retained from the suspended dividend or prospective asset sales would be the source of funds for the stock buyback plan.

Vornado owns a portfolio of assets that is concentrated in New York City offices. Vornado previously announced that a joint venture it controlled had defaulted on a $450 million loan related to a group of Fifth Avenue retail properties.

REITs

Peakstone Realty Trust (fka Griffin Realty Trust) Begins Trading on the NYSE

Peakstone Realty Trust’s first day of trading on the NYSE (ticker symbol: PKST) on Thursday ended with trades clearing within a wide range from $8.00 per share to $21.99, with total volume of approximately 1 million shares against total outstanding shares of approximately 36 million. Shares closed at $11.65 at the end of a volatile first trading day, after opening at $8.00. S&P Capital IQ reports that the public float is 82.9%. Price to FFO was 31.4x in wide ranging trades, although we note the FFO multiple may trend higher based on certain investments in an office joint venture that is not consolidated into PKST’s operating data. The market capitalization of PRT, based on trades as we went to press was approximately $2.8 billion.

PKST was formed from the merger of Griffin Capital Essential Asset REITS I and II (GCEAR I and GCEAR II) in 2018. The external advisor, a subsidiary of Griffin Capital Company, LLC, was internalized in 2018 for consideration of 20.4 million operating partnership units in the predecessor of PKST and certain additional units as part of an earnout.  Based on the then-current NAV per share of $9.66, total consideration for the internalization, inclusive of earnout units, was approximately $235 million.  PKST acquired Cole Office and Industrial REIT (CCIT II) in a stock-for-stock merger that was closed on March 1, 2021. The CCIT II transaction was valued at approximately $1.3 billion. Each CCIT II shareholder received 1.392 shares of newly issued Class E common stock. We previously reported on that transaction here.

PKST previously reported in March 2023, that it was engaging in a “board refreshment process” in which Kevin Shields (founder of Griffin Capital Company) and four other directors resigned.  The board subsequently approved two additional directors.  We reported on this matter here.

On March 10, 2023, PKST completed a one-for-nine reverse stock split. The adjusted NAV per share based on the reverse stock split was reported at $66.78, which is based on the most recent estimated NAV per share of $7.42 as of June 30, 2022.  PKST shares were originally offered as GCEAR I and GCEAR II at $10.00 per share ($90.00 adjusted for the reverse stock split), in offerings declared effective in 2009 and 2014, respectively.

In October 2021, the board of directors suspended its share redemption program (SRP) as the board pursued strategic options. The SRP was reopened on a limited basis, for shareholder hardship, in August 2022. PKST repurchased approximately 75,000 shares at $66.78 per share (adjusted for the reverse stock split) during the third and fourth quarters of 2022.

In August 2022, PKST announced the sale of 46 office properties for $1.3 billion, while retaining a 49% stake in the venture following a capital contribution of $184.2 million. We reported on this transaction here.  The REIT recognized a loss of approximately $106 million related to this transaction.  Prior to listing, on April 10, 2023, PKST announced that it had redeemed all 5 million shares of Series A Cumulative Perpetual Convertible Preferred Stock for $125 million.

PKST declared an annualized distribution of $0.90 per share after the board determined to reduce distributions in February 2023. This equates to a distribution yield of 1.3% based on the most recently reported NAV per share, yet a substantially higher yield based on the recent trading range of PKST shares. PKST guided that it will cease calculating and determining record holders for its distribution rate daily, and instead will pay distributions to holders of common shares in a specific amount and on a specific record date, which is consistent with publicly traded REITs.  Subsequently, the board declared a monthly distribution on March 24, 2023, of $0.075 per share ($0.90 annualized) payable in May 2023.  Prior to the February 2023 reduction, the annualized distribution rate was $3.15 per share (adjusted for the reverse stock split). Adjusted for the reverse stock split, PKST originally made distributions of $4.95 per share dating back to 2016.  Distributions were increased to $5.40 in 2019, prior to a reduction to $3.60 in 2020, and a further reduction to $3.15 per share in 2021, respectively per share.

PKST holds a portfolio of 78 wholly-owned properties: 19 industrial, 38 office, and 21 non-core office and industrial properties.  the company reports that 59% and 67% of its industrial and office assets are leased to investment grade tenants, with total occupancy of approximately 95%. PKST notes that its non-core assets are 77% leased. PKST has guided that it is focusing on acquiring warehouse and distribution assts going forward, with select Class A office exposures.

S&P Capital IQ reports debt-to-equity of 0.82x and debt-to-gross properties of 43.4%, both as of year-end 2022. PKST reports 87% of outstanding debts are fixed rate (inclusive of hedging activity) with approximately 64% of debts maturing in by the end of 2025, with a weighted average maturity date of 3.1 years. The reported weighted average interest rate was approximately 4.1%.

For additional information: CLICK HERE and CLICK HERE 

Silver Star Properties REIT, Inc. (fka Hartman Short Term Income Properties XX, Inc.) Announces Completion of Pivot to Self-Storage Focus, Acquisition of Southern Star Self-Storage Investment Company, and Potential Public Listing of the Company

On April 6, 2023, Silver Star announced that its executive committee approved the repositioning of the REIT to focus on self-storage assets, marking a previous departure from its targeted focus on office, industrial, and retail centers. Silver Star announced the acquisition of Southern Star Self Storage Investment Company (Southern Star).  Recently appointed Silver Star CEO Mark Torok previously served as CEO of Southern Star.  We reported on this here. The consideration tendered for the acquisition includes $3 million in cash and 301,659 restricted stock units.  Silver Star most recently reported an estimated net asset value per share of $12.08 as of December 31, 2021.  The cash is payable when the executive committee determines that Silver Star is in a “reasonable position” to make such payment. However, the equity interest purchase agreement anticipates $1.5 million in cash payable by year-end 2023, and the remaining $1.5 million in cash payable by June 30, 2024. Mr. Torok also signed a three-year employment agreement in which he will receive a base salary of $550,000 and approximately 1.3 million performance units per year.

In a company press release, Mr. Torok also referred to a potential liquidity event for Silver Star, noting that: “I am thrilled to take the company to new heights and deliver value to shareholders through a public listing.”

Silver Star has recently been in the news multiple times recently over board level changes, including the removal of founder Allen Hartman from the board in March 2023. The executive committee previously noted that it is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.” We previously reported on these matters here.

For more information: CLICK HERE and CLICK HERE

Hartman vREIT XXI, Inc. Announces the Appointment of Allen Hartman as Interim CFO  

This follows the resignation of Louis Fox, the longtime CFO of multiple Hartman REITs in March 2023.  The REIT reported that Mr. Fox’s resignation was not due to any disagreements with the company regarding its operations, policies, practices or otherwise. Mr. Hartman serves as the CEO and chairman of the board of the REIT as well, and was recently removed from the board of directors of Silver Star, as noted above.

Alternative Ramblings

Blackstone Sells Orange County Offices at Substantial Loss 

Blackstone acquired the Santa Ana Griffin Towers for approximately $129 million in 2014 and reportedly has sold the properties for $82 million. A joint venture of Barker Pacific Group and Kingsbarn Realty Capital acquired the property. This marks the latest in high profile office related distress, with Southern California featuring prominently through the KBS REIT II Union Bank Plaza sale and the Brookfield defaults on two skyscrapers in downtown L.A. reported in February 2023. We reported on those matters here and here.

Redfin Reports Weaker Demand from Buyers for Vacation Homes

The report available here cites data on mortgage rate locks on second home transactions declining 50% over the previous year. The report highlights many would-be-second home purchasers are put off by persistent high prices and increasing interest rates raising costs, leading to weaker demand from prospective acquirers. This may create more favorable acquisition opportunities for funds entering the market. However, Redfin reported weaker demand for vacation rentals as well, noting “owners of short-term rentals are reporting a steep decline in business.” The report cited concerns with oversupply and local government regulations, including stricter taxing and permitting.

Multifamily Construction Permit Applications Decline 80% in St. Paul, Minnesota, in the Year Following the Implementation of One of the Nation’s Strictest Rent Control Regimes  

Sharon Wilson Geno, president of the National Multifamily Housing Council, recently told NAREIT that she believes rent control is not a solution to persistent housing shortages across the country.  This reminded the Weekly Update of the St. Paul Rent Control Saga from 2021, in which city voters approved an annual rent growth cap of 3% per year. The provision is notable in that many jurisdictions have inflation-linked rent control caps, as opposed to hard caps. However, the real onerous provision in St. Paul was that the measure originally precluded the landlord from raising the rent up to market rate upon a vacancy of the unit. The policy received substantial pushback, which subsequently resulted in some modifications by St. Paul’s city council, including allowing for landlord “self-certification increase exceptions” of between 3% to8% annually (whatever that means). The rent control ordinance is outlined in 16 mind-numbing and borderline incomprehensible pages here.

Meanwhile across the Mississippi in Minneapolis, which did not pass a restrictive rent control measure, multifamily building permits more than tripled over the same period. Capital will go where it is best treated, don’cha know!

KBS Real Estate Investment Trust II, Inc., Sells Union Bank Plaza Office Building in Downtown L.A. at a Significant Loss

The REIT previously announced the sale of Union Bank Plaza in July 2022, at an initial price of $155 million, to an affiliate of Waterbridge Capital (unaffiliated with KBS REIT II). The purchase and sale agreement was amended multiple times, with the parties agreeing to a final sale price of $104 million in March 2023. KBS REIT II had originally acquired the office building in 2010 for $208 million, and completed a $20 million renovation on the property during its ownership. The Commercial Observer and the DI Wire each reported on these matters. The Commercial Observer noted that RC Acquisitions backed out of a $280 million deal for the property in 2019. The 40-Story office tower was originally built in 1967 and features 701,888 leasable square feet. In 2019. Union Bank reduced its leased space from approximately 300,000 square feet to 162,000 square feet.

KBS REIT II stockholders previously approved a plan of liquidation in March 2020, and the REIT subsequently made five liquidating distributions totaling $2.10 per share from March 2020 through December 2021. The Union Bank Plaza sale was the final asset in the REIT’s portfolio. KBS REIT II’s board approved an estimated liquidation value of $0.93 per share in August 2022, following the aforementioned distribution. On April 4, 2023, the board approved a liquidating distribution of $0.73 per share following the sale of the Union Bank Plaza. Cumulative liquidating distributions totaled $2.83 per share (although KBS REIT II also made a special distribution of $4.50 per share in 2014). Total non-operating distributions have been $7.83. KBS REIT II originally had a 6.5% distribution rate, to common stockholders, beginning in the fourth quarter of 2009 and made cumulative non-special and non-liquidating distributions of $5.85 through 2020 and prior to the announcement of the plan of liquidation. Total operating, special and liquidating distributions totaled $13.68 since inception of the REIT and through its liquidation. KBS REIT II raised approximately $1.8 billion in common stock proceeds in an offering that was initially declared effective in 2008 and priced at $10.00 per share.

For more information: CLICK HERE

This continues a trend of weaker pricing on office assets in general and specifically in the downtown L.A. market, as evidenced by Brookfield DTLA Office Fund Trust Inc.’s recently reported defaults on mortgages related to two office properties in the CBD. We reported on this here.

Capital Square Apartment REIT, Inc., Closes First UPREIT Transaction with Affiliated DST Program

Capital Square announced that the Saltmeadow Bay Apartments, a 229-unit Class A property in Virginia Beach, was the first property contributed to Capital Square Apartment REIT in a Section 721 UPREIT transaction. The property was originally acquired by an affiliated DST program for $48.6 million in 2019, and the UPREIT transaction was priced at $72 million. Capital Square reported that DST investors received a total return of 161%. A fairness opinion was obtained by investment banking firm Robert A. Stanger & Company to support the transaction. Capital Square reported that 85% of the DST investors (by value) exchanged their DST interests for operating partnership units in the REIT, exchangeable into common stock at a future date, which would constitute a taxable event.

REITs

Peakstone Realty Trust (fka Griffin Realty Trust) Announces Resignation of Kevin Shields and Four other Directors on the Board 

Peakstone noted that the resignations were “part of a Board refreshment process being implemented in connection with [the anticipated listing].” Peakstone reported that none of the resignations were due to any disagreement with company, its operations, policies or practices. The board subsequently approved the appointment of Casey Wold and Carrie DeWees as directors.

In February 2023, Peakstone announced a name change in, its intention to seek a listing on the NYSE, a reduction in its common stock distribution, and a reverse stock split. We reported on this here.

For more information: CLICK HERE

Vinebrook Homes Trust Announces Internalization Transaction of Manager Priced at $20.3 Million 

On March 13, 2023, Vinebrook Homes Trust reported that it was exercising its rights to purchase Vinebrook Homes, LLC (the Manager), under its call rights notice. The Manager provides certain renovation, leasing, and operating services to Vinebrook Homes Trust under various management agreements. Vinebrook is externally managed by NexPoint Real Estate Advisors V, L.P. The current report noted that the Manager and certain affiliates may terminate the internalization agreement If the closing of the internalization is not completed by March 23, 2023. No additional update was filed with the SEC as we went to press.

Vinebrook Homes was formed in 2018 and reported total assets of approximately $3.7 billion as of September 30, 2022. Vinebrook owns a portfolio of 24,153 single family rental homes with an average rent of approximately $1,142 per month.

Additionally, Vinebrook Homes Trust announced in late February 2023 that interim president Brian Mitts was appointed president of the company by the board of directors.

For more information: CLICK HERE and CLICK HERE

Silver Star Properties REIT (fka Hartman Short Term Income Properties XX, Inc.) Board Removes Allen Hartman as Executive Chairman of the Company and Announces Investigation of Violations of Fiduciary Duties by Mr. Hartman

On March 15, 2023, Silver Star announced that the executive committee of the board of directors (which has decision-making authority of the entire board) removed Mr. Hartman from his role as executive chairman. Mr. Hartman will remain a director on the board of directors. Additionally, the executive committee is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.”

Silver Star REIT previously announced that it was seeking to shift its focus into self-storage assets.  Additionally, Silver Star reported in early March 2023 that it was in discussions with former CEO Mr.Hartman and Hartman vREIT XXI, Inc. (Hartman XXI) regarding the complete separation of Silver Star from Hartman XXI.  Hartman XXI owns approximately 1.2 million shares in Silver Star and has provided loans to Silver Star in previous years, including a loan with a principal balance of $17.2 million that was scheduled to mature on October 31, 2022, and is currently in default. Hartman XXI and Silver Star are also investors in a joint venture that owns 39 properties, and previously announced intentions of combining in a merger.

We previously reported on these developments here.

For more information: CLICK HERE

CNL Healthcare Inc.’s Board Recommends Shareholders Reject Comrit’s Tender Offer Priced at 63% of Estimated NAV Per Share

On March 20, 2023, CNL Healthcare Inc.’s board recommended shareholders reject a third-party tender offer from entities affiliated with Comrit to purchase up to 5.1% of the outstanding shares of the REIT at $4.36 per share. The third-party tender offer was filed on March 13, 2023. This marks the fifth tender offer from Comrit entities, following tender offers in 2020, 2021, and 2022 for up to 5.1% of outstanding shares. Comrit reported that as of March 8, 2023, it owned approximately 0.9% of CNL Healthcare’s outstanding common stock.  CNL Healthcare suspended its redemption program in July 2018.  CNL reported that between 2020 and 2022, more than 2 million shares were transferred between investors at average annual per share sales prices between $4.13 and $4.77.

CNL Healthcare further reported that its estimated NAV per share as of December 31, 2022, was $6.92 per share, which was 6.1% lower than the previous estimated NAV per share. The estimated NAV per share does not factor in estimated transaction costs to liquidate the portfolio, per IPA guidelines. The chart below highlights the public offering price and estimated NAV per share of CNL Healthcare dating back to the REIT’s inception. Note that the special distribution in 2019 was $2.00 per share, which  was generated from the distribution of a portion of the proceeds of the sale of 70 properties, part of a strategic review of liquidity options that began in 2018.  CNL Healthcare reported that it currently has 70 properties, comprised of 69 senior housing properties and one parcel of raw land. The REIT reported total assets of $1.4 billion with a debt/equity ratio of approximately 42% of total assets. The REIT continues to focus on exploring shareholder liquidity options.  

For more information: CLICK HERE and CLICK HERE 

Alternative Ramblings

EcoVest Settles Case With DOJ

EcoVest has reached a settlement agreement with the Department of Justice that enjoins the company indefinitely from offering any investment programs with a conservation easement option in the future.  As part of the settlement, EcoVest does not admit to any of the allegations contained in the DOJ’s amended complaint.  No monetary amounts are noted in the settlement agreement.  The Sun News (of Myrtle Beach) reports on the matter here, including quoting from a statement from Sean Akins, counsel for EcoVest, who noted that “the company is pleased the DOJ accepted their offer to resolve the case.” He went on to say that “[t]he Department of Justice’s case was premised on false allegations and a failure to understand EcoVest’s business… While EcoVest was confident it would have prevailed at trial, its primary goal is to avoid further costly litigation and focus its resources on behalf of the best interests of its existing investors.” EcoVest has subsequently shifted to focusing on other real estate investments, including affordable housing.

The final judgement is available here.

SEC Scraps Vote on Private Equity and Hedge Fund Disclosures

The Wall Street Journal reports that the SEC has scrapped a vote, set for earlier this week, on certain enhanced disclosure requirements for private equity and hedge funds. The WSJ noted that the enhanced disclosures would have required large hedge funds to file reports within one business day of incidents including “extraordinary investment losses, defaults by major counterparties or spikes in margin requirements.”

Shopoff Dream Hotel Development in Las Vegas Has Lien Put on It and Ceases Construction Activity

The Las Vegas Review Journal reports that activity at the Dream Hotel Development “has fully stopped” after funding activity on the project stalled.  The news outlet notes that stalled financing plans left Shopoff owing “tens of millions of dollars for the hotel-casino project.”  Mr. Shopoff told the Las Vegas Review Journal that he owes “approximately $25 to $30 million for work on the resort and that construction will restart once the terms of the financing are finalized.”  Mr. Shopoff indicated that terms with its lender are anticipated to be finalized potentially in the next couple of weeks. The total cost of the project is estimated to be between $550 million and $575 million. A lien was recorded on the property on March 10 by McCarthy Building Companies, a contractor on the development, indicating that $40.2 million was “currently due for work performed” per the Las Vegas Review Journal.  Mr. Shopoff told the press “they will be paid, and the project will get built.”

Guggenheim Credit Market Update

Guggenheim’s head of structured finance anticipates that as the credit cycle continues to deteriorate that subordinated interests in collateralized loan obligations (CLOs) may experience payment disruptions.  Guggenheim remains bullish on investment grade rated tranches of CLOs. Further info can be found on the Guggenheim podcast here.

Credit Suisse, Banana Republics, Viability Clause and the Need for Due Diligence 

Credit Suisse’s 166-year run is over as Swiss regulators announced a shotgun marriage with UBS this past weekend. We note that no Credit Suisse or UBS shareholders voted on the transaction, which priced Credit Suisse at approximately $3 billion, while it traded with an $8 billion market capitalization. The combination followed the Swiss National Bank providing approximately $50 billion in support of the ailing financial firm, and additionally backstopping $9 billion in anticipated losses related to the UBS combination with Credit Suisse. One notable aspect of the transaction was that approximately $17 billion worth of Credit Suisse AT1 Bonds were wiped out. These bonds, commonly referred to as contingent convertible bonds, or “CoCos,” are senior to common stock in the capital stack, like any other bond.  However, there are some interesting provisions and flexibility incumbent to these securities, which comprise over a quarter trillion dollars’ worth of financing for European Banks. As Reorg Research and S&P Capital IQ note, the AT1 Bonds contained a viability clause in their offering documents that included multiple tortured definitions of a “viability event” including:

“Customary measures to improve CSG’s capital adequacy being at the time inadequate or unfeasible, CSG has received an irrevocable commitment of extraordinary support from the public sector (beyond customary transactions and arrangements in the ordinary course) that has, or imminently will have, the effect of improving CSG’s capital adequacy and without which, in the determination of the regulator, CSG would have become insolvent, bankrupt, unable to pay a material part of its debts as they fall due, or unable to carry on its business.”

As S&P Capital IQ further reports:

An automatic and permanent write-down of the AT1 principal to zero was triggered when the regulator for Credit Suisse Group (CSG) determined that a viability event had occurred.

While market participants may not all agree with the Swiss banking regulator that such an event had taken place, the regulator decided that it had. This led automatically to a viability event notice and, therefore, a write-down event.

Credit Suisse’s AT1 instruments all contain language that makes it clear that such an event would mean a complete, permanent write-down to zero, and that no partial or temporary write-downs were possible. By contrast, AT1 instruments at some other banks include partial or temporary write-down features. In addition, although Credit Suisse’s instruments did not have any conversion features, some banks do issue AT1 instruments that can be converted into common equity in a stress situation.

Undoubtedly the wipeout of subordinated securities while common equity holders retain value is a fundamental shift in any traditional understanding of the capital hierarchy of a firm. However, as S&P and Reorg both note, this exact premise is specifically contemplated in the offering documents of AT1 bonds issued by Swiss Banks.  U.K. and Eurozone regulators were quick to point out that AT1 bonds in their jurisdictions did not include these provisions.

S&P reports that:

Both the EU and U.K. authorities made statements about expected hierarchies on March 20:

• The EU authorities reminded investors that they expect common equity instruments to be the first to absorb losses; only after these have been depleted would the EU require AT1 instruments to be written down.
• The Bank of England confirmed that AT1 instruments rank ahead of common equity Tier 1 and behind Tier 2 in the hierarchy, and that holders of such instruments should expect to be exposed to losses in resolution or insolvency, based on their positions in this hierarchy.

The devil is in the details indeed, and this will be litigated far into the future.  Undoubtedly the cost of financing banks in Europe will increase given this debacle and initial data on pricing for CoCos highlighted an approximate 20% selloff following the news of the Credit Suisse AT1 wipeout. Perhaps some of the institutional investors claiming that Switzerland is behaving like a banana republic should review their internal due diligence processes related to offering document review and maybe consider hiring FactRight to sift through these document sets on their behalf.

REITs

Griffin Realty Trust Announces Plans to Pursue Listing of Common Stock on the NYSE, Change its Name to Peakstone Realty Trust, A Reduction in Common Stock Distributions and a Reverse Stock Split

On February 21, 2022, Griffin Realty Trust announced that its board of directors has determined to pursue a listing event of the company’s common stock on the NYSE.  No timeline for the listing event was provided in the press release. The listing announcement marks the culmination of a strategic liquidity plan the company announced in 2019.

The company’s website also indicates that the REIT is now known as “Peakstone Realty Trust” and that a reverse stock split will be announced on March 10, 2023. Further details were not available as we went to press. The board also announced that in order to preserve liquidity, it was reducing the distribution per common share to $0.10 on an annualized basis beginning in February 2023. The company previously had declared distributions of $0.35 per common share on an annualized basis.

Griffin Realty Trust previously reported that it had sold a 51% stake in a portfolio of office properties in a transaction valued at $1.1 billion in September 2022. We reported on this here.  As of September 30, 2022, the most recent financial statements available, the REIT reported total assets of $3.9 billion and outstanding debts of $1.5 billion.

For more information: CLICK HERE

Silver Star Properties REIT, Inc. (fka Hartman Short Term Income Properties XX, Inc.) Seeking to Expand Into Self-Storage Assets

On March 7, 2023, Silver Star Properties REIT reported that its plans to shift its investment focus into self-storage assets is ongoing “but has been temporarily suspended for strategic reasons.”  Silver Star further reported that CEO Mark Torok and the executive committee are currently negotiating an employment agreement for a three-year term, noting that the committee was looking to ensure that Mr. Torok is “all in and restrict his outside involvement.” Additionally, Silver Star is currently in discussions with former CEO Allen Hartman and Hartman vREIT XXI, Inc. (Hartman XXI) regarding the complete separation of Silver Star from Hartman XXI.  Hartman XXI owns approximately 1.2 million shares in Silver Star and has provided loans to Silver Star in previous years, including a loan with a principal balance of $17.2 million that was scheduled to mature on October 31, 2022, and is currently in default. Hartman XXI and Silver Star are also investors in a joint venture that owns 39 properties, and previously announced intentions of combining in a merger.

Silver Star also reported that Horst Schulze tendered his resignation as a director effective July 1, 2023.

We previously reported on the plans of Mr. Torok and the executive committee to chart a new course for Silver Star Properties here.

For more information: CLICK HERE

Living at the Mall (Rats!?)

Redevelopment of anchor tenants and excess parking lots at suburban shopping malls appear to be picking up steam.  Bill Shopoff, of Shopoff Realty, noted in a recent interview with the L.A. Times that Shopoff planned on redeveloping the Macy’s and former Sears stores at the Westminster Mall in Orange County to include townhomes, apartments, a hotel, and shops.  Shopoff Realty has been active in this space with a recent announcement that it was partnering with Praelium Commercial Real Estate and Singerman Real Estate to redevelop the former Nordstrom department store building in the Pleasanton Stoneridge Shopping Center in the East Bay area. In an interview with the East Bay Times, Mr. Shopoff noted “[t]his asset represents an opportunity to acquire a significant piece of property in a highly desirable market in Northern California.” This marks the fourth acquisition of a regional mall site by Shopoff Realty in the past few  years.

REITs

Silver Star Properties REIT, Inc. (fka Hartman Short Term Income Properties XX, Inc.) Seeking to Expand Into Self-Storage Assets

On February 13, 2023, the REIT announced that its management team was meeting this week “to finalize the Company’s plans to reposition its assets into the self-storage asset class to maximize shareholder value”.  CEO Mark Torok previously announced in December 2022 that the Company was formulating a plan to expand into different real estate asset classes, including self-storage, and was considering dispositions of its existing assets, which are primarily office properties. 2022 was an eventful year for the REIT. In July, the REIT’s board of directors approved the suspension of distributions to its stockholders.  This was followed by the REIT reporting, in its third quarter report, that there was substantial doubt about its ability to continue as a going concern due to certain loan maturities that were pending. In October, the Company appointed Mark Torok, who previously served in an executive capacity at the Company, to serve as CEO, succeeding Allen Hartman.  Silver Star reported total assets of $500 million as of September 30, 2022.

For more information: CLICK HERE

Ares Industrial Real Estate Income Trust (AIREIT) Announces New Co-President and Resignation of a Board Member

On February 10, 2023, Rajat Dhanda informed the board of directors that he will step down as co-president of AIREIT and continue to serve as a director on the board. The board subsequently appointed David Fazekas to serve as co-president of the Company. Mr. Fazekas is a partner and chief investment officer of industrial at Ares Real Estate. Mr. Fazekas has served in various roles at other real estate entities previously sponsored by Black Creek Group and Ares, including Industrial Property Trust, and Industrial Income Trust.

Additionally, AIREIT reported that Evan Zucker was leaving Ares Management Corporation and resigning from the board, on which he served as chair, to pursue other opportunities. AIREIT’s board subsequently appointed William Benjamin to serve on the board.  Mr. Benjamin serves on the Ares Real Estate Group Global investment committee and Ares Real Estate Debt investment committee. Mr. Benjamin and current board member William Merriman III will serve as co-chairs of AIREIT’s board.

For more information:  CLICK HERE

KBS Growth and Income REIT, Inc., Reports Default on $47 Million Mortgage on Commonwealth Building in Portland

On February 13, 2023, KBS Growth and Income REIT, Inc., reported that it failed to pay the outstanding mortgage amount that was due to the lender on February 1, 2023. We have previously reported on KBS G&I disclosing reduced occupancy and distress at the property and that default was a likely outcome.   KBS G&I reported an estimated net asset value per share of $1.16 as of September 30, 2022. The REIT has previously noted that the Commonwealth Building default is not expected to have an impact on the net asset value per share, as the Company’s valuation of the property net of the mortgage is effectively zero. KBS G&I has also sought shareholder approval of a plan of liquidation.

For more information: CLICK HERE

 

BDCs

Prospect Floating Rate & Alternative Income Fund, Inc. (PFLOAT) Reports Substantial Doubt About Its Ability to Continue as a Going Concern Due to Pending Maturity on Credit Facility

On February 13, 2023, PFLOAT (fka TP Flexible Income Fund, Inc., and fka Triton Pacific Investment Corporation, Inc.) reported in its third quarter report that the Company extended a ramp period on its credit facility from August 2022 to August 2023.  The Company noted that without a further extension of the ramp period on the credit facility or a refinancing of the credit facility, the Company may fail to comply with a covenant, which may result in an event of default.

For more information: CLICK HERE

Alternative Ramblings

Vornado Says Friday is Dead Forever……and They Might Give it Away on Fifth Avenue

Vornado (NYSE: VNO) CEO Steven Roth noted that Fridays were dead and that Mondays were touch and go on their fourth quarter earnings call this past week. Mr. Roth also guided that office utilization rates of approximately 70% may be viewed as normalized in the post-pandemic world. Vornado, which sports a market capitalization of approximately $4.3 billion, also reported that it defaulted on a mortgage for certain retail space in the St. Regis on Fifth Avenue in New York City held through a JV and recognized a non-cash impairment of approximately $480 million on the JV. Mr. Roth stated that it was working to restructure the loan with the lender, and that the REIT was willing to toss the keys back to the lender if restructuring efforts were unsuccessful. Negotiation via earnings call—a favorite of the Weekly Update!

LA Office Towers in Events of Default

Brookfield DTLA Fund Office Trust Investor Inc. reported that the Gas Company Tower in downtown LA is currently in an event of default after the Company failed to pay $415 million in combined principal on mortgage and mezzanine loans that matured on February 9, 2023. Brookfield DTLA also reported that another property, the 777 Tower in L.A., was also presently in an event of default due to the Company not obtaining an interest rate protection agreement on a $268.6 million mortgage secured to the property.  Brookfield DTLA’s Series A 7.625% Preferred Stock (NYSE: DTLA-P) have trended lower in recent years, and presently trades at less than ten cents on the dollar of its $25 per share liquidation value.

Proposed Rule Would Require Additional Disclosure on Ownership and Managerial Data for Medicare and Medicaid Recipient Skilled Nursing Senior Housing Facilities

A summary of the proposal form the Centers for Medicare & Medicaid Services (CMS) is available here, and in the Federal Register here. The Wall Street Journal reported on this here. The CMS noted that the proposed rule would require the disclosure of certain ownership, managerial, and other information regarding these facilities. This would include the structure and description of relationships of any entities providing certain administrative, operational, managerial, or consulting services amongst others to these facilities. The executive summary of the proposed rule notes, “we have recently received information regarding particular categories of nursing facility owners (including, but not limited to, private equity companies and real estate investment trusts) that has generated concerns about the standard of care that nursing facility residents receive.”

REITs

Hartman vREIT XXI, Inc. Provides Guidance that it does not anticipate Common Stock Distributions for the Foreseeable Future and Appoints New Independent Director to Chair its Audit Committee

Harman vREIT XXI, Inc. (Hartman XXI) reported that increased interest expenses have eroded its ability to continue to make shareholder distributions.  Hartman XXI noted that its weighted average interest rate is approximately 7.3%, which is more than double the same rate from January 2022. The REIT further guided that it does not anticipate a material decline in interest rates in 2023.

Hartman XXI previously reported in December 2022 that it would not make a distribution to common stockholders for the last month of 2022, due to the aforementioned interest expense increases.  Hartman XXI announced the suspension of its share redemption program in November 2022 due to liquidity concerns.

Additionally, the board of directors appointed J. Allen Quine to serve as an independent director, and as chair of the audit committee.

For more information: CLICK HERE and CLICK HERE

KBS Growth & Income REIT Seeks Shareholder Approval of Liquidation Plan

The REIT (KBS G&I) filed a preliminary proxy detailing multiple shareholder proposals, including a plan of liquidation, director elections and approval of the auditor. The REIT’s board of directors recommends shareholders approve the plan of liquidation as outlined in the proxy.  The REIT has been evaluating strategic options since the fourth quarter of 2018. KBS G&I defaulted on a mortgage secured by a portfolio office building located in Portland in December 2022. We previously reported on this matter here.  KBS G&I reported an estimated net asset value per share of $1.16 as of September 30, 2022.  Management further noted that the effect of the Commonwealth Building default is not expected to have an impact on the net asset value per share as the company’s valuation of the assets effectively net to zero.  KBS G&I reported total assets of $120 million as of September 30, 2022. KBS G&I raised approximately $94 million in common stock proceeds in an offering period from 2015 through 2019.

For more information: CLICK HERE

REITs

InPoint Commercial Real Estate Income Trust Suspends Public Offering, Share Repurchase Plan and DRIP, and Begins Evaluating Strategic Options

InPoint reported that the decision to suspend the share repurchase plan was due to the current pace of fundraising on its public offering, which had dipped below monthly redemption requests as of January 2023. InPoint also reported that its board of directors agreed to terminate the repurchase program for its 6.75% Series A Cumulative Redeemable Preferred Stock (NYSE: ICR PR A). We note that the Series A Preferreds have recently traded at discounts of approximately 20% to their liquidation preference of $25.00, in thin trading volume, over the previous six months.

InPoint, which invests in commercial mortgages, reported total assets of $0.9 billion, with approximately $0.5 billion in leverage in the form of repurchase agreements.

For more information: CLICK HERE

Blackstone REIT (BREIT) Redeems 25% of Shareholders Outstanding Redemption Requests in January 2023  and Reports Preliminary Same-Property NOI Growth of 13% Year-Over-Year

BREIT reported, in a February 1 shareholder letter, that it repurchased $1.3 billion of shares in January 2023, which accounted for 2% of its outstanding NAV. BREIT reported that it redeemed 25% of aggregate redemption requests in January 2023, which accounted for approximately 8% of BREIT’s total outstanding shares. This marks the second quarter of shareholder redemption requests exceeding BREIT’s share repurchases. We previously reported on the 2022 oversubscribed repurchase offer here.

We also would point readers to the Blackstone, Inc. (NYSE: BX; BREIT’s sponsor) fourth-quarter conference call for a primer on semi-liquid product structures.  In response to questions about liquidity within certain semi-liquid investment products, specifically BREIT, Blackstone president John Gray noted:

“I think what’s fascinating is when we talk to our clients, their experience versus the media narrative.  So, what we’ve heard from our clients is they’re quite pleased.  They’re quite pleased that they invested in a product that has produced 3x the rate of return (of) the public REIT market.  So they look at what’s happened here is positive.  Our clients and financial advisers understand that this was a semi-liquid product, that the basic trade-off was to trade some liquidity here for higher returns.  And that there was always from day 1, 6 plus years ago, limitations on liquidity.  Now there may be a small subset who’ve expressed some unhappiness.  But frankly, the vast, vast majority of our customers are quite happy.”

Those investors may be getting happier in the future as well…

We note, lost in the flurry of shareholder liquidity headlines at BREIT (and other large NAV REITs recently), the company reported, based on preliminary estimated financial results, same property NOI increases of approximately 13% year-over-year as of December 31, 2022. While this data has not been finalized, such an NOI increase, almost double the highest CPI prints over the past year, would be a very strong marker of portfolio performance in our estimation.

BREIT also reported an additional $500 million equity investment from the University of California system.  This is in addition to UC’s previous $4 billion investment in BREIT through a strategic venture announced earlier in January 2023. We reported on that here.

Strategic Student & Senior Housing Trust, Inc. (SS&SHT) Reports Updated NAV Per share of $6.24 as of the Third Quarter 2022

The recently updated NAV represents a 3% increase year-over-year from the previous estimated NAV per share of $6.08 as of September 30, 2021.  The past few years have undoubtedly been challenging for the senior housing industry.  Four of SS&SHT’s five properties in its current portfolio are senior housing assets.  SS&SHT’s original public offering was declared effective in 2022 with initial offering prices per share of between $9.40 and $10.33. SS&SHT suspended its offering and share redemption plan in March 2020 at the onset of the pandemic. Shareholder distributions were also suspended in March 2020 and have not been reinstated to date.

For more information: CLICK HERE

KKR Real Estate Select Trust Inc. Reports Oversubscribed Repurchase Offer in January 2023

KKR reported that investors sought to redeem approximately 8.1% of outstanding shares in the fourth quarter, which exceeded its 5% quarterly redemption limitation. Redemptions were processed pro rata and each redeeming shareholder had 62% of their request redeemed.  KKR reported total investments of approximately $1.5 billion as of the end of the third quarter.

 

Alternative Ramblingss

Office Utilization Crests 50% in Kastle’s 10-City Return to Office Barometer

Kastle’s data, based on entry-card swipes into offices, shows 50% office utilization for the first time% since the beginning of the pandemic. Kastle data suggests the Bay Area markets of San Francisco and San Jose continue to lag other major cities surveyed (see the table below).  Similarly, Washington D.C. has also been soft, with the mayor of the District pleading with the executive branch to demand a return to the office for federal government employees currently “WFH.” The data also shows a wide range of dispersion on individual days, with Friday utilization approximately half of the highest utilization day (Tuesday) of the week.

For context on utilization rates, SL Green Realty Corp. (NYSE: SLG), the Manhattan office landlord, noted in their recent Q4 earnings call that they would deem office utilization rates in the 70% to 80% range as full utilization,  at which levels they would not expect tenants to downsize their office spaces.

Sovereign Partners Continues Lease-up in Suburban Chicago Office Building

In other office sector news, Sovereign Partners reported a 56,000 square-foot lease at a 28-story 490,0000 square-foot Class A office building located in suburban Chicago. AIT Worldwide Logistics is the new tenant and will move its world headquarters to the building. CommercialSearch reported that this marks 120,000 square feet of leasing activity at the building in the past year.

Caliber Companies Obtains Bridge Loan on Hospitality Assets and Seeks to Complete IPO

Caliber Co. LLC, a private investment program sponsor, has announced that it has agreed to a $55 million bridge loan for three Phoenix airport hotels. Loan terms were not disclosed publicly. Caliber Co. acquired the various three hotels between 2012 and 2016. The Commercial Observer previously reported that as of December 2016, Caliber owned 51% of the full-service hotel rooms in the Phoenix Sky Harbor submarket. Given the Super Bowl and the Waste Management Open are in Phoenix next weekend, occupancy and hotel rates are anticipated to be robust! We note that Caliber recently filed a registration statement for an initial public offering seeking to raise approximately $8 million in the sponsor and subsequently list the common stock on the NASDAQ.

REITs

KBS Real Estate Investment Trust III, Inc. Suspends Ordinary Redemptions and Reduces Investor Distributions by Approximately 23%

On January 17, KBS Real Estate Investment Trust III, Inc. (KBS REIT III) announced that its board of directors had suspended its share redemption program beginning January 2023. The board noted that the suspension “is a direct result of the ongoing challenges affecting the commercial real estate industry, especially as it pertains to commercial office buildings.” The Company particularly emphasized slowdowns in the San Francisco Bay Area office market as materially impacting the Company’s performance. KBS REIT III further noted it was critical to preserve capital given the current state of markets. Share redemptions remain available for hardship, including death, disability, and determination of incompetence. KBS REIT III also announced a reduction in distributions. KBS REIT III announced January 2023 distributions would be $0.038333 per share, and projects that February and March distributions would the same amount. KBS REIT III previously distributed $0.049833 in monthly distributions per share. KBS REIT III noted that the reduction in distributions per share was attributable to “the continued impact of the economic slowdown on the Company’s cash flows, which is primarily the result of increasing interest rates and tenant lease expirations.”

KBS REIT III reported total assets of $2.3 billion and held 16 office properties and on mixed-use retail/office property comprising 7.3 million rentable square feet as of September 30, 2022. FactRight notes that three properties are located in the Bay Area comprising approximately 19% of KBS REIT’s total portfolio based on cost.

For more information: CLICK HERE

Manufactured Housing Properties, Inc. CFO Resigns

On January 13, 2023, Chelsea Gee resigned from her position as chief financial officer of Manufactured Housing Properties. Ms. Gee’s resignation was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices. Ms. Gee had served as vice president of finance since 2021 and as CFO since the second quarter of 2022. Ms. Gee is married to Richard M. Gee, a director of MHP and the son of Raymond Gee, who is the managing member of Gvest Real Estate Capital LLC, which holds a majority of MHP’s outstanding voting securities.

The Board appointed Vira Turchinyak to the CFO position. Ms. Turchinyak previously served as Controller at Cantor Fitzgerald’s Real Estate Investment Management group from June 2020 to October 2021 and has served as controller at MHP since August 2022. The Company reported that Ms. Turchinyak was appointed to serve in the CFO role until her successor is duly elected and qualified. Mr. Turchinyak has no familial relationships with the Company’s existing directors and officers.

For more information: CLICK HERE

Griffin Realty Trust Remains Neutral on Unsolicited Third-Party Tender Offer from CMG Partners

The offer price from CMG Partners, and certain affiliates, was $3.40 per share, Griffin Realty Trust (GRT) most recently reported a NAV per share of $7.37 as of June 30, 2022. This equates to a 54% discount to the most recently reported NAV per share. CMG’s offer would also include the right to receive any shares that are to be distributed in a potential spin-off of certain portions of Griffin Realty Trust’s portfolio.

We note that GRT’s board has remained neutral on multiple third-party tender offers in the past few years citing uncertainties related to liquidity of GRT’s shares given the suspension of the share redemption program in October 2021, outside of investors experiencing certain hardships. Griffin has previously announced in August 2022, its intention to spin-off its industrial assets and seek a listing of the spin-off entity on a national securities exchange and liquidate the remaining assets in GRT. We previously reported on GRT’s announced plan here.

For more information: CLICK HERE

 

Alternative Ramblings

Secondaries Capital Formation Increasing

The secondaries market has expanded significantly in the past decade from $25 billion in annual trades, per secondariesinvestor.com, to a reported $103 billion in 2022, per data from Evercore, as highlighted in the chart below. Blackstone alone is looking to raise $25 billion in capital raising itself in 2023. One has to wonder, with all of this capital raising activity seeking secondary activity, whether this should provide more competitive bids on secondary transactions. As we’ve seen in the retail channel, discounts on secondary offers can be quite significant. Also, note the significant GP-led transaction volume highlighted in the chart below. This provides some runway to the notion that this significant uptick in secondary fund capital formation may present opportunities for some retail-oriented fund managers that have experienced shareholder redemption challenges to effectively partner with secondary funds to clear out a backlogged redemption queue or enhance existing shareholder liquidity features in the future. Given the continued rise in popularity of “semi-liquid” alternative investment vehicles, including interval funds and tender offer funds, this may be an innovative area within the retail alternatives universe for years to come.

Prologis Forecasts Industrial Rent Growth of 10% in 2023

On its Q4 2022 earnings call this past week Prologis (NYSE: PLD) executives forecasted rent growth of 10% across its industrial portfolio in 2023. This rent growth projection is inclusive of “a moderate recession” in Prologis’ macro outlook.

Cancellation of New Home Spikes in Q4 2022

KB Homes reported that the cancellation rate on fourth quarter homes under contract reached 68% due to increasing mortgage costs eroding housing affordability. As the chart below highlights, this is a significant expansion of cancellations from previous years’ reporting periods. Lennar previously reported that its cancellation rate hit 26% in the fourth quarter, up from 12% in the same period in the prior year. Toll Brothers reported a 20% cancellation rate, up from 5% in Q4 2021.

KB Homes also announced that it was entering the “metaverse” to provide prospective buyers with virtual walkthroughs of KB Homes. No word if this metaverse expansion includes the prospective sale of virtual KB Homes or real estate, which is apparently a thing that we’ve reported on before.

Nashville Tourism Hit Record Levels in 2022

Nashville tourism had a record-setting year in 2022. Nashville Business Journal reports approximately 9.5 million room nights booked in the past year, and tourism contributing approximately $9 billion to the Music City’s economy. The Nashville Convention and Visitors Corporation is expecting 2023 to break records and noted that 15 more hotels with approximately 2,500 rooms are currently under construction, and 43 additional hotel projects are in the planning stages.

FactRight is glad to have modestly contributed to this record year with our fall conference in 2022, which included a little detour to the Country Music Hall of Fame. We will be returning for an encore to ride up and down Broadway for our 2024 fall conference as well!

REITs

Lodging Fund REIT III, Inc. Establish Revised its Net Asset Value and Updated the Offering Price to $10.57 per Share

On January 12, 2023, Lodging Fund REIT III’s Board of Directors (the Board) approved a revised net asset value (NAV) of $10.57 per share as of December 31, 2022. The revised NAV per share has resulted in an increase in the offering price from $10.00 to $10.57 per share effective January 6, 2023. The company reported that the revised NAV per share was based on the Board “taking into account appraisals of the company’s real estate properties and other factors deemed relevant by the Board.” Key assumptions related to the valuation have not been disclosed. The company also amended its operating partnership to change the distribution from 6% of capital contributions to $0.60 per share, which trims the distribution rate from 6.00% to 5.68%.

The company has not filed its third quarter 2022 report as of January 13, 2023, noting that it was unable to finalize its financial statement preparation and review process “due to uncertainty related to the SEC matter”. Lodging Fund REIT III has reported outside of its pending third quarter report that Occupancy and RevPAR have increased in the first three quarters of 2022, 74% and $88.57 respectively, compared to 72% and $76.59 in same period in 2021.

Lodging Fund REIT III reported in September 2022 that the company received a Wells notice from the SEC staff, indicating that the SEC has made a preliminary determination to bring an enforcement action against Lodging Fund REIT III’s advisor for possible violations of securities laws. Corey Maple, the CEO of the REIT, has also received a Wells notice as part of this same investigation. Management has noted that they believe all actions of the advisor and Mr. Maple have been appropriate and that they have retained counsel to defend themselves. We reported on this here.

For more information: CLICK HERE

New York City REIT, Inc. (NYSE: NYC) Announces Name Change and Completes 1-for-8 Reverse Stock Split

On January 9, 2023, New York City REIT, Inc. announced that it will change its name to American Strategic Investment Co. effective January 19, 2023. Trading will continue under the ticker symbol “NYC” following the name change. The company also completed a reverse 1-for-8 stock split on January 11, 2023, reducing the number of outstanding shares of common stock from approximately 15.4 million to 1.9 million.

For more information: CLICK HERE

 

1940 Act Funds

AOG Institutional Diversified Funds Receive Notice of Effectiveness from the SEC

The AOG Institutional Diversified Funds are comprised of a master fund (the AOF Institutional Diversified Master Fund) and two feeder funds (the AOG Institutional Diversified Tender Fund and the AOG Institutional Diversified Fund). The Master Fund reported total assets of approximately $50 million as of September 30, 2022, in a portfolio comprised of various REITs, BDCs, private equity interests and other investments.

Stay tuned for an upcoming FactRight report on this offering

 

Alternative Ramblings

Yield!

After over a decade of accommodative interest rate policies by major central banks around the globe, aggressive efforts to raise rates, in light of inflationary pressures, may finally end the (absurd) phenomenon of negative yielding debts. We note this is absent any real return analysis taking into account the effects of inflation. The Wall Street Journal reports that total negative-yielding debt was approximately $254 billion down from $18.4 trillion a mere two years ago, as reflected in the chart below. This may signal the end of a perplexing period in financial market history, wherein investors made investments in fixed income securities with the expectation of getting paid back less than their original invested amount.

REITs

University of California Allocates $4 Billion to Blackstone REIT

Blackstone Real Estate Income Trust, Inc. (BREIT) rang in the New Year with an announcement that the Regents of the University of California (UC Investments) agreed to purchase $4 billion in BREIT Class I Shares. The investment will include the creation of joint venture entity in which UC Investments shares, and certain shares owned by Blackstone, will be contributed.

The Wall Street Journal reports:

“As part of the agreement, UC Investments will put its BREIT shares into a strategic venture to which Blackstone will contribute $1 billion of BREIT shares that it already owns. The venture will have an 11.25% hurdle rate, meaning that if BREIT’s net annualized return exceeds that rate, Blackstone will get an extra 5% incentive fee. If the vehicle’s performance falls short of the 11.25% rate, Blackstone will make up the difference up to its $1 billion commitment.”

Blackstone is essentially guaranteeing an 11.25% return for up to 25% of UC Investments’ original invested amount. BREIT reported that its Class I Shares have achieved a 12.7% annualized return since inception six years ago. It further reported that it expects to achieve incremental profits provided that the Class I Shares achieve an 8.7% annualized return, due to the effect of management and incentive fees on UC Investments’ $4 billion share acquisition.  The shares are subject to a repurchase provision over two years, beginning in 2028.

Not a bad deal if you can get it.

Additionally, in other UC news, the Regents of the University of California have approved the migration of UCLA to the Big Ten conference. This sets up a future date for FactRight’s favorite college football team, the Minnesota Golden Gophers, to return to the Rose Bowl for the first time in more than 60 years! Unfortunately, such a return is not for the Tournament of Roses Bowl Game, but merely a future regularly scheduled Big Ten game. Regardless, the Gophers are heading back to the Rose Bowl.

For more information: CLICK HERE

CIM Real Estate Finance Trust (CIM REFT) Announces Agreement to Sell 185 Properties for $894 Million to Realty Income Corporation (NYSE:O)

CIM REFT reported that the 185-property portfolio consists of non-core retail and industrial properties totaling 4.6 million square feet with a 9.3-year weighted average remaining lease term. Portfolio cap rate data was not disclosed. The all-cash transaction was announced on December 30, 2022, and is expected to close in the first quarter 2023.

Following the transaction, CIM REFT’s net lease portfolio will consist of 199 retail, office and industrial properties comprising 6.4 million square feet. CIM REFT also had investments in a senior loan portfolio of $4.6 billion as of September 30, 2022.

For more information: CLICK HERE

JLL Income Property Trust, Inc., Ares Real Estate Income Trust, Inc., Ares Industrial Real Estate Income Trust, Inc., and JLL Income Property Trust, Inc. Meet All Fourth Quarter 2022 Redemption Requests

In light of much-publicized liquidity backlogs at certain NAV REITs, Ares reported that both of its perpetual life NAV REITs have met fourth-quarter redemptions. Similarly, JLL Income Property Trust reported that it had redeemed all redemption requests in the fourth quarter, which totaled approximately 3.1% of outstanding shares.

For more information: CLICK HERE and CLICK HERE

REITs

KBS Growth & Income REIT, Inc. Seeks Shareholder Approval of a Plan of Liquidation and Reports Default on Outstanding Mortgage 

On December 15, 2022, KBS Growth & Income REIT, Inc. (KBS G&I) reported that its board of directors had approved a plan of liquidation and dissolution for the REIT.  KBS G&I subsequently filed a preliminary proxy to shareholders seeking their approval of the liquidation plan.

KBS G&I raised approximately $94 million in common stock proceeds in an offering period from 2015 through 2019 and had been exploring strategic alternatives for shareholder liquidity since 2018.  Management cited significant challenges related to one portfolio property in particular, the Commonwealth Building located in downtown Portland, noting that decreased occupancy at the building had led to operating income from the building no longer supporting debt service payments on its mortgage, and a lack of anticipated near-term recovery for the asset.  Management also reported that the Commonwealth Building is valued at less than its outstanding debt, which is scheduled to mature in February 2023.  KBS G&I has estimated liquidation proceeds may range from $0.59 to $1.16 per share.

Subsequently, on December 20, 2022, KBS G&I reported that it had defaulted on the mortgage secured by the Commonwealth Building.  KBS G&I reported an estimated net asst value per share of $1.16 as of September 30, 2022. Management further noted that the effect of the Commonwealth Building default is not expected to have an impact on the net asset value per share as the Company’s valuation of the assets effectively net to zero.  KBS reported total assets of $120 million as of September 30, 2022.

For more information: CLICK HERE

RREEF Property Trust, Inc. Reports Share Redemptions in the Fourth Quarter Exceeded 5% Limitation

Shareholder liquidity at NAV REITs has been in the news in recent weeks following the oversubscribed repurchase offers at Starwood REIT and Blackstone REIT, additional information here and here.  RREEF Property Trust, Inc. (RREEF) recently announced that it had received shareholder redemption requests as of December 16, 2022, which exceeded its 5% quarterly limitation.  RREEF noted that all redemption requests received before December 16, 2022, were honored on a first come, first served basis and that requests received on December 16, 2022, were redeemed on a pro-rata basis.  RREEF will not facilitate additional share repurchase requests until January 1, 2023.

For more information: CLICK HERE

Lightstone Value Plus REIT II, and Lightstone Value Plus REIT III Seek Additional Time for Shareholders to Vote on Charter Amendments

On December 14, 2022, both Lightstone REIT II and Lightstone REIT III, adjourned their respective shareholders meetings until January 17, 2023, to allow shareholders additional time to consider certain proposed charter amendments.  We have previously reported on the proposed charter amendments which would eliminate certain investor protections.

For additional information: CLICK HERE and CLICK HERE

American Healthcare REIT (fka Griffin-American Healthcare REIT III and Griffin-American Healthcare REIT IV) Make No Recommendation to Shareholders Regarding Deeply Discounted Third Party Tender Offers

On December 21, 2022, American Healthcare REIT (AHR) issued a shareholder letter regarding the outstanding third party mini-tender offers from various CMG Partners, LLC and MacKenzie controlled entities.  The respective tender offers seek to purchase AHR shares at prices of $5.00 and $4.95 per share, respectively.  AHR recently completed a 4-1 reverse stock split on November 15, 2022.  Adjusted for the 4-1 reverse-stock split the CMG Partners and MacKenzie offers ($20.00 and $19.80, respectively) are 46% and 47% lower than the most recently estimated NAV per share of $37.16, as of December 31, 2021.

On September 16, 2022, AHR filed a S-11 to seek to offer additional common stock in a public offering and list its common stock on the NYSE under the ticker symbol “AHR”.  Bank of America Securities, Citigroup, and KeyBanc Capital Markets are listed as joint-book runners on the offering.  Given market conditions, the timing of such a listing of the common stock is uncertain at this time.  AHR suspended its share repurchase plan, and distribution reinvestment plan on November 14, 2022. AHR reported that these decisions were made in pursuit of the proposed listing of the common stock on the NYSE.

AHR’s Board of Directors has determined to make no recommendation to any shareholder on whether they should accept the CMG Partners or MacKenzie tender offers.  The Board cited the suspension of AHR’s share repurchase plan, differing individual shareholder liquidity needs and a lack of certainty regarding the timing of a potential AHR public offering or other liquidity event, as factors in its lack of recommendation.

For additional information: CLICK HERE and CLICK HERE

 

Alternative Ramblings 

Publicly-Traded REITs on Sale 

Recent sector-based data from S&P Capital IQ continues to highlight persistent discounts to NAVs on publicly-traded REITs.  Most notable is the increasing discount for residential REITs hitting approximately 20% as of the end of November.

Similarly, recent NAREIT data, as of 2022Q3, highlights that Price-to-FFO multiples are beginning to moderate back to historical norms in the third quarter of 2022.

GlobeSt. provides additional color on the lag between traded and non-traded real estate pricing as well as some historical context noting that “since the late 1990s, REITs have seen a 15% or greater discount to net asset values seven times.  Six of those times, they eventually showed extraordinarily strong returns.

Crypto Audit Firms Take a Step Back

Turbulence in the cryptocurrency space in 2022, and acutely after the FTX collapse, has led accounting firm Mazars to announce it would no longer provide audit related work for Binance and other crypto company clients including Crypto.com and KuCoin.  BDO, which has recently produced attestation reports for the Stablecoin Tether Holding Ltd, has also announced that it is reconsidering its reserve reports in the cryptocurrency space.

The WSJ recently reported that the SEC is diving deeper into the audit and assurance practices of auditors in the crypto space.  Specific areas of inquiry include how the crypto companies themselves are portraying the scope of work performed in various reports, including “proof-of-reserves: reports, furnished by auditors (Which generally fall well short of an audit, and are more akin to an attestation).  Many of these “proof-of-reserves” reports do not include any opinion by the audit firm regarding the voracity of the reported numbers, if any relevant numbers are in fact reported in the reports. Paul Munter, the SEC’s acting chief accountant, noted “Investors should not place too much confidence in the mere fact a company says it’s got a proof of reserves from an audit firm.”  Such a report “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities.”

One finds the situation of cryptocurrency exchanges collapsing in the face of downward pricing pressure on cryptocurrencies, and expanding customer withdrawals, throughout 2022 somewhat amusing…the premise of cryptocurrencies, at least Bitcoin, seemingly was to create a store of value that did not require trusted intermediaries to transmit the asset.   The whole idea of centralized cryptocurrency exchanges is anathema to this core, a foundational concept of digital ducats, at least in our estimation.

Grayscale Bitcoin Trust (OTC: GBTC) Contemplates Redemption 

Grayscale Bitcoin Trust (GBTC), the reported largest public holder of Bitcoin, seeks shareholder and SEC approval to allow for tender offer of up to 20% of its own shares, which are trading at a substantial discount to NAV.  See the Ycharts data in the chart below for the steep, persistent discounts to NAV that GBTC has experienced since early 2021. GBTC has noted had a redemption provision for its shares since it was suspended in 2014 per violation of Regulation M of the Exchange Act of 1934, since then GBTC has only been able to create additional shares. Digital Currency Group (DGC), the sponsor of GBTC, has reportedly purchased $193.5 million in GBTC shares in 2021.  DGC also has made numerous announcements of its intention to continue to repurchase additional shares of GBTC, up to $750 million in the past year, in efforts to help close the traded discount to NAV per share.  GBTC’s market capitalization was $5.6 billion as of December 22, 2022.

GlobeSt. provides additional color on the lag between traded and non-traded real estate pricing as well as some historical context noting that “since the late 1990s, REITs have seen a 15% or greater discount to net asset values seven times.  Six of those times, they eventually showed extraordinarily strong returns.

Crypto Audit Firms Take a Step Back

Turbulence in the cryptocurrency space in 2022, and acutely after the FTX collapse, has led accounting firm Mazars to announce it would no longer provide audit related work for Binance and other crypto company clients including Crypto.com and KuCoin.  BDO, which has recently produced attestation reports for the Stablecoin Tether Holding Ltd, has also announced that it is reconsidering its reserve reports in the cryptocurrency space.

GBTC has sought to convert from its current closed-end fund structure to an ETF structure that should provide incentives for authorized participants to close the gap between GBTC’s price and its net asset value.  However, the SEC has declined to approve any spot Bitcoin ETFs at present.  Further developments are likely in the coming months on this matter as final written briefs on GBTC’s lawsuit with the SEC regarding its proposed ETF conversion are due in February 2023.

REITs

Starwood REIT and Blackstone REIT Limit Redemptions as October Repurchase Requests Exceed 2% Monthly Limitations

The Wall Street Journal provides a summary of the redemption request increases here. The following chart, courtesy of Robert A. Stanger, highlights the increased pace of withdrawals within the non-traded REIT universe in recent quarters. The increase in redemptions has resulted in Blackstone REIT having net outflows of equity capital, with redemptions exceeding new share issuances in the most recent month.

We previously reported that BREIT had met all redemption requests through the first three quarters of 2022 and through the initial stages of the COVID pandemic. FT Alphaville reports that increased shareholder redemptions in recent months for BREIT were due to Asian investors seeking liquidity to meet margin calls

Meanwhile, Ares Real Estate Income Trust Inc. and Ares Industrial Real Estate Income Trust report that they had each met all outstanding repurchase requests in October 2022.

Braemar Hotels & Resorts (NYSE: BHR) Increases Common Stock Dividend and Announces $25 Million Stock Repurchase Program

BHR announced that the quarterly dividend would increase to $0.05 per share (from $0.01) beginning in January 2023. The company also reported that its board of directors had approved a dividend policy for the calendar year 2023 in which it anticipates continuing quarterly distributions of $0.05 per share. BHR further noted that its board of directors had authorized a share repurchase program of up to $25 million. Repurchases may happen through open market transactions, privately negotiated transactions, or other means. Any such repurchases will be subject to the discretion of the company.

For additional information: CLICK HERE

Hartman vREIT XXI Suspends Share Redemption Program and Announces the Resignation of a Director

On November 28, 2022, Hartman vREIT XXI reported that its board of directors approved the suspension of the share redemption program effective immediately. The company reported that the suspension was made in order to “combat the impact of rising interest costs, inflation, [and] recession uncertainty on free cash flow.”

On November 17, 2022, Jack Tompkins resigned from the board of directors. Mr. Tompkins’s resignation was not the result of any disagreements with the company its operations, policies, or practices, according to a public filing.

Hartman vREIT XXI reported in its most recent Form 10-Q that management concluded there is substantial doubt about the company’s ability to continue as a going concern due to uncertainty regarding loan maturities of approximately $57 million that are due in March 2023. Hartman vREIT XXI has reported that management believes that the company will be able to extend the maturity date or renew the loans for one year or longer.

For more information: CLICK HERE and CLICK HERE

Longtime AR Global REITs Director Lee Elman Passes Away

Mr. Elman had served as a director at Healthcare Trust, Inc. (NASDAQ: HTIA) and New York City REIT, Inc. (NYSE: NYC) at the time of his passing. NYC reported that following the passing of Mr. Elman its audit committee was comprised of only two independent directors and, therefore, out of compliance with certain provisions of the New York Stock Exchange Listed Company Manual. NYC reported that the company has corresponded with the NYSE regarding its intention to appoint an additional director to the audit committee as soon as practicable.

For additional information: CLICK HERE and CLICK HERE

 

Bonds

GWG Holdings Inc. Announces Resignation of Former CEO Murray Holland from its Board of Directors

On November 25, 2022, Murray Holland gave his notice of resignation to the board of directors. This follows Mr. Holland’s resignation as CEO effective November 14, 2022.  Mr. Holland also submitted a letter to the board as part of his resignation, which is available here, in which he notes that he disagrees with the statements the company included in its current report filed on November 14, 2022, specifically regarding his knowledge of certain disagreements that former independent directors had with the company. Mr. Holland notes that, at the advice of counsel, it was reasonable to conclude that any such disagreements were not required to be disclosed. We previously reported on the unreported disagreements that previous independent directors had with the company’s operations, policies, and procedures, and the Bankruptcy Court suspending the company’s board of directors, which included, at the time, Mr. Holland and former CFO Timothy Evans.

For additional information: CLICK HERE and CLICK HERE

Bonds

GWG Holdings Inc. Announces Resignation of CEO Murray Holland and CFO Timothy Evans

GWG Reports Three Director Resignations that Occurred in March 2021 Were Due to Unreported Disagreements with the Company, its Policies, and Practices

Bankruptcy Court Suspends GWG’s Board of Directors

GWG reported that CEO Murray Holland and CFO Timothy Evans each announced their resignation, effective immediately, on November 14, 2022. Both Mr. Holland and Mr. Evans retain their positions as directors on GWG’s board of directors. Jeffrey Stein, who previously was appointed GWG’s chief restructuring officer in June 2022, was subsequently appointed to serve as GWG’s chief executive officer.

Additionally, on November 14, 2022, the United States Bankruptcy Court for the Southern District of Texas, the venue for GWG’s Chapter 11 bankruptcy proceedings, issued an order “suspending the Company’s board of directors pending the outcome of a hearing scheduled for December 1, 2022.” The order requires that except for certain ordinary course transactions, the prior written approval of newly appointed CEO Jeffrey Stein must be obtained related to any monetary or non-monetary transfer by the company.

Additionally, GWG reported on November 14, 2022, that the March 6, 2021, current report that GWG filed with the SEC regarding the resignations from the board of directors of Mr. Roy Bailey, Daniel Fine, and Jeffrey MacDowell (the resigning directors) “incorrectly stated that the resignations were not due to any disagreement with the Company.” GWG now reports that the disagreements stemmed from the resigning directors’ participation on a special committee of the board of directors to approve or reject potential transactions between GWG and the Beneficient Company Group, L.P. and its subsidiaries and affiliates. GWG reports that the investigations committee of the current board, comprised of Mr. Stein and Mr. Anthony Horton, informed the other current board members that the resigning directors had disagreements with the company and that these disagreements were known to the then-CEO and then-CFO of (Mr. Holland and Mr. Evans), via written and oral communications on March 3, 2021. Then- chairman of the board Brad Heppner called a special meeting of the board on March 4, 2021, “to consider certain urgent matters concerning (GWG’s) funding of (Beneficient)”.  The board subsequently approved certain transactions between GWG and Beneficient while dissolving the special committee of the resigning directors, who had objected to these transactions, and who resigned two days later.

For more information: CLICK HERE and CLICK HERE

 

REITs

Blackstone Real Estate Income Trust, Inc.

Per BREIT’s 3rd quarter report, BREIT’s 3rd quarter report the REIT repurchased 203.5 million shares of stock totaling $3.1 billion in the third quarter. Total shares redeemed in the third quarter comprised 4.6% of the total outstanding shares as of September 30, 2022. The second quarter repurchase total was 4.5% of the outstanding shares. All stockholder requests for redemption in 2022 have been honored, and every other reporting period since BREIT’s inception. The company’s repurchase program is limited to 5% of NAV per quarter. BREIT’s external advisor has not submitted any of its Class I shares for repurchase in 2022. BREIT’s external advisor has historically elected to receive its management fee, and performance fee allocation, in Class I shares. BREIT raised $3.7 billion in offering proceeds from its common stock during the third quarter. Net of third quarter redemptions, this is approximately $0.6 billion in proceeds. Doubtlessly, this is the smallest net quarterly capital inflow to BREIT in many years, yet a run rate that most alternative managers would salivate over.

 

Alternative Ramblings

Crypto More Widely Adopted Than One Would Think Amongst Institutional Managers

The 2022 CFA Institute Investor Trust Study notes that approximately two-thirds of institutional investors have exposures to cryptocurrencies in their portfolios. The survey included 976 institutional investors across 15 major markets. As noted below, this includes 94% of state/government pension plan survey respondents.

We note this survey was conducted before the FTX debacle…

Speaking of FTX, (one) of its spokespersons seemed to have it right here. Speaking of FTX….(one) of its spokespersons seemed to have it right here.

FTX Due Diligence Post-Mortem

Castle Hall (A Due Diligence Company) has an excellent webinar available on replay chronicling key diligence red flags that were apparent on FTX that many institutional investors seemingly missed.

According to Pensions & Investments, the following notable investment firms, pensions and investors, had either direct investment or indirect exposure via venture capital funds to FTX:The following notable investment firms, pensions and investors, had either direct investment or indirect exposure via venture capital funds to FTX, Sequoia Capital, Tiger Global Management, BlackRock, Paul Tudor Jones, Lightspeed Venture Partners, Alaska Permanent Fund Corp., Ontario Teachers’ Pension Plan, Washington State Investment Board, and many others. But we must note that, of course, Softbank, is on the list.  We would love to hear Sam Bankman-Fried’s pitch to Softbank’s Masayoshi Son. Tales of Mr. Son’s investment process with Adam Neumann’s WeWork are legendary, and further details may be found in Sebastian Mallaby’s 2022 book The Power Law: Venture Capital and the Art of Disruption, on the history of venture capital. Further details may be found in Sebastian Mallaby’s 2022 book on the history of venture capital.

1940 Act Funds

Priority Income Fund, Inc. Modifies Liquidity Strategy and Extends Offering Period

On November 2, 2022, Priority Income Fund filed a prospectus supplement to its Prospectus dated October 28, 2022, which amends certain language regarding the fund’s anticipated liquidity strategy.  The fund’s prospectus previously noted “we intend to pursue a liquidity event for our stockholders, such as a public listing of our shares, following the completion of this offering.” However, the supplement changes this language to “we may, but are not obligated to, pursue a liquidity event for our stockholders following the completion of this offering.”  As is customary, such pursuit of a liquidity event is in the sole discretion of the board of directors. The prospectus supplement further details that Priority Income Fund may continue to extend the offering, including on a continuous basis. The supplement further details that the offering will terminate upon the sale of 150 million shares of common stock, unless terminated earlier by the board of directors. The prospectus previously noted a termination date of the earlier of December 31, 2022, or the sale of 150 million common shares. As of October 27, 2022, the fund had sold an aggregate of 45.9 million common shares. We recently noted that Priority has had record capital raises in the past couple of quarters.

For more information: CLICK HERE

 

BDCs

StHealth Capital Investment Corp (fka Freedom Capital Corporation, and fka First Capital Investment Corp) Board of Directors Approves Liquidation of the Company

The company’s board of directors approved a liquidation plan on October 26, 2022, for which it will seek stockholder approval via a future proxy proposal.  This marks perhaps the end of a company that has had a long, winding, and perplexing path, which we will try to provide a brief summary of the saga….

The company was originally formed as Freedom Capital Corp, which elected to qualify as a BDC. The initial public offering was declared effective in 2015. Freedom Capital Corp’s stated investment thesis (per one of its 10-Q filings) was to invest according to “Patriotic Responsible Investing principles” and “[u]sing subjective analysis, we will determine if a potential investment sufficiently meets the threshold to be an investment according to Patriotic Responsible Investment principles.” The Company noted that the framework of these principles “typically provide the U.S. and its allies one or more of the following benefits:

(i) independence from foreign political and economic coercion, (ii) freedom to pursue constitutionally protected activities, (iii) protection from foreign state sponsored and private acts of terror, (iv) ability to obtain data and intelligence to defeat acts of war, terror or aggression, (v) defense against acts of war and aggression, and (vi) facilitation of a democratic economy where capital is allocated without undue social or bureaucratic intervention.

One was left with the impression that this involved prospective investment in defense companies, firearms manufacturers, and maybe even Skynet? The company did not enjoy significant capital raising success under this thesis, and advisory of the company migrated to entities controlled by Suneet Singal, in March 2017. The company subsequently rebranded as First Capital Investment Corp (FCIC) and undertook a broader investment thesis. (Mr. Singal was later barred from the securities industry in July 2021 for his role in two public company frauds, including FCIC.) One board member resigned from his director role in March 2018 with a very colorful resignation letter, which FactRight commented on here. This resignation was predicated on numerous issues detailed in his letter, including a shift to a new investment thesis. In March 2018, entities affiliated with StHealth Capital Partners began managing the company and rebranded it as a healthcare investment vehicle. Capital raising traction remained elusive. We count there have been at least 24 senior executive and board member changes since 2016, 3 different external advisors, and 3 different audit firms. Personnel changes have continued into 2022, with significant turnover in legal and compliance roles. The most recent change was the October 31, 2022, appointment of Dr. Glenn Metts to serve as chief executive officer.

The company failed to file its 2021 annual report and has not filed any subsequent quarterly reports in 2022, which incredibly is not a record for lapsed filings during the company’s ignominious history. The company previously failed to file its 2016 annual report and did not subsequently file financial statements with the SEC until August 2019. As of September 30, 2021, per the last form 10-Q filed by the company, total assets were reported at $2.6 million, and were comprised approximately 50% of cash and approximately 50% in certain investments in biotech companies.

The company also recently noted that in the second quarter of 2022 it had engaged a third-party consulting firm “to perform a comprehensive review of expense reimbursements made to affiliated entities of StHealth Capital Advisors, LLC (the Adviser) for periods beginning in March 2018. The review has determined that adjustments, in favor of the Company, are necessary for the fiscal years 2019, 2020, and 2021. The Adviser collaborated with the review and has repaid all amounts determined to date to be due to the Company.”

However, it appears that the company, with the recent announcement of a board-approved liquidation, may finally be drawing to a close. Further details on the history of StHealth and an avenue for liquidity for shareholders that don’t want to wait on liquidity any longer is available here.

 

Interval Funds

Wildermuth Fund

On November 2, 2022, the company reported that on or around October 15, 2022, that it no longer qualifies as a regulated investment company (RIC) for the 2022 taxable year. This means that the Wildermuth Fund’s income will be subject to corporate tax rates without any deduction for distributions to shareholders. Shareholders who have held their shares for over 60 days would generally be eligible to treat such distributions as qualified dividend income.

For more information: CLICK HERE

 

REITs

FS Credit Real Estate Income Trust, Inc. Announces Potential Distribution Rate Increase for Common Stock

The company announced that its external adviser recommended a distribution increase to its board of directors beginning in December 2022. The anticipated change would increase the annualized distribution rate, based on NAV per share, to a range of between 6.00% to 7.00% across its multiple share classes. The annualized distribution rate was 5.64% to 6.64%, as of September 30, 2022, across its platform of share classes. The distribution increase is anticipated to begin in December 2022, subject to approval by the board of directors. The company reported that the increase in distribution rate is due “to the continued strong performance of the portfolio and the positive impact of rising rates, among other considerations.” The debt REIT features a $7.1 billion portfolio of commercial real estate loans and mortgages, some held through CLOs, predominantly secured by multifamily properties.  This marks a steady trend of distribution increases for the company with 2019, 2020, and 2021 distributions on Class I shares of $1.56, $1.67, and $1.71 respectively. The company’s distribution sustainability has trended well, in part due to the economic dislocation in credit markets from the COVID pandemic. We calculate FFO payout ratios of 100.07% in the six months ending June 30, 2022, and 96.3% in 2021.

For more information: CLICK HERE

RREEF Property Trust, Inc.

On October 27, 2022, Peter Steil, Jr. notified the board of REEFF Property Trust, Inc., of his resignation as a member of the board effective November 9, 2022. According to public filings, Mr. Steil’s resignation was not due to any disagreement with the company, its advisor, or any of their affiliates. The board subsequently elected Gregg Gonsalves as a director effective as of October 29, 2022. Mr. Gonsalves previously served as a managing director at Goldman Sachs & Co. in real estate mergers and acquisitions.

For more information: CLICK HERE

 

Alternative Ramblings

REITzilla in the News

Bloomberg features an article on Blackstone REIT (BREIT) highlighting a slowing pace of capital raising and increasing shareholder redemptions. BREIT limits redemptions to 2% monthly and 5% per quarter, which is pretty standard fare within the perpetual NAV REIT space. (In fact, this is a liquidity feature that BREIT largely pioneered, which has become widely adopted by other similar REITs.) FactRight notes that during the annus horribilis 2020, BREIT monthly redemptions exceeded the 2% threshold in only March 2020. (Remember those days?) BREIT accommodated all these repurchase requests, even though such requests exceeded the monthly limit. We note that BREIT’s advisor regularly submits redemptions of Class I shares that it receives for payment of management fees for redemptions, although no such advisor redemptions were sought in the first quarter of 2020. Given inflationary concerns and a rapidly rising interest rate environment, Nadeem Meghji, head of Blackstone Real Estate Americas, noted BREIT “is exactly what you want to own in an environment like we are in today.”, citing the portfolios holdings of in-demand industrial and warehouse properties. Additionally, Blackstone executives and employees have significant skin in the game, having invested over $1 billion into BREIT.  Bloomberg reports that BREIT “was Blackstone’s biggest driver of earnings in the last quarter of 2021.”  BREIT is looking at more debt investments in the future, per Bloomberg. BREIT’s over $90 billion dollar portfolio, as of June 30, 2022, is comprised of over 3,000 properties encompassing 313 million square feet of industrial and warehouse space, 237 thousand multifamily units, 66 hotels, 181 self-storage properties, 32 retail shopping centers, and various other holdings.

REITs

Hartman Short Term Income Properties XX, Inc. (Hartman XX) Appoints Independent Committee of Directors to Evaluate Strategic Options

Hartman XX announced that it formed a new executive committee comprised of independent directors Gerald Haddock, Jack Tompkins, and Jim Still. The executive committee is charged “to continue a review of strategic alternatives, including the evaluation and approval of orderly asset sales at acceptable prices with the objective of maximizing shareholder value.” The company further reported that back in July 2022, the independent directors of the board engaged Raymond James and began “a strategic review process” to identify alternatives to maximize shareholder value.

Hartman XX appointed Mark Torok to serve as CEO earlier in October 2022. Mr. Torok previously served as Hartman XX’s chief operating officer, general counsel, and corporate secretary from 2015 to 2021, prior to submitting his resignation on April 9, 2021. We previously covered these developments here.

For more information: CLICK HERE

Alternative Ramblings

Residential Rental Growth Cooling

The party may be over regarding explosive rent growth in the residential sector, according to a recent Bloomberg article. Bloomberg notes that moderating rental rates are most prevalent in some of the hottest markets over the past few years, including Phoenix, Las Vegas, and Atlanta. Bloomberg reports that data from Apartment List highlights that rents have declined month-over-month in September in 69 of the top 100 U.S. cities. However, rent growth continued in some major markets, including New York, San Diego, Miami, and Orlando. Overall, rent has declined nationally on a month-over-month basis, highlighted in the chart below.

The significant rent growth of the past two years has strained renters, as noted in the following chart that highlights the hours per month needed, for the average American worker, to afford “the typical US rent” per data from Zillow.

We are eagerly monitoring expense growth across a number of REITs, as expense growth has so far lagged the historically outsized rental growth over the past two years, which has generally been accretive to NOI. However, to the extent that persistent inflationary pressures continue, NOI growth may compress in the face of moderating rent growth. This coupled, with increasing costs of debt financing throughout 2022, has made the outlook in the sector much more clouded than before.

REITs

Lightstone REITs Seek Shareholder Approval of Proxies which will Strip Shareholders of Meaningful Rights

Multiple Lightstone REITs (Lightstone Value Plus REIT I, Inc., Lightstone Value Plus REIT II, Inc., Lightstone Value Plus REIT III, Inc. (Lightstone I, II, III, and collectively the Lightstone REITs)) each seek amendment of their respective charters to remove multiple NASAA shareholder protections through various proxy proposals. The Lightstone REITs reported cumulative total assets of approximately $900 million as of June 30, 2022. Debt-to-total assets ranged from 41% to 49% of each of the Lightstone REITs as of that date. The Lightstone REITs were declared effective beginning in 2006 (Lightstone I), 2009 (Lightstone II), and 2014 (Lightstone III).

Key charter amendments sought include:

• Eliminating durational provisions that require the Lightstone REITs seek a listing on a national stock exchange by their respective 8th or 10th (in the case of Lightstone II) anniversaries of the termination of their respective public offerings, or otherwise seek liquidation. The Lightstone REITs’ respective boards of directors have noted that elimination of the deadline to liquidate and dissolve the programs is advisable to allow flexibility in pursuing various ways to provide liquidity to stockholders.
• Eliminating fiduciary duties that the boards owe to the Lightstone REITs and shareholders and the directors’ fiduciary duties to supervise the relationships of the Lightstone REITs and their external advisors. The board believes reducing its obligations “will improve our ability to retain and recruit board candidates.”
• Elimination of certain protections in the event of a roll-up transaction, including appraisal rights for shareholders, and the ability to retain securities in their previous entity or receive cash in lieu of securities in another entity. We note that regardless of the approval of this prospective charter amendment, any prospective roll-up transaction involving Lightstone REITs would still require the approval of the respective shareholders of the REIT seeking to merge into another REIT.
• Eliminating quorum requirements of at least 50% of all votes entitled to be cast at a stockholder meeting.  Quorum provisions may subsequently be reduced to as little as 33% of votes entitled to be cast upon the addition of a third independent director to the respective Lightstone REIT boards.

Other charter amendments are sought in the proxy proposals as well.

Management has noted that it seeks these charter amendments as it does not anticipate raising capital in a public offering in the future and that the NASAA-mandated limitations “impose an administrative burden on the [Lightstone REITs] and could put us at a competitive disadvantage relative to our competitors whose charters do not contain these restrictions.”  We note that elimination of these charter provisions will generally reduce shareholder participation in the governance of the respective REITs, enhance the power of the respective boards of directors, and eliminate protections for shareholders, including provisions that seek to guide the Lightstone REITs toward liquidity events for shareholders, which are long overdue in our opinion.

We have previously reviewed similar proxy proposals from various AR Global REITs in the 2010s. As we noted then, we note now—why would you as a shareholder forego valuable rights in the absence of a clearly articulated plan that details why such rights need to be extinguished to accomplish said plan?  This does not seem to be a particularly high bar to meet. Put forth a definitive plan, convince shareholders this plan is worth pursuing, and explain why shareholders need to forego certain rights and contained in the organizing documents to accomplish the plan.  In the absence of such a plan, one begins to assume other motivations for the proxy proposals, perhaps turning the REIT complex into Hotel California.

For additional information: CLICK HERE and CLICK HERE

Hartman Short Term Income Properties XX, Inc. and Hartman vREIT XXI, Inc. Appoints Mark Torok as CEO

The respective companies announced Mr. Torok’s appointment on October 14, 2022. Mr. Torok succeeds Mr. Allen Hartman as CEO. Mr. Hartman will fill the role of Executive Chairman of the Board and receive $36,000 per month. Mr. Hartman previously received $15,997 in total compensation in 2021 as CEO and chairman of Hartman XX.  Certain other compensation arrangements were disclosed, including Mr. Torok receiving $40,000 per month as CEO, as well as a to be determined performance and stock incentive plan.

Mr. Torok previously served as Hartman XX’s chief operating officer, general counsel, and corporate secretary from 2015 to 2021, prior to submitting his resignation on April 9, 2021.

Hartman XX suspended distributions and its share redemption program, earlier in 2022, in light of liquidity challenges related to rapidly increasing interest rates on its floating rate debts. Management has indicated in August 2022 that it was considering liquidating certain buildings in its portfolio to maximize shareholder value. Hartman XX, which is the surviving entity of a 2020 combination with affiliates Hartman Income REIT, Inc., and Hartman Short Term Income Properties XIX, Inc., reported total assets of approximately $500 million and a loan-to-value of 43% as of June 30, 2022.

For more information: CLICK HERE

Braemar Hotels & Resorts Reports Strong Preliminary Q3 RevPAR

The hospitality REIT reported third quarter RevPAR of approximately $288, a 19% increase from the third quarter in both 2021, and the pre-pandemic third quarter of 2019. Additionally, average daily rates increased approximately 36% compared to the same quarter in 2019. CEO Richard Stockton noted there is room for continued optimism “while recent performance primarily has been a result of strong average daily rates, there is plenty of room for occupancy to continue to climb, keeping us looking forward to continued steady growth.”

For more information: CLICK HERE

 

BDCs

Priority Income Fund Announces Record Common Stock Raise in Q3

Priority Income Fund reported that it raised $52.4 million in common stock in the third quarter, pushing its cumulative capital raise over $1 billion. Priority Income Fund was initially declared effective in 2013.

For more information: CLICK HERE

 

Alternative Ramblings

A New Bill of Rights

Tricon Residential Inc. (NYSE: TCN, TSX:TCN), the $3 billion market capitalization Canadian single family rental (SFR) home company, has announced its “Tricon Resident Bill of Rights for Residents.”  These rights include:

• Right to Shelter
• Right to Renewal
• Right to Fair Advance Notice
• Right to Moderated Rent Increase
• Right to Participate in Financial Health and Credit Builder Programs
• Right to Buy Your Home if We Decide to Sell
• Right to Our Support If You Buy Another Home
• Right to Respect

As CPI prints continue to be elevated in the high single digits, I’m sure “moderated rent increase” may be an expansive term. Interestingly, very little in the marketing gloss of the “bill of rights” focuses on tenants’ duties to Tricon, like paying rent. An innovative social contract indeed.  So, is this right to shelter free of that (or any) duties or obligations of the tenant? Are Tricon’s shareholders aware of this? Tricon CEO, Mr. Gary Berman, previously noted in an interview with 60 Minutes that his company was helping Americans “rent the American dream.” We previously reported on this here. A bit of a faux pas, though through this Bill of Rights marketing piece, Mr. Berman has re-asserted his claim as a founding father in the SFR market.

Blackstone Anticipates Muted Real Estate Acquisition Activity in Future Quarters

Continued equity market volatility, inflation uncertainty, and increased interest rates all lead Blackstone Inc. president Johnathan Gray to conclude that deployment activity into real estate will “be muted for a bit of time.” Mr. Gray further noted that “until people become more confident about inflation starting to head down that rates have hit their peak levels, I think you’ll see a slower level of transaction activity.” Blackstone and its affiliates (including Blackstone REIT) have deployed approximately $64 billion over the last 12 months into various real estate investments. We note that while market conditions may dictate patience in acquisitions, how does that line up with the blistering capital raising activities at Blackstone REIT and prospective cash drag as deployments slow down?

Recent Volatility in Public Markets Weighing on Liquidity in Illiquid Products

Continued volatility in equities markets throughout 2022 and rapidly increasing interest rates are likely to lead to increased redemption requests across the universe of illiquid alternative investment programs.  We are eagerly awaiting Q3 share repurchase data as it becomes available in the coming weeks. Stay tuned.

REITs

Bluerock Homes Trust (NYSE American: BHM) Begins Trading

BHM began trading October 6, 2022, on the NYSE American Exchange, following its spin-off transaction with Bluerock Residential Growth REIT, Inc (BRG). The spin-off was predicated on BRG’s sale of substantially all of its portfolio to Blackstone Real Estate entities for $3.6 billion. BHM is an externally managed REIT with a portfolio that includes 2,300 homes that it operates, and preferred equity and mezzanine loan investments secured by 1,600 homes.

BMH shares traded up 19% on their debut, reflecting Wall Street’s insatiable appetite for SFR.

For more information: CLICK HERE

HGR Liquidating Trust (fka Hines Global REIT, Inc.) Announces Final Liquidating Distribution

On October 4, 2022, HGR announced that it would make the final special distribution from the liquidating trust on October 20, 2021. Upon the final distribution, HGR is expected to complete the dissolution and winding down of the trust. HGR has made total aggregate distributions to investors of $15.14 per share since the inception. This has included $5.64 in operating distributions through June 2018, and $9.50 in special distributions from 2018 through 2022. HGR announced it was beginning to liquidate in 2018. Shares were originally offered at $10.00 in an offering declared effective in 2009.

For more information: CLICK HERE

 

1940 Act Funds

Priority Income Fund Announces Record Common Stock Raise in Q3

Priority Income Fund reported that it raised $52.4 million in common stock in the third quarter, pushing its cumulative capital raise over $1 billion. Priority Income Fund was initially declared effective in 2013.

For more information: CLICK HERE

 

Alternative Ramblings

Keeping Up with the SEC

Kim Kardashian recently entered into a $1.26 million settlement with the SEC for failing to disclose certain promotional activities related to the cryptocurrency EthereumMax. More interestingly, Ms. Kardashian reportedly received $250,000 in exchange for certain social media promotional activity of the cryptocurrency.

Ms. Kardashian recently announced the launch of a private equity firm, Skky Partners, with a former Carlyle executive. Ms. Kardashian is targeting a $1 billion raise on the first funds from the private equity group that is anticipated to focus on control and minority investments in the hospitality, luxury, and e-commerce sectors. However, the recent SEC settlement may hinder Ms. Kardashian’s capital raising efforts through the private equity firm.

CAIS Matt Brown and the Future of Retail Alternative Investing

The CAIS CEO joined Ted Seides on his Capital Allocators podcast to discuss the evolution of retail capital flows into alternative investments and the growth of CAIS over the last few years. It constitutes an intriguing listen for perspective on the continued changes in the retail alternative landscape, especially with the increasing allocations from RIAs.

Multifamily Rent Growth Cools

Following record multifamily rent growth over the past 18 months, rent growth has tempered in recent months according to numerous reports across the top 100 MSAs. We note that average rent rates remain near record highs and broadly 20% higher than in August 2020. GlobeSt reports that rent growth over the past year has been inverse to unit size, with single bedroom units up more on a percentage basis than two-and three-bedroom units. Rent-to-income ratios will continue to be a matter of focus, especially in some of the largest MSAs, as a barometer for assessing the sustainability of such rent increases.

Developer Two Roads to Break Ground on Luxury Tower in Tampa in Fall of 2022

A local Tampa news site reports that the development includes a 220-room luxury hotel and condominium tower anticipated to open in 2025. The development will also include 207 residences on floors 15 through 38. No word if Tampa Bay Buccaneers star Tom Brady may be seeking accommodations…

Bonds

The Beneficient Company Group, L.P. (Ben) Announces SPAC Merger with Avalon Acquisition Inc. (NASDAQ: AVAC)

The combination of Ben and AVAC has an implied enterprise value of $3.5 billion, inclusive of $200 million in cash held at AVAC, based on recent SEC filings. The prospective SPAC merger is anticipated to close in the first half of 2023 pending AVAC shareholder approval and SEC review. Ben will file a registration statement on Form S-4 that will disclose additional information about the pro-forma company, including Ben’s financial statements at a future date. Existing Ben owners are anticipated to own 88% of the pro-forma company, per AVAC filings available here. Following the close of the announced transaction, AVAC will change its name to “Beneficient.” The composition of the board of directors post-SPAC merger has not been disclosed at this time. However, Ben has noted that its board of directors will remain intact. AVAC held a conference call related to the transaction, a transcript is available here.

Ben has reported that it has delivered liquidity on approximately $1.1 billion in net asset value of alternative investment holdings since 2017 as part of its core business of providing secondary liquidity for a variety of alts. Ben further noted that this includes $383 million in liquidity provided in the fourth quarter of 2021 and first quarter of 2022 alone. Ben noted that in these quarters, it had raised an additional $385 million in assets, stating, “[t]his successful capital raise is another important proof point of investors’ interest in Ben’s business model and desire to participate in our future growth.”

Ben previously completed a reverse merger with GWG Holdings, Inc. in 2018 and subsequently announced a de-consolidation of Ben from GWG in August 2021 which was approved by the GWG board of directors in November 2021. GWG missed coupon payments on its $1.5 billion in outstanding L Bonds in January 2022. GWG then filed for Chapter 11 Bankruptcy reorganization in April 2022. GWG in its first day motions related to its Chapter 11 bankruptcy noted that “the unrealized value that GWG holds in the interests of Ben…should yield substantial recoveries for debtors…”.

For more information: CLICK HERE

 

REITs

Bluerock Residential Growth REIT (NYSE: BRG) Declares Distribution of Shares of Bluerock Homes Trust, Inc. as Part of Spin-Off of Single-Family Rental Portfolio

BRG announced that its board of directors approved the distribution of Class A and Class C common stock of Bluerock Homes Trust, Inc. (BHM) to its common stockholders. Each BRG shareholder will receive one share of BHM Class A or Class C common stock for every eight shares of BRG Class A or Class C common stock held as of September 29, 2022. The distribution of the BHM common stock is anticipated to occur prior to the closing of BRG’s transaction with Blackstone REIT. BRG anticipates that the transaction will close on October 6, 2022. BHM common stock is expected to be listed on the NYSE American Exchange under the ticker symbol “BHM” and begin trading on October 5, 2022.

For more information: CLICK HERE

Lodging Fund REIT III, Inc. (LF REIT III) Reports Its External Advisor and Chairman and CEO Corey Maple Received Wells Notice from the SEC

LF REIT III previously reported that in December 2020, it had received notice that the SEC is conducting an inquiry into the company’s reimbursement of certain expenses to its external advisor, and LF REIT III’s disclosure of its reimbursement policies and procedures. Management represented that it is cooperating with the SEC and has provided requested information.

On September 12, 2022, the company received a Wells notice from the SEC staff, indicating that the SEC has made a preliminary determination to bring an enforcement action against LF REIT III’s advisor for possible violations of securities laws. Corey Maple, the CEO of the REIT, has also received a Wells notice as part of this same investigation. Management has noted that they believe all actions of the advisor and Mr. Maple have been appropriate and that they have retained counsel to defend themselves. Any prospective enforcement action and the costs of defending such actions are unknown at this time.

For more information: CLICK HERE

Hines Global Income Trust Launches Hines Real Estate Exchange (HREX) a DST Platform

HREX is designed to provide investors seeking a 1031 exchange with opportunities sourced from the portfolio of Hines Global Income Trust (HGIT). HGIT retains an option to acquire the properties in the DSTs at a future date, which would allow for investors to diversify their real estate holdings through the REIT at that time.

HGIT has raised approximately $2.3 billion in offering proceeds from its equity offerings dating back to 2014. The REIT reported total assets of $3.2 billion in a portfolio comprised of 35 properties, of which approximately 65% is located in the U.S., with the remaining 35% located predominantly in Western Europe. HGIT reported leverage of 33% on a loan-to-value basis as of the second quarter.

For more information: CLICK HERE

 

BDCs

FS Energy & Power Fund Dismisses RSM US LLP as Independent Certified Accountant and Appoints Ernst & Young LLP for 2022 Annual Report

FS Energy & Power Fund reported that the audit committee of its board of trustees approved the dismissal of RSM. RSM completed audits of the FS Energy & Power Fund for 2020 and 2021. These audits did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified in scope. RSM noted that it had no disagreements with FS Energy & Power Fund’s current report noting its dismissal. The fund announced that Ernst & Young would conduct the audit for its 2022 annual report.

For more information: CLICK HERE

BDCs

Guggenheim Credit Income Fund CFO Resigns

On September 7, 2022, the BDC formerly known as Carey Credit Income Fund, announced that Michael Guss resigned as CFO and treasurer of the company, and that the board of trustees subsequently appointed James Howley to serve as CFO and treasurer, effective the same day. The company, which serves as the master fund of a master feeder structure with two feeder funds (Guggenheim Credit Income Fund 2016 and Guggenheim Credit Income Fund 2019).Mr. Guss also resigned from the same positions with each of the feeder funds and Mr. Howley assumed the same roles at the respective feeder funds as well.

The company, consistent with its offering documents, is in the process of completing a shareholder approved liquidation and has made cumulative liquidating distributions of over $210 million across the master and feeder funds. Approximately $220 million in remaining net assets are reported across the master and feeder funds.

For additional information: CLICK HERE

 

REITs

Watermark Lodging Trust Announces Stockholder Approval of Sale to Private Funds Managed by Brookfield

On September 12, 2022, Watermark shareholders overwhelmingly approved the sale of the company to certain private funds management by Brookfield. Watermark shareholders will receive $6.768 per Class A share and $6.699 per Class T share. The transaction is anticipated to close on October 21, 2022.

Watermark was formed from the NAV-for-NAV merger of two affiliated REITs, Carey Watermark Investors I and Carey Watermark Investors 2 (CWI 1 and CWI 2), in a transaction that closed during April 2020 at the onset of the COVID-19 pandemic. Shares in CWI 1 and CWI 2 were originally offered at $10.00 in offerings declared effective in 2010 and 2015, respectively. The hotel REIT previously suspended distributions and redemptions in 2020 due to COVID-19 related disruptions. Prior to the suspension of distributions, Watermark had made cumulative distributions to common shareholders of $2.87 dating back to its inception.

We previously reported on this deal announced in May 2022.

For more information: CLICK HERE and CLICK HERE

Bluerock Residential Growth REIT, Inc. to Suspend Redemptions on Series B Preferred Stock and Series T Preferred Stock and Warrant Exercises Pending Completion of Merger

The Series B and T preferred stockholders will be redeemed out in cash at the close of the pending merger with Blackstone Real Estate Income Trust, which is anticipated to occur on October 6, 2022. Two weeks without liquidity…. you will survive.

However, warrants related to the Series T Preferred Stock must be exercised by the close of trading on September 23, 2022, in order to receive shares in the single-family rental portfolio spinoff, which will trade on the NYSE American exchange under the ticker symbol BHM post-merger. Otherwise, such warrant holders will receive a cash payment following the close of pending merger of $24.25 less the exercise price. Get off the couch and exercise!

For more information: CLICK HERE

 

1031 Exchanges

Capital Square Names Whitson Huffman as Co-CEO

Mr. Huffman, who has been with Capital Square since 2018, will serve as co-CEO alongside Capital Square founder Louis Rogers. Mr. Huffman, 33, was promoted from chief strategy and investment officer. In an interview with Virginia Business, Mr. Rogers stated “It’s important to have a smooth transition in an orderly way over time for the younger executives to begin their transition to the day when they are senior executives.” Mr. Huffman previously was an associate at JBG Smith Properties (NYSE: JBGS)

REITs

Griffin Realty Trust (GRT) Announces $1.1 Billion Office Portfolio Sale

GRT announced that it had sold a 51% stake in a portfolio of office properties and would retain a 49% minority stake in the portfolio. The transaction was valued at $1.1 billion. The Wall Street Journal reported that Singapore’s GIC Pte. Ltd. and Workspace Property Trust (a private real estate firm based in Florida) were purchasing stakes in the portfolio, and that “many of the newly acquired buildings are clustered around Atlanta, Dallas, and the San Francisco Bay Area.” GRT reported that the office portfolio would be managed by an affiliate of Workspace Property Trust. GRT will receive an 8% preferred return on its 49% stake in the portfolio and an 80/20 split until GRT has achieved a 25% return, and thereafter a 70/30 split.

GRT noted in a follow-up press release that the portfolio properties included shorter weighted average remaining lease terms and higher estimated future capital expenses in relation to the balance of GRT’s portfolio. GRT noted that proceeds from the sale of the majority stake were used to pay down approximately $841 million in outstanding debts. GRT’s net debt-to-gross assets was approximately 49% prior to the sale and 40% following the sale. Globe St. and The DI Wire cover this story here and here. This portfolio sale is part of GRT’s broader strategic monetization process announced last month, which we reported on here.

Hines Global Income Trust Acquires 14-Story Miami Multifamily Property for $429 Million

The multifamily property is part of a design concept by Life Time, Inc. (NYSE: LTH, the gym company based in Minnesota) that includes an 80,000 square foot luxury athletic resort and a 25,000 square foot Life Time Work coworking space. The multifamily portion includes 495 Life Time Living™ residences. HGIT reported that the property included 597,000 square feet of rentable area and is currently 95% leased. Cap rate information was not reported publicly.

For more information: CLICK HERE

Bluerock Residential Growth REIT (NYSE: BRG) Announces Estimated October 6 Close of Transaction with Blackstone Real Estate

The transaction was originally announced in December 2021 and featured cash consideration of $24.25 per BRG common share as well as the spin-off of the single family rental portfolio to BRG shareholders. We originally reported on this transaction here. BRG noted that the close of the transaction remains subject to the consummation of the spin-off transaction of BRG’s single family rental portfolio.

For additional information: CLICK HERE

Sovereign Partners Goes Full Cycle on Milwaukee Office Property

Speaking of suburban office property sales, the Milwaukee Business Journal reports that Sovereign Partners LLC, a private CRE firm specializing in value-add office projects, recently closed a sale of two office buildings and approximately 8 acres of developable land in Milwaukee’s Park Place office campus for $26.25 million. Sovereign acquired the buildings in two separate deals in 2020 for a combined $7.4 million.

Alternative Ramblings

iCapital Acquires UBS’ Fund Advisor and Alternative Investment Feeder Fund Platform

The deal was announced in late August 2022, and the platform known as “Alphakeys” which includes $7 billion in client assets, is included in the transaction. UBS previously invested in iCapital in 2017, joining iCapital lead investor BlackRock (NYSE: BLK), which placed capital in the firm in 2016. iCapital was formed in 2013. iCapital CEO Lawrence Calcano noted that the UBS acquisition was iCapital’s eighth acquisition of another firm’s alternative investments business, after recently acquiring Stifel Financial Corp.’s alternative investment feeder fund in March 2022. Traders Magazine and the InvestmentNews report on the transaction here and here.

Thank You to All of Our Conference Attendees

Thanks to all 370 or so of you who joined us in Nashville last week for our 8th annual due diligence conference. We hope the conference was an edifying and value-add experience that you will make a fixture of your alternative investment research routine. Please let me know any way we can continue to improve on the experience for you.

We look forward to seeing you all in March 2023 in Scottsdale.

REITs

Griffin Realty Trust Announces Strategic Monetization Process and Reports

Griffin Realty Trust, formerly known as Griffin Essential Asset REIT II, announced that it would spin off a part of its portfolio, comprised predominantly of industrial and “certain office assets,” and subsequently list the spin off entity’s shares on a stock exchange. In a marketing slide deck, this spin off entity is reported as “IndustrialCo.”  The REIT’s remaining portfolio of primarily office assets would be sold off over time, with distributions of net proceeds from such distributions made to investors. This would result in a liquidation and cessation of the company’s operations, with the spin off entity surviving as a publicly-traded REIT. The spin off of IndustrialCo is anticipated to occur in 2022. Management believes that this spin off of the industrial assets and certain office properties will allow IndustrialCo to have favorable trading dynamics related to its prospective listing, whereas the remaining office assets in the company will be disposed of on a longer timeline, which management believes will allow for stockholder value maximization. Management has reported that lingering concerns related to COVID-19, rising interest rates, and economic uncertainty may weigh on liquidation timelines and values for the assets that will remain in the company’s portfolio. The company further announced that in anticipation of the spin off transaction, that it will seek shareholder approval to convert from a Maryland corporation to a Maryland real estate investment trust.

Griffin Realty Trust also reported that estimated NAV per share declined 18.5% in the past year from $9.10 as of June 30, 2021, to $7.42 as of June 30, 2022. Management reported that such declines were driven by changes in the fair value of office assets.  The company is an internally managed REIT with a portfolio of 121 properties valued at approximately $5.1 billion. The portfolio is comprised of 23 industrial properties, with the remaining balance office properties.

For more information: CLICK HERE

The most recent S&P Capital IQ NAV Monitor highlights the lack of bullish sentiment among publicly-traded REITs focused on office properties, and some deterioration in industrial sentiment as well.

Despite this generally unfavorable pricing dynamic of office REITs amongst public markets, we note there are certain private real estate managers executing on value-add projects in the office sector that are achieving robust returns in the current market.

KBS REIT III Withdraws Registration Statement to Convert to NAV REIT

The REIT reported that the change in plans was due to changing market conditions. The company noted that it would continue to evaluate various alternatives. KBS REIT III raised $1.7 billion through the sale of approximately 169 million shares in an IPO that was declared effective in 2010. The company has subsequently redeemed approximately 65 million shares for approximately $687.9 million, which included $272 million in redemptions from a self-tender offer in 2021 at a purchase price of $10.34 per share. The company’s most recently reported an estimated NAV per share of $10.78 as of September 30, 2021. KBS REIT III’s share redemption program is limited to shareholders holding shares for more than one year, and is limited to proceeds from the distribution reinvestment program. The company reported that 3.6 million shares (2.4% of total outstanding shares) were available for redemption in 2022. KBS REIT III owns 16 office properties, a mixed use office/retail property, and an 18% stake in SREIT (a Singapore listed REIT) that was reported on the balance sheet at $162 million as of the first quarter of 2022.

For more information: CLICK HERE

Blackstone Real Estate Income Trust, Inc. Closes Acquisition of American Campus Properties (NYSE: ACC)

BREIT completed the $13.3 billion deal on August 9, following shareholder approval of the transaction. This marks BREIT’s third major REIT buyout in 2022:

The Weekly Update notes that soon the table will include the $3.2 billion acquisition of Bluerock Residential Growth REIT’s multifamily assets, which is still pending.

For more information: CLICK HERE

Third Party Tender Offers

Alternative Liquidity Capital is a new firm offering secondary liquidity to legacy non-traded products distributed in the BD/RIA channel. ALC recently announced a tender offer for FS Energy & Power Fund (OTC: FSEN) shares to purchase up to 1 million FSEP shares for $2.50 per share. FSEN’s most recently reported a net asset value per share of $3.99 as of 2022Q2, unchanged from 2022Q1. FSEN suspended its share repurchase program in March 2020. Trading on the OTC Markets has been thin, with average 30-day volume of approximately 6,000 shares and a wide range of prices for cleared trades. FSEN has reduced distributions per share from approximately $0.60 to $0.70 per year in the early to mid-2010s to most recently $0.12 per year, due to disruptions in the energy industry.

Alternative Ramblings

VICE ETF….

Plenty of ink has been spilled on ESG-related efforts in the investment world. This broader investment motif has left many companies in certain industries including oil and gas, alcohol, tobacco, and firearms with more limited access to capital as former financing partners have shied away.  Enter The Bad Investment Company. The marketing pitch:

“In an era of alternative facts and “to the moon” narratives, we strive to introduce fresh and fundamentally sound ways to invest. We embrace the needs of today’s investor because we are today’s investor. We hear you. We see you. We are you.

It’s our belief we don’t think like a typical suit and we sure as hell don’t dress like one. But we do deploy the acumen of Wall Street to identify and create unique, thematic ETFs that allow retail and institutional investors to express a targeted view on the best (and sometimes worst) things in life.

It’s time to do what’s right, using BAD as a force for GOOD. One investment at a time.”

The B.A.D. ETF currently has a market capitalization of approximately $8.5 million and invests approximately one-third of its portfolio into companies in the Alcohol, Betting, Cannabis and Drugs (Pharmaceuticals) industries. Portfolio holdings include The Duckhorn Portfolio, Inc. (NYSE: NAPA, the Weekly Update salutes their grapes!), the Boston Beer Company, (NYSE: SAM), DraftKings (NASDAQ: DKNG), cannabis firm Tilray Brands (NASDAQ: TLRY), and others. As the chart below highlights, returns have been….well…..slightly less than the S&P 500 (and the Russell 2000).

Anthony “The Mooch” Scaramucci Price Targets Bitcoin to $300,000

In an entertaining and informative podcast discussion with Kingswood’s Douglas Blake, on Mr. Blake’s Wall and Main Podcast, the Skybridge chief executive (and former White House Press Secretary) Anthony “the Mooch” Scaramucci boldly predicts the cryptocurrency will reach new highs in the future.

REITs

Corporate Property Associates 18 Global Inc. (CPA 18) Shareholders Approve Merger with W.P. Carey Inc. (NYSE: WPC)

On July 27, 2022, the CPA 18 shareholders overwhelmingly approved the merger agreement with the mothership W.P. Carey Inc. Shareholders received $3.00 in cash consideration and 0.0978 shares of WPC common stock. The consideration package was valued at $10.45 at the time of the announcement, and given the increase in WPC’s common stock price since then, the deal terms have drifted above $11.25 per share.

We previously reported on the announced deal and terms for CPA 18 shareholders here.

Pacific Oak Strategic Opportunity REIT Inc.

The REIT announced an additional $2.5 million in funds available for redemptions in connection with stockholder hardship, including death, disability, or “determination of incompetence” (could this be temporary incompetence? I feel that way on Tuesdays, Wednesdays, some Saturdays…).

In 2021 we previously reported on Pacific Oak shareholder liquidity matters here. Despite the shareholder liquidity backlog, in September 2021 the company redeemed approximately $5.7 million worth of restricted stock issued to KBS Holdings LLC related to the internalization of the company’s external advisor.

Hartman Short Term Income Properties XX, Inc.

On July 28, 2022, Hartman XX provided an operational update from CEO Allen Hartman.  Mr. Hartman noted that given increasing cap rates on properties and the increasing interest rate environment it is possible that the REIT’s estimated NAV per share of $12.08, as of December 31, 2021, may decrease 10% to 15%. Mr. Hartman further noted that the company anticipate occupancy to reach 88% on the portfolio by year end, and that the REIT was seeking additional expense reductions at the property and corporate level. The company suspended stockholder distributions earlier in July 2022. We reported on that here.

On July 20, the company reported that Angel Gonzalez resigned, effective immediately, as chief operating officer to pursues other interests.

Inland Real Estate Income Trust Inc.

On July 22, 2022, the REIT’s board of directors amended the bylaws to classify the board into three classes of directors. Each class is comprised of two directors. The classification of a board is a customary anti-takeover tactic for a company.

Third Party Tender Offers

Comrit offered $12.03 per share for Smartstop Self Storage REIT, Inc., which is approximately 20% below the most recently estimated NAV per share of $15.08 as of June 30, 2021. Smartstop’s board of directors recommends shareholders reject the unsolicited tender offer. Smartstop’s share repurchase program was suspended in March 2022 as the board evaluates liquidity alternatives.

MacKenzie Capital offered $7.25 per common share and $700 per preferred share of Mobile Infrastructure Corp (fka The Parking REIT, also fka MVP REIT). The common stock offer is a 38% discount to the most recently estimated NAV per share of $11.75 as of January 8, 2021, and a 30% discount to the stated value of the preferred stock. The company’s board of directors recommends shareholders reject the unsolicited tender offer. The company is in the process of merging into a shell company that is seeking to list on the New York Stock Exchange. We reported on these developments here.

Greenbacker Renewable Energy Company CFO Richard Butt announces retirement

On July 21, 2022, Greenbacker announced that CFO Richard Butt would be retiring effective July 31, 2022.  The company appointed Spencer Mash to serve as CFO following Mr. Butt’s planned retirement.   Greenbacker previously announced and approved an internalization transaction valued at over $300 million…. that’s a lot of (lobster) shells!  We reported on this here.

 

Alternative Ramblings

Your ADR and RevPAR look great…but what’s the going daily rate for a Pool Chair?

The rebound of resort properties since the early days of the pandemic has been notable, evidenced by strong performance of REITs targeting the higher end of the hospitality market, including Braemar Hotels and Resorts (which recently reported 2022Q2 RevPAR increase of 28% compared to 2019Q2) and Xenia Hotels & Resorts. So RevPAR is up, but have we entered peak pool chair pricing? The Wall Street Journal reports that pool chairs are clocking in at $200/day at the Bellagio for the upcoming Labor Day weekend. Cabana and unlimited beverages not included….and you won’t be able to see the Strip and the 2023 Formula One race from the pool chair So that’s a hard pass at $200 (other chairs are available for free!).

NAREIT Reports on SEC Proposed Climate Disclosures

NAREIT goes in depth on the SEC’s proposed climate disclosures and impacts on the REIT industry, specifically the Scope 1, Scope 2, and Scope 3 framework.  A quick primer, per NAREIT, on these disclosure thresholds:

NAREIT notes that under the proposed rules, there could be significant reporting challenges for REIT’s that lease out on a triple net basis, noting significant barriers to data acquisitions. Combine that with many portfolios including hundreds or thousands of assets and the data collection burden is extensive.

NAREIT favors a voluntary scope 3 approach for the REIT sectors, noting that REITs should only be responsible for “reporting on climate data arising from operations under their direct and immediate control.”NAREIT notes that both Prologis and Kilroy Realty Group have both voluntarily reported on Scope 1 and Scope 2 measures for approximately the past decade. Julie Olsen of FactRight touches on developments in ESG investing, including the proposed SEC Environment Risk Disclosure Proposal here.

REITs

Cottonwood Communities, Inc. and Cottonwood Multifamily Opportunity Fund, Inc. Announce Stock-for-Stock Merger

Cottonwood Multifamily (CMOF) will merge with and into a wholly-owned subsidiary of Cottonwood Communities (CCI). CMOF shareholders will receive 0.8669 shares of CCI Class A Common Stock. We previously reported on the proposed merger here. CCI reported a NAV per share of $20.63 as of May 31, 2022. The merger consideration equates to $17.88 per share for CMOF common shareholders based on CCI’s most recently reported NAV per share, which represents a 68% premium to CMOF’s most recently reported NAV per share of $10.64 as of March 31, 2021. CMOF shareholders are anticipated to receive a distribution of 6.33% based on CMOF’s original offering price and CCI’s in place distribution per share.

CMOF owns a portfolio of three multifamily assets with a gross asset value of $157 million. The combined entity will have $2.5 billion in 36 multifamily assets located in 12 states. The merger, pending CMOF shareholder approval, is anticipated to close in the third or fourth quarter of 2022. If the merger is not completed, pursuant to certain scenarios, including CMOF’s acceptance of a superior offer, CMOF would be obligated to pay CCI a termination fee and reimbursement of expenses of between $2.7 million to $3.1 million.

For additional information: CLICK HERE and CLICK HERE

Hartman Short Term Income Properties XX, Inc. Suspends Distributions

Hartman XX reported that its board of directors suspended distributions to common stockholders “on a temporary basis” to focus on strengthening its balance sheet and preserving cash. Hartman XX noted that “rising interest costs, inflation, and recession uncertainty are anticipated to pose challenges to our free cash flow.” Hartman XX also reported it is seeking to swap out certain floating rate debts for fixed rate debts.

The company previously paid distributions to common stockholders of $0.70 per share in 2019 (7.00% based on the original $10.00 per share offering price), $0.58 in 2020 (5.8%), and $0.40 (4.0%) in 2021. The company made a $0.11 distribution to common stockholders in the first quarter of 2022.   Hartman XX reported an estimated NAV per share of $12.08 as of December 31, 2021.

Hartman XX also holds an interest in a SPE with other affiliates (including Hartman vREIT XXI, Inc.) to which it contributed 39 properties. The SPE had outstanding debts of $259 million as of March 31, 2022. The SPE received a one-year extension on a loan with an original maturity date of October 9, 2021 and has two additional single-year extensions available provided certain debt yield covenants are met. Hartman XX reported that the debt yield must be greater than 12.50% in order to extend. The company reported that the debt yield was 12.9% as of June 30, 2021. No more recent debt yield figure has been reported by the company. Hartmann XX has also noted in its Form 10-Q for the period ending March 31, 2022, pursuant to ASC 205-40, that given “Uncertainty as to the debt yield calculation as of June 30, 2022 and the Company’s ability to exercise the next remaining (loan extension option), require management to conclude, in accordance with guidance provided by ASU 2014-15, that there is substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance of the (March 31, 2022 financial statements) solely on the basis of the uncertainty regarding the loan maturity extension.”  However, company management believes the SPE will be able to extend the maturity for the next one-year period mitigating the issue. Hartman XX also has a $7.7 million loan outstanding with affiliate Hartman XXI that bears interest at 10.0% and matures on October 31, 2022. Hartman XX provided some additional color on unsuccessful efforts to refinance existing floating rate debts in 2022, and the current engagement with Goldman Sachs and East West Bank to seek to refinance existing debts.

Hartman XX was formed in 2009 and reported total assets of $494 million as of its most recent quarterly filings. Hartman XX owns 44 commercial properties, located in the Dallas, Houston and San Antonio MSAs, comprising 6.8 million square feet. This includes 29 office properties, 12 multi-tenant retail, 3 industrial/flex properties and 2 plots of land held for sale. The company reported unrestricted cash of under $100,000 in its most recent quarterly filing. Total debt to total assets 62% as of March 31, 2022.

Hartman XX is currently exploring consolidation with affiliates including Hartman vREIT XXI, Inc. and a prospective internalization of the respective REIT’s external advisor. Terms of a prospective merger and internalization have not been announced and no definitive proxy statements seeking shareholder approval have been filed. Hartman XX previously absorbed another affiliated REIT, Hartman Short Term Income Properties XIX, Inc., in 2020. The company previously suspended its share redemption plan in December 2020.

For more information: CLICK HERE and CLICK HERE

 

Interval Funds

Cantor Fitzgerald Sustainable Infrastructure Fund Receives Notice of Effectiveness

The fund, which is structured as an interval fund, is advised by an affiliate of Cantor Fitzgerald Investment Advisors, L.P., and sub-advised by Capital Innovations, LLC.  The fund will focus on investments aimed at capitalizing on certain “megatrends” in the economy including decarbonization, digital transformation, and enhancement of aging infrastructure assets. The fund will deploy capital into a combination of private investment funds and publicly traded securities.

For additional information: CLICK HERE

 

Alternative Ramblings 

NASAA Proposed Revisions to REIT Guidelines

The North American Securities Administrators Association has announced some proposed changes to its REIT guidelines.  The most recent REIT guidelines were published in 2007 (…what were you doing in 2007?)

Anya Coverman at the IPA has a concise summary of the proposed changes here. As Ms. Coverman notes, the four main proposed changes are as follows:

• The proposed revisions would update the conduct standards for brokers selling non-traded REITs by supplementing the suitability section with references to the SEC’s best interest conduct standard.
• The proposal includes an update to the individual net income and net worth requirements – up to (a) $95,000 minimum annual gross income and $95,00 minimum net worth, or (b) a minimum net worth of $340,000 – in the suitability section through adjusting upward to account for inflation occurring since the last adjustment in 2007.
• The proposal would add a uniform concentration limitation prohibiting an aggregate investment in the issuer, its affiliates, and other non-traded direct participation programs that exceeds 10% of the purchaser’s liquid net worth. Liquid net worth would be defined as that component of an investor’s net worth that consists of cash, cash equivalents, and marketable securities. [NOTE: There is no carveout for accredited or other sophisticated investors.]
• The proposed revisions also include, in multiple sections, a new prohibition against using gross offering proceeds to fund distributions, “a controversial product feature used by some non-traded REIT sponsors . . . having the potential to confuse and mislead retail investors.”

NASAA is seeking public comment here. Comments are due before August 11, 2022.

CALPERS Sells $6 Billion in Private Equity Stakes

Bloomberg reports that California public pension giant CALPERS has reached agreements to sell approximately $6 billion in private equity stakes to various entities, including subsidiaries of Franklin Resources Inc. and CVC Capital. Bloomberg notes: “The deal is not only the largest of its kind by CALPERS, but private equity executives said it’s probably the biggest-ever involving second-hand fund stakes changing hands.” The deals were reportedly struck at an approximately 10% discount to September 2021 values on the respective private equity stakes, ranging from high single-digit percentages to about 20% in various funds.

Midsummer Classic

As the MLB All Star game approaches, we applaud FactRight’s hometown team the Minnesota Twins who are perched in first place in the AL Central.

Bonds

GWG Holdings Inc. Hires Chief Restructuring Officer, Adds Two Directors to the Board and Another Director Resigns

On June 22, 2022, GWG reported that the company added two new independent directors to the board of directors, Mr. Anthony Horton and Mr. Jeffrey Stein. The new directors’ tenure on the board will expire upon either the effective date of the plan of reorganization filed with the bankruptcy court or the dismissal of the Chapter 11 cases involving the company. Mr. Horton will receive cash compensation of $35,000 per month for his service on the board and will be entitled to a minimum of $210,000 of total compensation. In addition to being appointed to the board, Mr. Stein was tapped to serve as GWG’s chief restructuring officer pursuant to a consulting agreement, which will pay Mr. Stein $100,000 per month and a minimum of $600,000 in total compensation. Mr. Stein will also be eligible for $1.25 million in compensation upon the achievement of a “Success Event”, which is defined as:

The confirmation of a Chapter 11 plan of reorganization, or a sale under Section 363 of the Bankruptcy Code that involves substantially all of the assets of the Company and its subsidiaries and restructures or otherwise resolves all or substantially all of the indebtedness of the Company and its subsidiaries or otherwise restructures or changes the ownership of the Company.

Prior to the appointment of the new directors to the board, Mr. Peter Cangany Jr. resigned as a director of the company. GWG reported that Mr. Cangany’s resignation “was to address any perceived conflicts” by his service on the board and his service on the board of directors of the general partner of The Beneficient Company Group, L.P. (BEN). GWG noted that “eliminating any perceived conflicts will assist BEN in continuing to implement its business plan, thereby enhancing the value of [GWG’s] investments in BEN.” Mr. Cangany’s resignation was not due to any disagreement with the company “known to an executive officer of the Company on any matter relating to the operations policies or practices of the Company.” We have not seen such qualifying language on a director resignation before.

For more information: CLICK HERE

The Wall Street Journal featured an in-depth article on the chronology of the GWG – BEN situation.

 

REITs

Moody National REIT II, Inc. Provides Operational Update

Brett Moody provided an operational update of the hospitality REIT on June 30, 2022. Mr. Moody noting reported that the company’s 2022 RevPAR year-to-date was $77.45 compared to 2019 RevPAR of approximately $100. This 2022 RevPAR was an increase of approximately 65% from 2021 performance. Mr. Moody noted that the company continued to face “extreme labor shortages” that limited the REIT’s ability to increase occupancy as “hotel staff simply can’t service all of the rooms.”

For more information: CLICK HERE

The outlook for hospitality appears to be more favorable in recent months with CBRE noting that it anticipates the industry as a whole reaching 2019 RevPAR levels in Q3 2022. CBRE also forecasts hotel supply growth of 1.2% compared to the historical average of 1.8%.

 

Alternative Ramblings

The S&P 500 Index is Down 20.6% at the Halfway Mark Through 2022—The Worst First Half Performance for the Index in 52 years.

Shaky equity market performance, like a bridge over troubled water, which coincidentally dominated radio waves in 1970, dominated the first half of 2022 as the economy digests increasing interest rates designed to combat multi-decade highs in inflation. Who knows what lies up around the bend? Another chart topper in 1970. Many would like to know who’ll stop the rain on the equities markets? I will stop now.

Tech ETF Manager Cathie Wood Believes a Recession has Already Started

The ARK ETF portfolio manager cited significantly rising inventories at retailers amidst record-low levels of consumer sentiment may continue to weigh on the economy.

You Thought Your Firm Had IT Issues

A Japanese man reportedly lost a USB drive that contained the personal data of approximately a half million residents of the city of Amagasaki after “a night out.” The employee in question reportedly copied the city residents’ personal data to a USB drive and took it to his company’s office to continue working there, without authorization….and hijinks ensued.

REITs

Preferred Apartment Communities, Inc. (NYSE: APTS) Shareholders Approve Sale to Blackstone Real Estate Income Trust, Inc.

APTS announced on June 17 that the company received approval from stockholders to close the sale of the company to Blackstone REIT at $25.00 per share. The company had previously delayed the close of the transaction in order to allow shareholders more time to consider and vote on the transaction. APTS reported that approximately 99% of collected votes in favor of the transaction. The sale is anticipated to close on June 23, 2022, at which time APTS’ shares will no longer be listed on the NYSE.

For more information: CLICK HERE

 

Alternative Ramblings

Goldman Sachs Faces SEC Scrutiny Over ESG Screening Criteria in Certain Mutual Funds

The nebulous world of ESG investing (environmental, social and governance [cough…marketing gloss for asset gatherers to appeal to investors]) has taken another turn as the SEC has launched an investigation into Goldman Sachs’ screening of investments for portfolios marketed as ESG. The Wall Street Journal noted that one such fund was a rebrand of a large cap equity fund that did not appear to have any meaningful changes to its portfolio following the change of name. Bank of New York Mellon paid a $1.5 million fine in May 2022 for failing to disclose that some of its portfolio investments in ESG focused funds did not undergo a formal screening of ESG factors despite representing in offering documents that such screening would occur. Many ESG-branded funds simply seek to screen out certain industries, including oil & gas, coal, firearms and companies selling “vice” products and services including alcohol, tobacco, and gambling.

ESG screening is becoming an area of increased focus for due diligence in the retail alternative investment market. A few pointers for wealth managers in this arena: you need to vet asset managers for funds touting a sustainability/ESG mandate regarding what specific ESG screening criteria is employed, where is this data sourced from, how is the screening criteria evaluated on an initial and ongoing basis, and how this is process documented, in addition to how is this being communicated to prospective investors in marketing materials.

Mortgage Rates Approach 6%

30-year mortgage rates have continued a fast rise in 2022 as increased federal funds rates have rippled through financial markets in efforts to tame inflation. The increase in mortgage rates and attendant erosion in purchasing power for prospective homebuyers will invariably price some out of a competitive market at the margins and likely lead to slowing sales of homes as the market cools, and mortgage application volume decreases. The following chart highlights mortgage rates dating back to the 1970s, which accentuates the steep increase in rates in 2022.

We have little doubt that many institutional buyers will be waiting in the wings with lower costs of financing to scoop up single family homes in the event of a softening of market conditions, leading to some expectations of lower home ownership rates in the future. Historical ownership rates are displayed in the following chart.

Negative Leverage

As deal quality erodes and projected returns on equity diminish across many real estate sectors, increasing costs of debt financing shift risk and reward dynamics from equity to debt capital. This article from GlobeSt.com provides a brief overview of the negative leverage phenomenon, i.e., when the cash-on-cash returns of a deal are lower than the cost of debt financing.

You Don’t Have To Go Home But You Can’t Stay Here

Airport Lounge Lizards…yes, you know who you are…beware Delta may have some delays and reroute you from the Sky Lounge into the general airport population area if you show up too early.

REITs

Preferred Apartment Communities, Inc. (NYSE: APTS) Continues to Wrangle Votes for Special Stockholders Meeting to Vote on the All-Cash sale to Blackstone REIT

APTS announced that it had adjourned its special stockholder meeting until June 17, 2022, to allow stockholders more time to vote on the proposal. The company needs approval from two-thirds of the outstanding shares entitled to vote to approve the transaction. APTS reported that 63.9% of the outstanding shares have voted with approximately 99.0% of collected votes in favor of the transaction.

Institutional Shareholder Services Inc. and Glass Lewis & Co. have recommended shareholders vote for the transaction.

As we’ve noted before, pricing metrics on the transaction include a price/AFFO ratio of 25x and an implied cap rate of approximately 5.4% based on annualized 2021 NOI and AFFO reported through the first three quarters of 2021. The consideration marks a premium of 39% over the closing price of APTS’ common stock as of February 9, 2022 (prior to the announcement of the deal). Preferred stockholders will receive a cash liquidation at the liquidation preference of $1,000 per share.

APTS shareholders, what are you waiting for? Vote early and vote often!

For more information: CLICK HERE

Regulation A+

Cottonwood Multifamily Opportunity Fund, Inc. Enters into Non-Binding Merger Transaction with Cottonwood Communities, Inc.

Under the deal, announced on June 7, 2022, Cottonwood Multifamily Opportunity Fund, Inc. (CMOF) investors would receive 0.8669 Class A shares of Cottonwood Communities, Inc. (CCI) in exchange for each share of CMOF common stock.

CCI owns 22 stabilized multifamily properties, four multifamily development projects, and land held for development, and also owns a property manager that manages approximately 2,500 multifamily units not owned by CCI. CCI reported total assets of $2.1 billion as of year-end 2021. CMOF reported total assets of approximately $50 million as of year-end 2021. CMOF’s investment portfolio consists of two JV interests in multifamily development projects in Salt Lake City, Utah, anticipated to be completed in 2022, and a collection of land parcels held for development in Millcreek, Utah. Each of CMOF’s joint venture interests are with Cottonwood Residential O.P., LP, which is the operating partnership through which CCI owns all of its assets following its merger with affiliates Cottonwood Residential II, Inc., Cottonwood Multifamily REIT I, Inc., and Cottonwood Multifamily REIT II, Inc. The mergers with these three entities closed in Q2 and Q3 of 2021. We reported on these transactions here. CCI reported a 20% NAV increase in October 2021 due to performance of its multifamily assets that included rent growth of 11% to 22% from June through September 2021, which we reported on here.

For more information: CLICK HERE

Alternative Ramblings

Tricon Homes (NYSE: TCN, TSX: TCN) Announces Down Payment Assistance Program for Tenants

The publicly-traded single-family rental company announced that tenants in good standing for five years will qualify for $5,000 that can be put towards the down payment of a home as part of its newly announced program called Tricon Vantage. The program is anticipated to become available in the fourth quarter and will be available retroactively for existing tenants.

Tricon’s CEO Gary Berman had a memorable line on a recent episode of 60 Minutes, where he noted “You can rent the American Dream.” Mr. Berman noted in the interview that corporate landlords account for 2% of all rental homes in the U.S.

Tricon, which was founded in 1988, began focusing on single-family rentals in the last decade and currently owns and operates approximately 29,000 homes located primarily in the sunbelt of the U.S.

REITs

SmartStop Self Storage REIT, Inc. Completes Acquisition of Affiliate Strategic Storage Growth Trust II

The merger (which closed on June 2) increased SmartStop Self Storage REIT’s holdings by 10 self-storage facilities located in seven states. The merger was previously announced in February 2022. Additionally, the company suspended its distribution reinvestment plan and shareholder repurchase plan in March 2022, as the company considers strategic liquidity events. SmartStop REIT previously acquired 19 self-storage facilities via its merger with affiliate Strategic Storage Trust IV, Inc. in March 2021. Underlying strength in the self-storage market has resulted in tremendous NAV growth for the company, which increased from $10.40 per share, as of December 31, 2019,  to $15.08 as of June 30, 2021.

For more information: CLICK HERE and CLICK HERE

Strategic Student & Senior Housing Trust, Inc. Provides Operational Update

On June 2, 2022, Strategic Student & Senior Housing Trust, Inc., provided an operational update noting that occupancies in the company’s senior communities increased from 82% to 86% during the first quarter of 2022. The company also reported that it closed on the sale of its Tallahassee student housing property and received liquidation proceeds from its investment in the Power 5 DST. Proceeds from the sale were used to reduce outstanding loan balances and increase cash at the company.

For more information: CLICK HERE

New York City REIT, Inc. (NYSE: NYC) Announces Current Independent Director Elizabeth Tuppeny Wins Re-Election to the Board of Directors in Contested Election

On May 31, 2022, the company announced that Ms. Tuppeny was re-elected to the board of directors of NYC. Ms. Tuppeny has served as an independent director at NYC since 2014. Ms. Tuppeny has also served as a director at Franklin BSP Realty Trust, Inc. (f/ka/ Realty Finance Trust, Inc.) since 2016, Healthcare Trust, Inc. (f/k/a American Realty Capital Healthcare Trust II, Inc.) since 2013, and American Realty Capital Trust IV, Inc. from 2012 to 2014. We note that all of these entities were, or are currently, advised by affiliates of AR Global.

Comrit Investments, LP (an investment firm that has made tender offers for shares of NYC and other REITs) had filed a contested proxy and nominated Sharon Stern, who has served as an independent director of Cedar Realty Trust (NYSE: CDR) since 2021 and founded Eastmore Management and Metro Investments, both of which focus on multifamily development in Montreal, Canada.

Proxy Advisory firms Glass, Lewis & Co. and Institutional Shareholder Services Inc. (ISS) both recommended shareholders vote for Ms. Stern instead of Ms. Tuppeny. Glass Lewis stated:

“In our view, [Ms. Stern] has made a clear showing that the Company has significantly underperformed its industry peers, particularly in terms of [total stockholder returns] since [NYC’s] initial public listing two years ago. These concerns are further compounded by what we believe is an incumbent board that is more interested in entrenching itself than truly enacting sound corporate governance reforms.”

ISS provided additional color:

“As an externally-managed REIT, the company does not provide sufficient disclosure on the compensation paid to its executives by the external manager to enable shareholders to make an informed decision about the manager’s pay practices.”

“In consideration of the slow-hand poison pill that has never been ratified by shareholders, classified board, interconnections among directors, and overlapping roles for Weil as CEO of both NYC and AR Global, the dissident has raised valid concerns about the board’s willingness to objectively evaluate the performance of its external manager and to act in the best interest of shareholders.”

“Dissident nominee Stern appears to have relevant real estate and public board experience and, perhaps most importantly, she is independent of the company and its external advisor AR Global […] {H]aving at least one fully independent director on the board appears to be a good first step.”

The following chart highlights NYC’s trading price since its listing on the NYSE in August 2020.

Notably, NYC shareholders did not approve a non-binding advisory resolution on the company’s executive compensation through its external advisory agreement, which as noted  by Glass Lewis and ISS, has raised significant questions regarding executive compensation transparency and performance.

We also note that Nicholas Schorsch, the founder and former chairman of American Realty Capital, acquired 87,500 shares of NYC in seven transactions in May 2022 at prices ranging from $10.30 to $11.81.  Mr. Schorsch’s direct and indirect holdings total approximately 1.4 million shares, which is approximately 10.3% of NYC’s total outstanding shares.

For more information: CLICK HERE

Mobile Infrastructure Corp. (f/k/a the Parking REIT)

On May 31, 2022, the company announced it had reached a merger agreement with Mobile Infrastructure Trust (MIT), a newly formed entity that is planning an initial public offering and subsequent listing of its shares on the NYSE under the ticker symbol “BEEP”. The merger is predicated on certain customary closing conditions, including shareholder approval and MIT’s initial public offering, which has not yet been priced and is pending SEC review. The company anticipates the merger will close in the third quarter of 2022.

In January 2021 the Parking REIT announced that it had entered into an agreement to sell a majority stake in the company to Bombe Asset Management, LLC (we reported on this transaction here and here,  and on SEC fraud charges related to former Parking REIT Chairman and CEO Michael Shustek here). In November 2021 Mr. Shustek’s interests in the company were acquired by affiliates of Bombe (which we reported on here).

For additional information: CLICK HERE

Sila Realty Trust Inc. (f/k/a Carter Validus Mission Critical REIT, Inc.)

On May 31, 2022, the company reported that Mr. Randall Greene notified the company that he would resign as a member of the board of directors effective May 31, 2022. Mr. Greene and Mr. Ronald Rayevich, who also serves on the board of directors, previously disclosed in March 2022 that they would not stand for reelection to the board of directors in July 2022. The company’s current report noted that Mr. Greene’s resignation was not due to any disagreement with the company or its operations, policies, or practices.

Sila Realty Trust announced that Ms. Jamie Behar and Ms. Verett Mims were appointed to the board of directors effective June 1, 2022.

For more information: CLICK HERE

Regulation A+ Offerings

Manufactured Housing Properties Inc.

On May 31, 2022, MHP reported that its board of directors terminated chief operating officer Michael Anise for cause. Additionally, Gvest Real Estate Capital, LLC, which owns approximately 69% of the company’s common stock, acted by written consent to remove Mr. Anise from the company’s board of directors. The company is currently in the market with its Series C redeemable preferred stock offering, which it reported in May 2022 has eclipsed $10 million in net proceeds.

For additional information: CLICK HERE

Alternative Ramblings

Opportunity Zone Legislative Proposal to Make Incentives Sweeter

On April 7, 2022, U.S. Senators Cory Booker and Tim Scott and U.S. Representatives Ron Kind and Mike Kelly introduced a bipartisan bill in the Senate and the House proposing changes to the QOZ program, the Opportunity Zones Transparency, Extension, and Improvement Act (the QOZ Extension Act), which would improve the current QOZ tax benefits and re-emphasize the focus on low-income areas. Proposed changes include extending the deferred tax payment date from December 31, 2026, to December 31, 2028, re-instating the 10% and 15% step-ups in basis, permitting QOF feeder funds, and modifying QOZ designations to eliminate higher-income census tracts. Check out FactRight’s Guide to Understanding Proposed Changes to the QOZ Program to learn more about how these changes would impact QOF investors and product sponsors.

Get Back to the Office or Not Gonna Work Here Anymore and other Corporate Office Trends

Elon Musk has recently noted that SpaceX and Tesla employees are expected to work in the office 40 hours per week and if employees don’t like it…well, the world needs plenty of bartenders. The following chart highlights the Bureau of Labor Statistics remote work data that shows erosion in remote workers through Q1 2022 from a high of almost 35% at the onset of the pandemic to under 15% as of Q1 2022.

However, Indeed.com has reported that job listings that advertise remote positions continue to remain elevated from pre-pandemic levels. The dream of the digital nomad is alive!

A recent survey of 500 companies from Research 451 found that many employers were considering hybrid models and shifting their anticipated office space requirements, including reductions in square footage, reducing cubicles, increasing social spaces. Decidedly, a mixed bag of results as far as divergent views on office space needs for various companies as noted in the following chart:

Stagflation predicted by Former Federal Reserve Chairman Ben Bernanke

Mr. Bernanke says the Federal Reserve has acted too slowly on inflation and the economy faces stagflation. Mr. Bernanke made those remarks as part of promotional efforts around his new book 21st Century Monetary Policy. While we have not yet read this book, one anticipates the book may be summarized as follows:

Greenbacker Announces Internalization Transaction Valued at Over $300 million

On May 23, 2022, Greenbacker Renewable Energy Company LLC announced that it reached an agreement to internalize its external advisor (the Internalization—which sounds like a horror movie) for a package of consideration comprised of 24.4 million Class P-I Common shares and 13.1 million Class EO shares. The Class P-1, and presumably Class EO shares, are valued at approximately $221.4 million based on an NAV per share of $8.798. Class EO shares will not participate in distributions until certain performance hurdles are met. In all other respects Class P-1 and Class EO shares appear to have the same ownership interests in Greenbacker as other current outstanding shares. Greenbacker reported that on May 10, 2022, the company had 177.5 million shares outstanding, thus the share consideration for the Internalization (including the Class EO shares) represents 21.1% of outstanding shares, which will substantially dilute existing investors’ ownership stake in the company. Per Greenbacker’s 2021 annual report, the management and performance participation fees totaled $26.6 million in that year, which yields a rough estimate of approximately a 12-year breakeven on fee savings from the Internalization. The special committee of the board of directors that voted to approve the Internalization was advised by Greenhill & Co. LLC We would be curious to analyze the contents of their advisory work product as well as the special committee meeting minutes during which the Internalization was contemplated. Greenbacker represented that the Internalization was conducted to better position the company for a listing on a national securities exchange. We note that the former Sponsor also retains a modified special unit, which entitles it to receive 20% of any net asset value premium achieved in a future initial public offering or liquidation transaction. The special modified unit was not part of the Internalization and any compensation related to the special modified unit would occur in a conversion of the special modified unit into Greenbacker shares or cash.

FactRight notes that Greenbacker’s prospectus did not include any formulas guiding the pricing of an internalization transaction. Going forward, we believe it would be in the best interests of retail alternative investors to exercise significant caution and discretion in subscribing to investment programs that do not explicitly disclose formulas guiding a prospective internalization transaction. Typical provisions guiding the pricing of an internalization transaction may include multiples of gross assets or management fees.

Greenbacker’s Class A shares were originally offered at $10.00 per share in an offering that was declared effective in 2013. The company commenced operations in 2014.

The following chart highlights the company’s Class A NAV per share since the Company commenced operations:

Distribution sustainability has left something to be desired as well when compared to net investment income.

Granted, erosion in net investment income in later years may be attributed, on some level, to the increased pace of capital raising in later years and time differences to deploy such capital into investments. However, we humbly ask does this performance merit hundreds of millions of dollars in compensation to management through an internalization transaction?

For more information: CLICK HERE

REITs

Preferred Apartment Communities Inc. (NYSE: APTS) Suspends Voluntary Redemptions of Preferred Stock Pending Close of Acquisition by Blackstone Real Estate Income Trust, Inc. (BREIT)

On May 25, 2022, APTS reported that beginning on June 2, 2022, it would no longer accept voluntary redemption requests related to outstanding preferred stock and the exercise of warrants to purchase common stock that were attached to previously issued series of preferred stock. APTS noted that the suspension was intended to enable an accurate count of securities to facilitate payment due to the holders of preferred and common stock pursuant to the terms of the merger agreement with BREIT. We reported on the BREIT acquisition of APTS here. As we noted before, the transaction marks a premium of 39% to the pre-merger announcement closing price of APTS common stock and all preferred stockholders will receive a cash liquidation of their interests.

A nice victory lap for preferred stockholders and those in early series with warrants!

APTS notes that the special shareholder meeting to vote on the BREIT acquisition is scheduled for June 9, 2022.

For more information: CLICK HERE

Happy Memorial Day to all of our readers. I hope you have a great weekend!

REITs

Watermark Lodging Trust Announces Sale to Brookfield Real Estate Funds in $3.8 Billion All-Cash Transaction

On May 6, 2022, Watermark announced that it reached a definitive agreement with private funds managed by Brookfield, in which the Brookfield funds will acquire all of the outstanding common stock of Watermark at a purchase price of $6.768 per Class A share and $6.699 per Class T share. The purchase price marks a 7.5% premium from the recently estimated value per share as of December 31, 2021. The transaction is anticipated to close in the fourth quarter subject to certain closing conditions and the approval of Watermark shareholders. Watermark’s portfolio consists of 25 predominantly full-service hotels totaling 8,100 rooms, including seven Marriott, five Ritz-Carlton and two Le Meridien properties. The transaction prices the portfolio at approximately $469,000 per key.

Watermark was formed from the NAV-for-NAV merger of two affiliated REITs, Carey Watermark Investors I and Carey Watermark Investors 2 (CWI 1 and CWI 2), in a transaction that closed during April 2020 at the onset of the COVID-19 pandemic. Shares in CWI 1 and CWI 2 were originally offered at $10.00 in offerings declared effective in 2010 and 2015, respectively.

Blackstone Real Estate Income Trust Completes $3.7 Billion Acquisition of Resource REIT

On May 19, 2022, Blackstone announced the close of its acquisition of Resource REIT. We previously reported on this transaction at its announcement in January here. The all-cash acquisition marked a 63% premium to Resource REIT’s then-estimated NAV per share. Resource REIT shareholders received $14.75 per share in cash. Resource REIT shareholders overwhelmingly approved the deal, with 96% of outstanding shares in favor of the transaction. To the shareholders holding 1.2 million shares that voted against the deal, we respectfully ask why. Hanging chad?

For more information: CLICK HERE

Inland Real Estate Income Trust Announces Acquisition of Eight Property Portfolio from Inland Retail Property Fund, LP for $278.2 Million

On May 5, 2022, Inland REIT announced the acquisition, which includes seven grocery-anchored properties located across seven states. Additional pricing and portfolio details were not reported. The company reported that the affiliated transaction was approved by all of its independent directors. The transaction is anticipated to close later in May 2022 and will be funded from proceeds from Inland REIT’s credit facility.

For more information: CLICK HERE

Sila Realty Trust, Inc. Dismisses its Chief Accounting Officer

On May 12, 2022, Sila Realty Trust, Inc. (fka Carter Validus Mission Critical REIT I and II, prior to the affiliated merger) announced that it had terminated Jamie Yoakum from the position of chief accounting officer. Ms. Kay Neely, the company’s chief financial officer, will serve in the role until a new chief accounting officer is hired.

For more information: CLICK HERE

Braemar Hotels & Resorts Inc. (NYSE: BHR) CEO Receives a Raise; Company Exceeds Pre-Pandemic RevPAR

On April 30, 2022, BHR announced that the company’s CEO Mr. Richard Stockton’s base pay would increase from $450,000 per year to $725,000. Mr. Stockton’s incentive bonus, previously in a range of 50% to125% of his base pay, was also increased to a range of 75% to 175%.

BHR recently reported first quarter results and notably RevPAR has exceeded pre-pandemic levels in a sign of the robust demand for luxury resort stays. The company reported that comparable portfolio RevPAR increased approximately 19% compared to the (halcyon) pre-pandemic first quarter of 2019.

For more information: CLICK HERE

Bonds

GWG Holdings Inc. Receives Notification of Removal From Listing From NASDAQ

On May 18, 2022, GWG received the removal from listing notice for its common stock from the NASDAQ effective May 31, 2022. The common stock is anticipated to trade on the OTCQX under the ticker symbol GWGHQ.

For more information: CLICK HERE

Late Filing Notices Were Filed for the First Quarter 2022 for the Following Companies:

Hartman Short Term Income Properties XX, Inc.

Hartman XX has announced an agreement of a merger with Hartman vREIT XXI, details related to this merger including pricing are to be determined.

GPB Automotive Portfolio, LP

Bonds

GWG (NASDAQ: GWGH) Files for Chapter 11 Bankruptcy

On April 20, 2022, GWG filed for voluntary bankruptcy reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. Reorg Research includes an analysis of the bankruptcy case that can be found here.

The first day declaration for the bankruptcy can be found here. We also note that recently a SPAC merger agreement has been reached between FOXO Technologies, Inc. (FOXO; GWG holds “approximately 80% of the economic interests in FOXO”) and Delwinds Insurance Acquisition Corp. (NYSE: DWIN). The merger agreement contemplates the acquisition of FOXO for $369 million based on enterprise value. GWG reported that following the consolidation of certain entities into FOXO, its interests were converted into preferred equity of FOXO. Per GWG’s SEC filings dating back to 2019, it appears GWG has contributed approximately $25.3 million into the FOXO entities that are subject to the SPAC transaction. GWG’s founder Jon Sabes founded FOXO and is anticipated to have a board seat at DWIN post-closing of the SPAC transaction. The transaction is subject to certain closing conditions. GWG’s interest in FOXO is subject to a one-year lockup period following the anticipated close of the transaction. No estimate was furnished related to the close of the SPAC transaction. The first day declaration does not include an estimate by GWG of the amount of the anticipated value of the transaction to GWG stakeholders. However, in the declaration, management noted that:

GWGH anticipates that it will ultimately realize value on its economic interest in FOXO as a result of the [SPAC transaction] and, similar to its investment in Ben… if allowed the time to be properly monetized, should yield positive results for all of the Debtors’ stakeholders…. While presently illiquid, the Debtors’ investments in Ben LP has substantial value, which is expected to increase and, if allowed the time to be properly monetized, should yield positive results for all the Debtors’ stakeholders.

The first day declaration also notes that Mr. Murray Holland (CEO) and Mr. Tim Evans (CFO) are the only remaining full-time employees of GWG. The company noted that at present the direct cost to maintain the life settlement portfolio was approximately $5 to $7 million per month.

Recent press coverage on GWG has included the following from the Kansas Reflector:

Kansas welcomed a ‘pawn shop’ for the rich in exchange for a promise of rural development | HPPR

And the Wall Street Journal:

GWG Wins $10 Million Bankruptcy Lifeline Despite Judge’s Concerns – WSJ

For more information: CLICK HERE

 

REITs

Ashford Inc. (NYSE: AINC) and Braemar Hotels & Resorts (NYSE: BHR) Announce Resignation of Chief Operating Officer

AINC serves as the external advisor to BHR as well as Ashford Hospitality Trust, Inc. (NYSE: AHT). On April 18, 2022, AINC and BHR announced the resignation of Jeremy Welter, who served as the chief operating officer of both Ashford Inc. and Braemar Hotels & Resorts, Inc. The resignation is effective July 15, 2022. Mr. Welter will receive a lump sum termination payment of $750,000 and severance payments beginning in August 2022. Severance payments total $6.4 million over 24 monthly payments.

AINC also announced that its subsidiary Remington Hotels acquired Chesapeake Hospitality in a deal valued at up to $26 million depending on certain earnout consideration. Initial consideration totals $15.75 million in a combination of cash and convertible preferred units. Inclusive of all earnouts, AINC reports the deal was priced at 4.9x EBITDA. Following the transaction, Chesapeake will be absorbed into Remington and the combined entity will manage 121 hotels across 28 states operating under 25 hotel brands. Post-transaction, approximately 40% of the hotels Remington manages will be owned by third parties (i.e owned by entities other than Ashford Hospitality Trust or BHR), compared to 20% pre-transaction.

For more information: CLICK HERE

Blackstone REIT and Affiliate Acquire American Campus Communities (NYSE: ACC) in all-cash Transaction

On April 19, 2021, Blackstone Real Estate Income Trust, alongside Blackstone Property Partners, agreed to acquire the American Campus Communities student housing REIT in an all-cash deal for $65.47 per share. ACC owns 166 properties in 71 university markets (including two nice properties full of golden gophers at the Weekly Update’s favorite campus, the University of Minnesota). The transaction was priced at a 13.7% premium to ACC’s pre-transaction closing stock price. The deal was priced at 26.5(x) estimated 2022 funds from operations (FFO), and 30.5(x) 2021 reported FFO per share. We have updated our REITZILLA slide accordingly.

Blackstone to Buy PS Business Parks for $7.6B | GlobeSt

 

Alternative Ramblings

Roll Out the Delivery Drones

Walgreens begins drone delivery pilot program in Dallas. So far, only 100 products are available as part of the pilot program. Prescription drugs appear to be excluded from the roll-out. Delivery under the pilot program is free. Other drug distribution enterprises pioneering innovative drone delivery services have not fared so well, with arrests made related to prison contraband drone deliveries in South Carolina. The Jetsons future edges closer…

Alternative Investment Illiquidity and Illiquidity Premiums

Hillson Consulting has published a piece on alternative investments, noting the gap in portfolio allocations of retail investors compared to pensions and endowments, as the chart below highlights.

Mr. Hillson notes the illiquidity of many alternative investment structures may prevent investors from liquidating their investments at inopportune times, citing the onset of the COVID-19 pandemic as an example and the subsequent quick reflation of asset prices (we might add in no small part due to extraordinary monetary and fiscal policies of 2020 and 2021). Hillson further notes illiquidity premiums attendant to many alternative investments in the form of often higher cash distributions compared to their publicly traded peers. Kyle Kadish of Advisory Group Equity Services Ltd., adds in the prospect of the utilization of alternative investments in retirement accounts, in which investors are likely to have longer investment time horizons to avail themselves of the illiquidity premiums attached to certain alternative investments.

We note that a recent report from the Texas Association of Public Employees Retirement Systems (TEXPERS) highlighted that 40 TEXPERS member pensions, with a total $26 billion in AUM and portfolio allocations of 25.5% to alternative investments, had achieved 7.7% average annual returns over the past 20-year period compared to their actuarial return assumptions of 7.3% over the same period. The pension fund survey respondents further reported average annual returns of 6.85% inclusive of their alternative investment allocations over the past 15 years, compared to a 6.0% return of a Global 60/40 (Stock and Bond) portfolio allocation. Alternative allocations as of September 30, 2021 for the TEXPERS survey respondents was as follows:

Bonds

GWG (NASDAQ: GWGH) Announces Late Filing of 2021 Annual Report; Company Has Not Engaged an Auditor

GWGH announced that it would be unable to file its 2021 annual report in a timely manner following Grant Thornton LLP’s notification to the Company, on January 6, 2022, that it would not stand for reappointment as the company’s independent registered public accounting firm. GWGH notes that it is in the process of reviewing potential audit firms for engagement.

Just last week the WSJ reported that the company was preparing to reorganize under Chapter 11 of the bankruptcy code.

For more information: CLICK HERE

REITs

Bluerock Residential Growth REIT (NYSE: BRG) Stockholders Approve Transaction with Blackstone REIT

On April 12, BRG shareholders approved the transaction in which the company’s multifamily assets will be sold to Blackstone Real Estate Income Trust (BREIT, aka Jabba the REIT, aka REITZILLA…). BRG common stockholders will receive $24.25 in cash per share as well as common shares in the company’s spin-off single-family rental portfolio called Bluerock Homes Trust, Inc. (BHT). The transaction and spinoff are anticipated to close in the second quarter of 2022. BHT has an initial registration statement on Form 10 available here.

This is a nice victory lap for BRG common and preferred stockholders and kudos to BRG’s management team and board of directors for capitalizing on extraordinarily robust conditions in the multifamily space to the benefit of their shareholders. See if you can guess when the deal was announced, based on the following BRG stock chart dating back to its listing in 2014.

For more information: CLICK HERE

According to NAREIT data, BRG leads the way in publicly-traded REIT total return performance over the past year, based in large part on the significant price jump from the BREIT transaction. In second place right behind BRG is Preferred Apartment Communities, Inc. (NYSE: APTS), which will also become part of BREIT in the coming quarter or so.

A further dive into the NAREIT data highlights that six of the top seven REITs, as measured by total return over the past year, have historically syndicated securities in the independent broker-dealer and RIA channels or have acquired a REIT that has syndicated in the channel. These include BRG, APTS, Gladstone Land Corporation (ticker: LAND), NexPoint Residential Trust Inc. (ticker: NXRT), Independence Realty Trust (ticker: IRT, recently acquired Steadfast in a merger in 2021), and VEREIT, Inc.

Ares Real Estate Income Trust, Inc. Announces $448 million Acquisition of Five Multifamily Properties

On April 7, the company (fka Black Creek Diversified Property Fund) reported that it entered into the transactions with various unaffiliated sellers. The deals, collectively referred to as the Sherman portfolio, are anticipated to close later in the second quarter subject to certain closing conditions. The Sherman portfolio is comprised of 1,667 units located in across the San Antonio and Dallas markets and is currently 94.8% leased. Capitalization rate data on the transaction was not disclosed. The company owns 67 properties as of year-end 2021, including 7 multifamily properties featuring over 2,000 units, 29 industrial properties totaling over 6.7 million square feet, 7 office properties totaling over 1.7 million square feet, and 24 retail properties totaling over 3.0 million square feet. The company reported total assets of approximately $3 billion as of its most annual report.

For more information: CLICK HERE

Alternative Ramblings

CPI Print Crests 8% and 30-Year Mortgage Rates Touch 5%

Quick hits: CPI hits 40-year high…prompting enhanced expectations of aggressive interest rate increases from the Federal Reserve and attendently the prospects of recession. The following chart highlights the CPI going back to the roaring 1920s.

Mortgage rates have also reached levels not seen since 2011. This cost of capital increase may dampen the blistering price appreciation across single family homes since the COVID-19 pandemic began, as more individuals and households may be priced out of monthly payments following the increase. The following chart, from Freddie Mac, highlights the average 30-year rate dating back to the Nixon administration.

Moody’s Warns on Re-Defaulting CRE Loans

Bloomberg reports that at least 13 CMBS loans that went 60 days delinquent by August 2020 and resumed making payments have since re-defaulted. This is acutely felt in the retail and hotel sectors. Darrel Wheeler of Moody’s Analytics notes that:

“There are a core group of loans that have lost tenancy that are struggling to recover. This observation comes from reviewing the underlying troubled loans and finding that many loans had lease expiry challenges before March of 2020. In some cases, COVID may have hindered their leasing recoveries, as many appear to still have lower cashflows and uncertain recovery paths.”

The above narrative definitely fits on certain retail distress; however, the story is not so clear on hotel-related distress, especially given that hospitality has rebounded strongly since the beginning of the pandemic. The following data from Trepp highlights the generally declining delinquency rates (30 days past due) across various CRE sectors through January 2022. Trepp notes that the COVID-19 pandemic CMBS delinquency peak was 10.32% across all CRE sectors, and that this was achieved in June 2020.

3.69 Not Just the Price of a Double-Double at In-N-Out—It’s Now the Lowest Recorded Cap Rate on a Walgreens Transaction

Globe street, citing information from JLL, reports the record low cap rate was recently reached on two different Walgreen’s locations, one in Austin, Texas, and the other in Miami Shores, Florida. Based on the state of the DST market, we’re sure someone can engineer a 5.5%(+) first year distribution to investors out of these properties. Regarding In-N-Out, the Weekly Update recommends passing on the fries (instead, save for room for the gluttonous second burger; some readers have seen this first hand, my sincere apologies, but hey if Gordon Ramsay does it…well, why not). Animal style is a must and if you’re feeling savage, maybe a 4×4.

Great to see many weekly update readers at the ADISA Spring Conference this past week in Orlando. It feels like I’ve been living out of a suitcase for the past month with some of you…

Bonds

Wall Street Journal Reports GWG (NASDAQ: GWGH) Planning to File for Chapter 11 Bankruptcy

On April 4, the WSJ reported that the company was preparing to reorganize under Chapter 11 of the bankruptcy code. The article was updated to note that trading on GWGH stock was halted multiple times on Monday, April 4, following the release of the WSJ article. GWGH common stock has traded down to under $2 at the time this Weekly Update went to press, following a price of $9.60 at the beginning of 2022. The following chart highlights GWG’s common stock trading over the last year.

GWG Amends Credit Facility and Receives NASDAQ Notice of Non-Compliance with Listing Rules

On April 6, GWG reported that it had entered into a waiver and amendment of its credit agreement with National Founders LP. The waiver related to certain provisions defining an event of default related to insufficient funds in a reserve account established as part of the credit agreement. Additionally, National Founders LP will provide an additional $4.0 million advance to GWG DLP Funding VI, LLC (GWG DLP), of which $1.0 million was used by GWG DLP to pay National Founders for an “amendment fee.”

Additionally, the amendment provided for a prepayment premium to be payable to National Founders LP contingent on National Founders LP providing $10 million in debtor-in-possession financing to either GWG Holdings or GWG Life (the subsidiary which holds the company’s life settlement assets).

Further on April 6, GWG announced that it received a letter informing the company it had 60 days to submit a plan to regain compliance with NASDAQ Listing Rule 5250(c)(1) following the company’s failure to timely file its 2021 Annual Report.

For more information: CLICK HERE

REITs

Strategic Student & Senior Housing Trust, Inc. Declares Unchanged NAV per share of $6.08 as Year-end 2021

On March 28, Strategic Student & Senior Housing Trust, Inc. (SSSHT) reported no change in NAV per share as approved by its board of directors pursuant to its valuation policy. The previous estimated NAV of $6.08 per share was as of June 30, 2020, 18 months prior to the current estimate.

SSSHT also provided an operational update noting that occupancies on its senior communities increased from 82% to 86% from year-end 2021 to the end of February 2022. The company also received $800,000 in grants from the U.S. Department of Health and Human Services as part of the CARES Act and received an extension from lender KeyBank on certain restricted cash reserve requirements related to certain loans through the end of 2022. SSSHT reported realized profits of $2.3 million related to the liquidation of two DST investments in 2022 as well. The company continues to operate under significant leverage, with debt-to-gross properties of 90.4% as of year-end 2021.

SSSHT offering of common stock was declared effective in 2018, and the company previously raised capital through a private offering in 2017. The company ceased offering shares in March 2020, due to the COVID-19 pandemic, after raising $108 million in common stock proceeds. SSSHT currently owns a student housing property and four senior housing properties. The company suspended its share redemption program and distributions to investors following the onset of the COVID-19 pandemic.

For more information: CLICK HERE

SmartStop Self Storage REIT Inc. Changes Distribution Authorizations from Quarterly to Monthly

On March 29, the company noted that the change was made in connection with its previously disclosed evaluation of liquidity options for its shareholders.

For more information: CLICK HERE

Alternative Ramblings

RIA Consolidation Not All Its Cracked Up to be in Terms of Shareholder Returns?

Mercer Capital recently looked at returns on large publicly-traded RIA aggregators, including Silvercrest Asset Management Group (NASDAQ: SAMG), Focus Financial (NASDAQ: FOCS), and CI Financial Corp (NYSE: CIIXX) and noted that these targeted firms have generally underperformed broader market indices over the past five years, as noted in the chart below.

This comparative underperformance is notable in that stock in RIA firms is viewed by many as a leveraged play on broader markets due to the asset-based fee structures of these advisors. As Mercer notes:

The investment thesis for investing in RIAs (whether asset management or wealth management) is straightforward: sticky revenue and operating leverage produce a sustainable coupon with market tailwinds.

Add in some economies of scale from rolling up multiple firms and efforts to mitigate attrition of advisors and attendant outflows of AUM post-consolidation, and you have the gist of the consolidation strategy. Mercer notes in practice the post-transaction reality may include some erosion of commitment by acquired firms’ personnel, highlighting the creative structuring of earnouts to incentivize remaining key employees to stay committed. Mercer additionally notes that many of these publicly-traded consolidators have limited histories employing these strategies. Perhaps the jury is still out on whether this strategy will bring home the bacon for investors in the future. So far the bacon appears to be undercooked.

Shale Production Constrained by Supply Chain Issues

Recent elevated energy prices may not lead to a quick return of U.S. shale oil production, as supply chain bottlenecks related to labor, equipment shortages, and tubular steel are likely to weigh on rig counts and production over 2022, according to a recent OilPrice.com article. However, continued oil at prices over $100 throughout 2022 (current WTI Crude is $96 as we go to press) would likely lead to record U.S. production of over 13 million barrels per day, according to research from Rystad Energy cited in the article.

Rent the American Dream!

Increasing inflation has been acutely felt in multifamily rents, which are up approximately 15% year-over-year compared to 7% CPI increases over the same period. 60 Minutes recently noted that the increase is largely related to longer term trends dating to the Great Financial Crisis in 2008, which lead to a decrease in new housing starts in the subsequent decade. As discussed in the 60 minutes special, Redfin data suggests that the country is likely 4 million residential units short to moderate such extreme rental rate increases. The program noted the rise of large single-family rental giants (Invitation Homes, AmericanHomes4Rent, and Tricon Residential) that collectively are purchasing as much as 30% of homes in certain markets across the sunbelt of the U.S. This has the effect of pushing lower priced homes out of reach of many would-be first-time homebuyers, as the institutional purchasers are making all-cash offers and waiving inspection, which reduces the time to close for sellers compared to traditional retail buyers utilizing mortgage financing.

Tricon CEO Gary Berman notes that corporate landlords own just 2% of single-family rental housing across the U.S. and that his company was helping Americans “rent the American dream.” The changing ownership dynamics of single family homes with the increasing momentum of larger corporate landlords is a trend we have followed, previously noting that the prospect of more contentious landlord-tenant regulatory policies is likely to follow. ProPublica recently went in-depth on this phenomenon.

Take Me Out to the Ball Game!

The Weekly Update is pleased that America’s past time is back in swing following a slight delay due to a labor dispute. The Weekly Update loudly boos the decision to put in place a designated hitter for the National League. Our thoughts on that matter (and some others) echo those of the mythical Crash Davis here. FactRight’s favorite Minnesota Twins begin the new season with the 17^th best odds in the field to win their 3^rd World Series championship at +5000 at MGM’s sports book. We’ll check back in at the midsummer classic…Let’s Play Ball!

Bonds

Watermark Lodging Trust Announces Updated NAV per Share Increase of 14% from Previous Estimate

On March 28, Watermark Lodging Trust, Inc. (WLT, fka Carey Watermark Investors 2 Inc. (CWI 2)) reported a NAV per share of $6.29 as of December 31, 2021.  The previous NAV per share was $5.45 as of September 20, 2020.  Note the company previously delayed its NAV per share estimate as of December 31, 2019, due to extreme dislocation in the hospitality industry at the beginning of the COVID-19 pandemic. In assisting in forming an estimated NAV per share, WLT engaged CBRE to perform valuation related analysis of the company’s hospitality assets and Robert A. Stanger to perform analysis of the fair value of its property level debts.

WLT was formed from the merger of Carey Watermark Investors (CWI) and CWI 2 in April 2020. CWI 2 was the surviving entity of the merger. As part of the merger, the combined entity became internally managed following the buyout of its external manager, a subsidiary of W.P. Carey Inc. (NYSE:WPC), for 2.8 million shares of common stock of CWI 2 and 1.3 million preferred shares of CWI 2, with a liquidation preference of $50 per share. WLT owns a portfolio of 28 select-service, full-service, and luxury hotels and resorts.

CWI 2 common stock was originally offered at $10.00 per share in an offering declared effective in 2015. CWI common stock was originally offered at $10.00 per share in an offering declared effective in 2010.

For more information: CLICK HERE

Alternative Ramblings

To the Moon!

Real Capital Analytics reports that all four major property types (retail, office, multifamily, and industrial) posted double digit annual price growth as of February 2022. The following chart outlines the buoyancy across these sectors. Industrial and multifamily continued to lead the pack, with over 20% annual price growth. Suburban office continued to outpace core business district properties as lingering shifts in tenant preferences from the COVID-19 pandemic weigh on downtown locations. However, it is important to note that prices are rising on urban office assets following a brief decline. Retail prices expanded following declines at the beginning of the pandemic as well. How long the good times roll in CRE….is anyone’s guess.

Down Payment Assistance Program Launched by Single Family Rental Giant

Invitation Homes (NYSE: INVH) CEO Dallas Tanner outlined a new $250 million investment in Pathway Homes to assist prospective first time home buyers with purchasing a home in an interview with NAREIT’s REIT Report podcast. INVH is the lead investor in Pathway Homes and the Pathway Homes program features an initial lease with a purchase option for the tenant.  The program is aimed at facilitating smaller down payment or no down payment options for tenants that are looking to purchase their first home.  INVH has been a pioneer in the single-family rental market since launching in 2012 under the sponsorship of the Blackstone Group. This is the second Dallas based residential real estate firm (the other being Megatel) that we know of that is pioneering down payment assistance programs for prospective first-time home buyers. Mr. Tanner anticipates strong yet moderating leasing fundamentals across INVH’s SFR portfolio, and the market at large, in 2022, after noting that 2021 rent growth in the sector was unsustainable. INVH owns over 82,000 SFR properties and has a market capitalization of approximately $25 billion.

Thank you to all readers who came to our recent RIA Conference in Scottsdale, Arizona. It was great to see many familiar faces and new ones as well! Our next event will be in Nashville on August 24-26. Please reach out for additional information or if you’d like to attend.

BDCs

GWG Amends Credit Facility Terms

On February 25, 2022, a subsidiary of GWG Holdings, Inc. (NASDAQ: GWHG), announced that it had entered into an amendment of its loan and security agreement with LNV Corporation (a subsidiary of Beale Bank USA). The amendment notes that LNV Corporation, as a lender, will begin to directly finance maintenance advances to GWG DLP Funding IV, LLC, a wholly owned subsidiary of GWGH, which holds the life settlement assets of GWGH, in order to service scheduled premiums on pledged life insurance policies payable on May 1, 2022.

GWGH previously announced it was working on “restructuring alternatives” and “the process of identifying and considering various alternatives [may] take at least another three to four weeks [as of February 14], and may take longer.” GWGH missed a coupon payment on its outstanding L Bonds in January 2022, and its independent accounting firm, Grant Thornton LLP, declined to stand for reappointment for its 2021 annual report.

For more information: CLICK HERE

Kansas.com reports on former GWGH Chairman Brad Heppner’s Involvement with GWG with the headline “CEO accused of defrauding investors at past company.” Investment News picks up the story as well.

Here is a complaint from a lawsuit filed on February 18, 2022, which seeks class action status and names Brad Heppner, Tom Hicks, and other former and current GWGH board members and executives as defendants. The complaint alleges that Mr. Heppner and others schemed to funnel L Bond proceeds out of GWGH and into entities that they controlled.

REITs

HGR Liquidating Trust Completes Final Property Liquidation

On March 16, HGR Liquidating Trust (fka Hines Global REIT, Inc.) announced that it sold its last remaining property, a high-end shopping center in Edina, Minnesota, called the Galleria, for $150 million. HGR Liquidating Trust announced a special distribution of $0.62 per unit following the sale, which is anticipated to be paid in the last week of March.

HGR Liquidating Trust has distributed $9.47 of special distributions and $5.64 in regular operating distributions since inception. Following the special distribution, HGR Liquidating Trust’s NAV is $0.04 per unit. Shares were originally offered in the Hines Global REIT at $10.00 in an offering declared effective in 2009.

For more information: CLICK HERE

Smartstop Self Storage REIT, Inc. Suspends Distribution Reinvestment and Shareholder Redemption Plans Effective Immediately

On March 7, SmartStop announced the change “in connection with its process for reviewing alternatives in order to provide liquidity to its stockholders.” The share redemption plan was previously limited to hardship redemptions including death and disability.

For more information: CLICK HERE

Pacific Oak Strategic Opportunity REIT, Inc. Expands Share Redemption Funding

On March 10, Pacific Oak Strategic Opportunity REIT, Inc. announced an additional $3 million in funding for share redemptions. Share redemptions are limited to hardship including death, disability, and determination of incompetence. Pacific Oak previously redeemed $29.6 million shares of common stock in the first nine months of 2021. Approximately 13.9 million shares totaling $128 million in value had requested redemption and were not redeemed by the company as of September 30, 2021. Unfulfilled redemption requests represented 14.7% of total outstanding shares as of the end of the third quarter 2021.

For more information: CLICK HERE

Braemar Hotels & Resorts Inc. (NYSE: BHR) Reduces Quorum for 2022 Annual Shareholder Meeting

On March 17, Braemar Hotels and Resorts Inc. (BHR) announced that its board of directors by unanimous written consent reduced the quorum requirement in its bylaws for the 2022 annual meeting from a majority of shares entitled to cast votes to at least one-third of shares entitled to cast votes. BHR cited increased retail shareholders as the rationale for the amended bylaws, noting that retail brokers have adopted policies whereby they will not cast discretionary votes, including auditor ratification, in the absence of retail shareholder instruction.

BHR recently announced the $193 million closing of the Ritz-Carlton Reserve in Dorado, Puerto Rico, at a price of $1.8 million per key, inclusive of certain residential units within a rental program.

For more information: CLICK HERE

Cantor Fitzgerald Income Trust, Inc. Acquires $58 Million Cold Storage Facility

On March 16, Cantor Fitzgerald Income Trust announced the acquisition of the 465,256 square foot facility located in Columbus, Ohio. Cap rate information on the purchase was not disclosed.

For more information: CLICK HERE

Comrit Seeks to Appoint Director to the Board of New York City REIT, Inc.

On March 17, Comrit announced that it had nominated Sharon Stern to NYC REIT’s board of directors, noting that Ms. Stern’s appointment would “be a first step toward restoring investor confidence in NYC REIT and delivering credibility and accountability to this seemingly dysfunctional and insular boardroom.”

For more information: CLICK HERE

Preferred Apartment Communities (NYSE: APTS) Announces Expiration of “Go-Shop” Period Related to Blackstone Real Estate Income Trust Merger Agreement

On March 21, Preferred Apartment Communities (APTS) announced the expiration of its “go-shop” period following its previously announced merger agreement with Blackstone Real Estate Income Trust (BREIT), paving the way for a definitive proxy and the likely close of the merger. APTS’ preferred stockholders will receive a cash liquidation at the liquidation preference of $1,000 per share, plus any accrued and unpaid dividends. The deal is anticipated to close in the second quarter of 2022 subject to APTS’ shareholder approval. FactRight notes that pricing metrics on the transaction include a price/AFFO ratio of 25x based on annualized 2021 AFFO reported through the first three quarters of 2021, and an implied cap rate of approximately 5.4% based on annualized NOI through the first three quarters of 2021.

For more information: CLICK HERE

Alternative Ramblings

Fed Raises Interest Rates

The Federal Reserve raised the federal funds rate 25 bps to a target rate of 25 to 50 bps.  The increase is the first of six such interest rate increases anticipated over the coming years. Fed Chairman Jerome Powell recently noted that more aggressive rate hikes may be implemented if needed to combat higher inflation.

New York Fed Issues Reports Highlighting Leveraged Loan Fund Risks

The report entitled Monetary Policy and the Run Risk of Loan Funds highlights concerns regarding open-ended loan funds that invest in portfolios of leveraged loans. The risks center primarily on run risk (i.e., shareholder flows reversing out of funds amidst monetary policy shifts that make holding debt instruments less favorable). Of note the authors write:

“We find empirical evidence suggesting that loan funds, which are key credit providers in the leveraged lending market, are much more vulnerable to run risk than any other category of debt mutual funds.”

The report is an interesting and essential read for folks conducting due diligence in credit-oriented investment vehicles. We note that many of the loan funds noted in the NY Fed’s report trade daily and provide greater shareholder liquidity than many funds distributed through RIAs and IBDs, which feature less shareholder liquidity. The increased shareholder liquidity, and attendant mismatch in portfolio asset liquidity, is at the crux of the fund flow dynamic that may pressure asset prices in the sector.

Guggenheim CIO Scott Minerd Suggests Proper Time Frame to Evaluate Current Inflation is Post-WWII 1946-1948 and Not 1970s

The always thoughtful Scott Minerd has some insight regarding the current inflationary environment we find ourselves in and notes that the Post-WWII era may be a strong historical marker for guidance on the present.  Mr. Minerd notes the M2 changes acutely mirror the post-WWII era situation better than previous inflationary periods in the 1970s-1980s and that the inflation in the prior period proved transitory.

Similarly, savings rates climbed in the post-WWII period as we have recently experienced in the COVID-19 pandemic:

Digital Currency Group Announces $250 Million Repurchase Programs for Grayscale Litecoin Trust (OTCQX: LTCN), Grayscale Horizen Trust (OTCQX: HZEN), Grayscale Zcash Trust (OTCQX: ZCSH) and Grayscale Bitcoin Trust (OTCQX: GBTC) and Other Sponsored Trusts.

Digital Currency Group, the sponsor of the respective publicly traded trusts, announced repurchase programs for up to $30 million of Grayscale Litecoin Trust, $10 million of Grayscale Horizen Trust, $10 million of Grayscale Zcash Trust, and up to $200 million of Grayscale Bitcoin Trust and other digital currency trusts, the largest public holder of bitcoins in the world. As the following chart depicts, GBTC has traded at persistent discounts to its NAV per share since 2019.

BDCs

Sierra Income Corporation Completes Merger with Barings BDC, Inc. (NYSE: BBDC)

The close of the merger marks the end of a long liquidity process for Sierra Income Corporation (SIC) that began in 2018 with a proposed series of transactions involving its publicly traded external management Medley Management Inc. (formerly NYSE: MDLY) and a publicly-traded BDC Medley Capital Corporation (NYSE: MCC), which was also externally advised by MDLY. Institutional Investor has chronicled the aborted three-entity merger here.

BBDC is externally managed by Barings LLC (Barings), a subsidiary of MassMutual. SIC shareholders received a package of consideration including cash ($0.9784) and stock (0.44973 shares of BBDC common stock) totaling $5.85 per SIC share, which represents a premium of 10.0% to SIC’s then current net asset value per share of $5.32 as of September 39, 2021. SIC’s offering was declared effective in April 2012. Shares were originally priced at $10.00.

BBDC previously announced that it would provide $100 million in credit support related to unrealized and realized losses on the SIC portfolio over the next ten years. Additionally, BBDC will provide up to $30 million in secondary market support via share repurchases over the next 12-months, if its trading price declines below certain levels in relation to NAV. BBDC currently trades at approximately a 4% discount to its most recent NAV per share of $11.36. Two unnamed, current independent directors of SIC will also join the board of directors of BBDC following the close of the merger. The merger is subject to approval by stockholders of both SIC and BBDC.

MCC subsequently became internally managed on January 1, 2021, after its board of directors’ decision to allow the investment management and administration agreements with subsidiaries of MDLY to expire on December 31, 2020. This internalization coincided with MCC’s name change to PhenixFin Corp.

Following the loss of the investment management agreement with MCC, SIC’s decision to explore strategic alternatives, amendments including fee waivers payable to MDLY, a flurry of material litigation against MDLY and the respective boards of MCC and SIC, and the resignations of the Taube brothers who founded MDLY, MDLY subsequently filed for bankruptcy and wound down operations in mid-2021.

This marks the end of a near decade-long winding road of substandard returns for investors in SIC.

For more information: CLICK HERE

REITs

Corporate Property Associates 18 – Global Incorporated (CPA 18) Announces Affiliated Merger with W.P. Carey Inc. (NYSE: WPC) in a $2.7 billion Transaction.

On February 28, CPA 18 reported that a special committee of its board of directors approved the definitive merger agreement, which was then unanimously approved by the board of directors. CPA 18 shareholders will receive merger consideration of $3.00 per share in cash and 0.0978 shares of WPC common stock. This merger consideration is $10.45 per share based on WPC’s reported 3-day volume weighted average price of $76.17 as of February 25, 2022. The merger with publicly-traded WPC, which also owns CPA 18’s external advisor, will provide CPA 18 shareholders with liquidity on their investment, as no lock-up period is attached to CPA 18 shareholders following the close of the merger and their receipt of WPC common stock.

WPC’s most recent quarterly cash dividend was $1.055 per share, which based on the equity consideration to be received by CPA 18 shareholders, would equate to a $0.41 per share annualized distribution for CPA shareholders. This dividend is 65% greater than CPA 18’s current $0.25 per share annualized distribution.

CPA 18 was initially declared effective in May 2013 and raised $1.2 billion in equity proceeds in its initial public offering, which closed in April 2015, and an additional $283 million was raised through its distribution reinvestment plan. CPA 18’s board of directors reported that it received an unsolicited proposal for a business combination from affiliates of its external advisor in August 2021, and that it would consider liquidity alternatives for CPA 18 shareholders.

CPA 18 owns 127 properties, including student housing, office, retail, self-storage and hospitality properties located in the U.S., Europe, and a 266-room resort hotel property in Mauritius. WPC’s proforma portfolio would be comprised of over 1,300 properties, and is anticipated to have a market capitalization of approximately $15.8 billion, making it one of the 25 largest publicly traded REITs by market capitalization.

WPC listed its common stock on the NYSE in 2012 and closed mergers with affiliated REITs CPA 15 (October 2021), CPA 16 (January 2014), and CPA 17 (October 2018). The definitive merger agreement is conditioned on CPA 18 common stockholder approval. A definitive proxy is forthcoming, and the merger is anticipated to close in the third quarter of 2022.

For more information: CLICK HERE and CLICK HERE

Alternative Ramblings

Healthcare REITs Merge Together in $17.6 Billion Transaction

Healthcare Realty Trust (NYSE: HR) and Healthcare Trust of America (NYSE: HTA) have entered into a merger agreement that would create one of the largest medical office REITs with 727 properties totaling 44 million square feet. HR will be the surviving entity of the merger with its executive team remaining intact and a majority of its board of directors serving on the combined board of directors. HR stock sold off approximately 8% in the trading day following the news of the merger agreement. HR shareholders will own a 39% stake in the combined entity with the remaining share held by current HTA investors. Elliot Investment Management had previously written to HTA, in October 2021, urging it to explore strategic options to unlock shareholder value.

Oil Prices Crest $100 per Barrel on Geopolitical Risk Spike

The Russian invasion of the Ukraine has sent oil prices up to heights not breached since 2014. Reuters reports that the expulsion of a number of Russian banks from SWIFT may disrupt or halt oil and commodity production out of Russia “for days if not weeks”. The increasing price of crude will likely bring back producers into the oil patch in other geographies. The Baker Hughes Rig Count notes 650 rigs active in the U.S. as of February 25, 2022, compared to 402 in the same week in 2021. For broader context, the rig count reached 1,931 in September 2015. The following chart highlights the U.S. rig count with WTI Crude prices through February 24, 2022.

REITs

Preferred Apartment Communities (NYSE: APTS) Announces Sale to Blackstone Real Estate Income Trust

On February 16, Preferred Apartment Communities (APTS) and Blackstone Real Estate Trust (BREIT) announced that they had struck a definitive agreement in which BREIT will acquire all of the outstanding common shares of APTS for $25.00 per share in an all-cash transaction. The price tag for the deal is approximately $5.4 billion, including assumption and repayment of certain debts, inclusive of $1.4 billion in payments to equity holders. APTS’ portfolio is comprised of 44 multifamily properties, 54 grocery-anchored centers, 2 office properties and 10 mezzanine and preferred equity investments in apartments under development. Pricing metrics on the transaction include a price/AFFO ratio of 25x based and an implied cap rate of approximately 5.4% based on annualized 2021 NOI and AFFO reported through the first three quarters of 2021. The consideration marks a premium of 39% over the closing price of APTS’ common stock as of February 9following a Bloomberg article noting that a deal for the REIT was being contemplated by its board of directors.

APTS’ preferred stockholders will receive a cash liquidation at the liquidation preference of $1,000 per share, plus any accrued and unpaid dividends. The deal is anticipated to close in the second quarter of 2022 subject to APTS shareholder approval.

For more information: CLICK HERE

CIM Real Estate Finance Trust Completes $1.32 Billion Portfolio Sale to American Finance Trust, Inc. (NASDAQ: AFIN)

On February 14, 2022, CIM Real Estate Finance Trust closed the sale of 79 shopping centers to AFIN. We previously reported on this deal here. Following the sale. CIM REFT announced that it would repay approximately $348 million in outstanding debts and redeploy the net proceeds from the sale into senior secured loans and credit leases.

For more information: CLICK HERE

Vinebrook Homes Trust, Inc.

On February 14, 2022, Vinebrook announced that it had completed the acquisition of a portfolio of approximately 3,000 single-family rental homes located across eight states including Georgia, Tennessee, Missouri, Florida, North Carolina, South Carolina, and Mississippi. Vinebrook acquired the portfolio for $354.2 million, excluding closing costs. Vinebrook also completed the acquisition of the managing company of the portfolio in a separate $7.5 million transaction. Pricing multiples on the respective transactions were not disclosed.

For more information: CLICK HERE

Bonds

GWG Holdings Press Release

On February 14, 2022, GWG Holdings, Inc. (GWGH) noted in a press release that it was working with legal and financial advisors on certain “restructuring alternatives” and “the process of identifying and considering various alternatives [may] take at least another three to four weeks, and may take longer.”

Additionally, GWGH noted that coupon payments on the L Bonds and preferred distributions on the Redeemable Preferred Stock would remain suspended and that missed payments continue to accrue.  GWG further reported that “We will inform you if and when we are able to restart these cash payments in the future.”

GWGH missed a coupon payment on its outstanding L Bonds in January 2022, and its independent accounting firm, Grant Thornton LLP, declined to stand for reappointment for its 2021 annual report.

For additional information: CLICK HERE

Alternative Ramblings

Hines Appoints Laura Hines-Pierce to Serve as Co-CEO Alongside Her Father Jeff Hines

Ms. Hines-Pierce’s appointment marks the third generation of Hines family members leading the international developer. Bloomberg has further details on the appointment available here.

Hines announced in December 2021 that it had reached an agreement for the redevelopment of the PG&E campus in downtown San Francisco, which is anticipated to feature more than 800 multifamily units and comprise the second tallest tower in the city.

Accounting Firm and Golf Legend Phil Mickelson Agree to Part Ways

Accountants walking away from an engagement is always a red flag. KPMG recently announced that they and Lefty agreed to mutually terminate their sponsorship of the golfer in the wake of his colorful description of the Saudi government. The reigning PGA Championship winner subsequently apologized for his uncouth remarks. Perhaps Mr. Mickelson will approach Aramco’s accountants PwC as a potential new sponsor?

Smarter Than Your Average Bear

“Hank the Tank,” a black bear that has lost its fear of humans, has graduated from snatching “pic-a-nic” baskets as his ursine endeavors have expanded to ransacking houses across South Lake Tahoe. Hank is large and at large and wanted by the authorities…so naturally, a petition has been launched to spare his life.

Interval Funds

Griffin Institutional Access Credit Fund Files Preliminary Proxy Statement Regarding Upcoming Shareholder Vote to Approve Advisory Agreement with Apollo Global Management, Inc.

On January 28, 2022, the interval fund in a preliminary proxy outlined the transition from the sub-advisory agreement with BCSF Advisors, LP, to a subsidiary of Apollo Global Management, Inc. Per the preliminary proxy statement, the anticipated advisory and sub-advisory agreements will not have increased fees from the current advisory and sub-advisory agreements, and there are not anticipated to be any material differences between the current and anticipated agreements. A definitive proxy statement and special meeting of shareholders is anticipated in the coming months. Shareholders will vote to approve the new advisory agreements as required by the 1940 Act.

For more information: CLICK HERE

REITs

Presidio Property Trust Inc. Closes SPAC Offering

On February 7, 2022, Presidio Property Trust (NSADAQ: SQFT) announced the successful completion of the initial public offering of Murphy Canyon Acquisition Corp., a special purpose acquisition company sponsored by the REIT. Murphy Canyon sold $132.3 million in units (at $10.00 per unit). Each unit includes one share of Class A common stock and one redeemable warrant to purchase one share of common stock at a price of $11.50 per share. The units are listed on NASDAQ under the ticker symbol MURFU and will begin trading separately from the company’s common stock in the future.

Murphy Canyon was formed to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. The special purpose acquisition company (SPAC) intends to focus on companies in the real estate industry and may include construction, homebuilding, real estate owners and operators, financing companies, insurance, and other real estate services and technology companies.

For more information: CLICK HERE

NAREIT went in depth on the prospects of Real Estate Related SPAC Deals in February 2021. We note that the SPAC structure may provide for some interesting liquidity options for legacy public non-traded and private real estate funds in the IBD/RIA channel. Of note, Simon Property Group organized a SPAC deal, Simon Property Group Acquisition Holdings, Inc. (NYSE: SPGS), in February 2021, raising $345 million in proceeds. To date, Simon’s SPAC has not closed on an acquisition target, though Citigroup recently purchased a 1.16% stake in the SPAC in late January 2022.

Pacific Oak Strategic Opportunity REIT, Inc. Updates NAV and Temporarily Suspends Redemption Program

On January 28, 2022, the REIT (Pac Oak SOR) announced an estimated NAV per share of $9.51. This reflects a reduction from the previously estimated NAV per share of $10.68 as of September 30, 2021, less a special dividend of $1.17 that was approved on December 28, 2021.

Pac Oak SOR further reported that on January 26, 2022, its board of directors approved the temporary suspension of its share redemption program for the month of January 2022 with redemptions anticipated to resume at the end of February 2022. The temporary suspension is to “allow stockholders an opportunity to review the updated estimated value per share.”

According to Pac Oak SOR’s third quarter report, During the first three quarters of 2021, the REIT had redeemed $29.6 million of common stock under its redemption plan, and had 13.9 million shares totaling $128.0 million that were validly tendered for redemption that had gone unredeemed due to limitations of its current share redemption program. Outstanding redemption requests represent approximately 15% of total outstanding common stock. The company previously announced it would redeem an additional $3.2 million of common stock in the fourth quarter of 2021.

Pac Oak SOR also reported that on September 1, 2021, it redeemed 584,267 shares of restricted stock for $5.7 million in cash ($9.68 per share). The restricted stock was part of a total of 3.4 million shares of common stock issued to KBS Holdings LLC as consideration for the internalization of Pac Oak SOR’s former external advisor, KBS Capital Advisors LLC.

For more information: CLICK HERE

Alternative Ramblings

SEC to Vote on Proposals to Require Quarterly Reporting for Private Equity and Hedge Funds

The Financial Times reports:

“Wall Street’s top regulator is seeking to compel hedge funds and private equity groups to disclose quarterly performance and fees charged to investors, as the agency pushes back against activities it warned were “contrary to the public interest”. The Securities and Exchange Commission on Wednesday will vote on a string of proposals that would require annual audits of private funds, ban certain fees that buyout shops charge as well as prohibit preferential terms for certain investors.”

If the SEC Commissioners approve the proposal, it will go to a public commentary period prior to implementation.

This follows previous action in January 2022 by the SEC Commissioners, also subject to a public comment period, to force more current reporting of material events at private funds as well.

“The proposed amendments would require current reporting for large hedge fund advisers and advisers to private equity funds. These advisers would file reports within one business day of events that indicate significant stress at a fund that could harm investors or signal risk in the broader financial system.”

The anesthetizing light of transparency is seemingly shining a little brighter….

ProPublica Explores the Rising Trend of Private Equity Landlords

ProPublica dove deep into tenant relations with the rising trend of private equity firms acquiring multifamily properties across the United States. ProPublica notes that of the 35 largest multifamily owners in the U.S., approximately half are now private equity firms, compared to approximately one-third in 2011. In 2015, for the first time, individual landlords reportedly owned less than 50% of apartment units, with that number declining to 41% in 2018, coinciding with the rise of private equity landlords and further consolidation in the market. The article notes that the attractive multifamily financing provided by Freddie Mac was favored by the private equity firms, noting that approximately 85% of its largest multifamily financings had private equity sponsors including Greystar, Lone Star, Starwood Capital, Brookfield, Harbor Group International, and Kayne Anderson, among others. Tenant relations were a key focus of the article, noting multiple accounts of rapidly escalating rents, reduced services, and unresponsive landlords. Given the increased consolidation, this has stoked fears among some of further special interest influence on landlord-tenant relations and zoning decisions.

This article is prescient given the lag in development of additional housing units to keep up with demand in many major markets across the country and the continued significant capital raising of multiple private equity firms both in public and private investment vehicles. One imagines that the issues identified in the article will only continue to metastasize as further consolidation in the residential rental market occurs. Landlord-tenant relations have always been contentious. However, it’s one thing when your landlord is Mr. and Mrs. Jones across town and a completely different dynamic when your landlord is a so-called master of the universe that cut its teeth Barbarians at the Gate-style. The increasing presence of Wall Street stalwarts into the picture may further politicize and shift dynamics towards more accommodative tenant provisions and rent controls. Green Street’s sector outlook on single family rentals (SFR) echoes potentially increasing risks related to more expansive rental regulations on the horizon as well. Voters in St. Paul, Minnesota recently enacted the strictest rent control provision in the country according to experts, that puts in place caps on rental increases and does not allow for market price resets upon vacancies. One might expect that this narrative would stem from a decrease in homeownership rates in the U.S. However, as the red line in the following chart from FRED highlights, that is not the case since a multi-decade low in 2015-2016.

REITs

Resource REIT, Inc. to be Acquired by Blackstone at a 63% Premium to Estimated NAV per Share

On January 23, 2022, the company announced that its board of directors had approved a merger transaction with and into a subsidiary of Blackstone Real Estate Income Trust, Inc. Pursuant to the merger agreement, each share of Resource REIT stock will be canceled and converted into a right to receive $14.75 in cash. Resource REIT’s most recent estimated NAV per share was $9.06. Resource REIT, formerly known as Resource Real Estate Opportunity REIT II, Inc., was formed from stock-for-stock mergers with Resource Real Estate Opportunity REIT, Inc. and Resource Apartment REIT III, Inc. which closed in January 2021. Resource REIT internalized its external advisor in September 2020 for total consideration of $156 million, consisting of a combination of OP Units and cash. Resource REIT reported total assets of $2.4 billion as of September 2021, comprised of 42 apartment communities featuring 12,600 units located across 13 sunbelt states. The all-cash deal is valued at $3.7 billion. The merger is conditioned upon the approval of a majority of Resource REIT shareholders. Resource REIT also announced that it had entered into certain employee retention/transaction bonus plan arrangements with certain executive officers, including CEO Alan Feldman, CFO Thomas Elliott, CIO Marshall Hayes and chief legal officer Shelle Weisbam, who will receive respectively $2.45 million, $1.5 million, $1.5 million and $0.75 million, to retain these executives until the completion of the merger.

This marks the second transaction in a month in which Blackstone affiliates have purchased a public REIT with multifamily assets following the announced deal with Bluerock Residential Growth REIT (NYSE: BRG), which we reported on here.

For more information: CLICK HERE

Alternative Ramblings

United Development Funding Executives Convicted of All Counts by Jury

CEO Hollis Greenlaw, CFO Cara Obert, president Benjamin Wissink, and director of asset management Jeffrey Jester were each found guilty of all ten charges, including securities fraud, wire fraud and conspiracy, in a five day criminal trial that concluded on January 21, 2022, following approximately 12 hours of jury deliberation. We reported on the charges filed in October 2021, here. Each could face prison terms of up to 25 years. Each of the convicted executives plan on appealing the conviction.

Following the convictions, UDF IV announced the resignation of Hollis Greenlaw as a trustee and CEO, and the appointment of Jim Kenney to serve as acting chief executive officer, and Stacy Dwyer as acting CFO. Larry Jones was subsequently elected to the UDF V board of trustees. Mr. Jones was already an independent trustee of UDF IV and will serve as chairman of both trusts. Mr. Greenlaw resigned as a trustee of both UDF IV and UDF V following the convictions.

Bonds

GWG Holdings, Inc. (NASDAQ: GWGH) Reports that it Failed to Pay the January 15 Interest and Principal Payments on L Bonds, Seeks to Engage Restructuring Advisor, and Anticipates Delay in Filing its 2021 Annual Report

On January 18, 2022, GWGH reported that it failed to make $10.35 million interest and $3.25 million of principal maturity payments on its L Bonds as of January 15, 2022. The company has a 30-day grace period to make the missed interest and principal payments. If GWGH fails to cure during this period, the holders of at least 25% of the outstanding principal balance of the L Bonds may elect to accelerate the L Bonds to make them immediately due and payable. Payment of principal and interest on the L Bonds is subordinated to outstanding senior debt.

FactRight notes that tangible assets on the company’s balance sheet included the reported fair value of life insurance policies, including policy benefits receivable, of approximately $794.7 million as of its third quarter report. Cash and restricted cash of $67.7 million, and investments in alternative assets of $226.1 million. Total outstanding senior credit facilities were approximately $327.7 million and L Bonds outstanding totaled $1.552 billion. As one can surmise, total outstanding debts significantly exceed reported values of tangible assets on the company’s balance sheet.

GWGH also reported that it suspended its L Bond sales effective January 10, 2022, and that it would pay dividends on both classes of its outstanding redeemable preferred stock in additional shares of preferred stock as opposed to cash dividend payments.

The company also noted that its board of directors authorized management to retain restructuring advisors, anticipated to be FTI Consulting, Inc. and Mayer Brown LLP, to assist GWGH in “evaluating alternatives with respect to [The company’s] capital structure and liquidity.”

Last week Grant Thornton LLP reported that it would decline to stand for reappointment as the company’s independent registered public accounting firm. We reported on this here, noting that this was the second time in a span of approximately three years that the company’s independent auditors had declined to stand for reappointment. Additionally, GWGH’s 2020 annual report also disclosed that the company is under a non-public, fact-finding investigation by the SEC. We also previously reported on the significant turnover on GWG’s board of directors in 2021 here.

For more information: CLICK HERE

REITs

Braemar Hotels & Resorts Inc. (NYSE: BHR), Ashford Hospitality Trust, Inc. (NYSE: AHT), and Ashford, Inc. (NYSE: AINC) Announce Termination of SEC Investigation

On January 18, 2022, the publicly traded REITs, and their publicly traded external advisor, each reported that they had received a letter from the SEC stating that “the SEC’s investigation is concluded, and that the SEC enforcement staff does not intend to recommend any action by the SEC against BHR, AHT, and AINC.

BHR, AHT, and AINC previously reported that in June 2020, each of the companies received an administrative subpoena from the SEC for documents dating back to January 2018, regarding certain related party transactions between the entities, and the accounting policies related to such transactions.

For more information: CLICK HERE, CLICK HERE, and CLICK HERE

Alternative Ramblings

REIT M&A Activity Hits $99 Billion in 2021 Highest Level Since 2006

This marks the highest total in REIT M&A since 2006 when approximately $105 billion in deals were announced, according to data from S&P Global Market Intelligence. Categorized by deal type, the 2021 transactions included $61 billion in public REITs acquiring other public REITs, $34 billion in privatization transactions in which a public REIT was acquired by a private entity, and approximately $4 billion in a public REIT acquiring a non-traded REIT (Independence Realty Trust’s acquisition of Steadfast Apartment REIT, which we reported on here). The largest reported deal was Realty income Corp.’s (NYSE: O) acquisition of VEREIT, Inc. (formerly NYSE: VER).

Data centers were the single largest sector that consolidated during 2021, including three data center deals priced at over $10 billion each. These included the acquisitions of CoreSite Realty Corp. (formerly NYSE: COR) by American Tower Group (NYSE: AMT), CyrusOne Inc. (formerly NASDAQ: CONE) by Global Infrastructure Partners LP and KKR & Co. Inc. (NYSE: KKR), and The Blackstone Group Inc.’s (NYSE: BX) acquisition of QTS Realty Trust Inc. (formerly NYSE: QTS).

The following chart highlights deal activity by quarter dating back to 2016. As the chart indicates 2021 was briskly paced after a muted 2020 due to COVID-19 uncertainties.

S&P Capital Markets reports that multiple analysts, including John Kim of BMO Capital Markets and portfolio manager Steve Buller at Fidelity Investments, anticipate continued deal activity to remain elevated in 2022, citing the low costs of debt and equity capital, and, as Mr. Buller noted, “fairly good” real estate fundamentals.

Publicly Traded REIT Premiums to Consensus Estimated NAVs Highest in Years: Opportunity for Greater Liquidity On Legacy Non-Traded REITs?

FactRight notes that REITs trading at a premium to consensus estimated NAVs (as highlighted by the chart below), following the initial steep declines following the uncertainties and market dislocation following the COVID-19 pandemic’s outbreak in 2020, have generally led to some of the most robust REIT pricing seen in many years on publicly traded REIT equities. These accommodating market conditions, in addition to the low costs of debt and equity capital, provide a strong backdrop for liquidity events on multiple legacy non-traded REITs. However, disfavored external advisory agreements, common to many non-traded REITs, will likely temper loftier valuations of prospective listings in contrast to the more favored internally managed structure more commonly found in the publicly traded REITs.

Mike Weil Talks Retail Real Estate Market Conditions with NAREIT

Mike Weil, the CEO of American Finance Trust, Inc. (NASDAQ: AFIN, soon to be renamed The Necessity REIT, Inc. (NASDAQ: RTL), joins the NAREIT Podcast to talk about his book and retail market conditions and AFIN’s recently announced acquisition of $1.3 billion in shopping center assets from CIM Real Estate Finance Trust, Inc., which we reported on here.

Bonds

GWG Holdings, Inc. Reports Auditor Will Not Stand for Reappointment in 2022

On January 6, 2022, GWG Holdings, Inc. (NASDAQ: GWGH) reported that Grant Thornton LLP, the independent accounting firm that performed the audit of GWGH’s 2020 annual report (filed after delay in November 2021), notified GWGH that it will not stand for reappointment as the company’s independent registered public accounting firm. The current report notes that there were no disagreements between GWGH and Grant Thornton from December 31, 2020, and January 6, 2022, related to accounting principles or practices, financial statement disclosure or auditing scope or procedure. Grant Thornton’s audit opinion of GWGH’s annual report for the year ending 2020 did not contain an adverse opinion, disclaimer of opinion, or qualified opinion. Two material weaknesses were identified in the 2020 annual report over internal financial controls related to accounting policies and disclosures.

FactRight notes that Whitley Penn LLP was the independent registered public accountant for GWGH’s 2019 annual report. Whitley Penn was replaced by GWGH’s audit committee in September 2020. The 2018 and 2017 annual reports were audited by Baker Tilly Virchow Krause, LLP. Baker Tilly declined to stand for reappointment for fiscal year 2019. FactRight notes that multiple auditors declining reappointment in the span of a few years is highly unusual.

GWGH’s 2020 annual report also discloses that GWGH is under a “non-public, fact-finding investigation into the Company by the SEC, and we are unable to predict the outcome of this matter.” GWG disclosed in its 2020 annual report that:

“On October 6, 2020, GWG Holdings received a subpoena to produce documents from the Chicago office of the SEC’s Division of Enforcement, informing the Company of the existence of a non-public, fact-finding investigation into GWG Holdings. Since the initial subpoena, the Company has received subsequent subpoenas from the SEC for additional information. The requested information from the SEC has primarily related to GWG Holdings’ investment products, including its L Bonds, as well as various accounting matters, among them, the consolidation for financial reporting purposes of Beneficient by GWG Holdings, goodwill valuation, and the accounting related to the ExAlt Trusts, related party transactions, life insurance policies, and the calculation of the debt-coverage ratio. We are cooperating fully with the SEC in connection with its investigation. Investigations of this nature are inherently uncertain, and their results cannot be predicted. Regardless of the outcome, the SEC investigation may have an adverse impact on us because of fines, legal costs, other expenses, diversion of management resources, and other factors. The investigation could also result in reputational harm to the Company and may have a material adverse effect on the Company’s current and future business activities and its ability to raise capital through the sale of L Bonds and equity securities. As a result, the failure to raise enough capital to meet our cash needs could have a material adverse effect on our operations and the value of our securities.”

For more information: CLICK HERE

BDCs

Apollo Launches Non-Traded BDC Apollo Debt Solutions BDC

On January 7, 2022, the BDC broke escrow with approximately $657 million in equity proceeds from its continuous offering. The perpetual life BDC is sponsored by affiliates of Apollo (NYSE: APO). The BDC focuses on senior secured large corporate direct originations, broadly syndicated loans, and with a secondary focus on middle market direct lending. The BDC reported that Apollo and its employees, including executive officers, owned approximately $3 million in interests in the BDC as of January 7, 2021.

Apollo has been actively building greater inroads into the independent broker-dealer and RIA channel in the past two months, with the previously announced acquisition of Griffin Capital, which we reported on here. In addition, Apollo led a $225 million round of investment into alternative investment platform CAIS as reported by the Wall Street Journal on January 11, 2021. Franklin Templeton and Motive Partners are also reportedly participating in the investment alongside Apollo. The investment by Apollo into CAIS values CAIS at more than $1 billion. CAIS, founded in 2009, is an alternative investment platform that provides access and education to financial advisors on alternative investments including hedge funds, private equity, real estate, and structured notes. CAIS founder and chief executive officer Matt Brown noted that “clients of independent advisers have 1% to 2% of their portfolios allocated to alternative assets, compared with 15% or greater for big banks’ private wealth clients and 30% to 40% for institutional investors such as pension funds.

For more information: CLICK HERE

Interval Funds

Cantor Fitzgerald Files Registration Statement for Sustainable Infrastructure Fund

The registration statement, filed on January 6, 2022, for the Cantor Fitzgerald Sustainable Infrastructure Fund notes the interval fund will be advised by Cantor Fitzgerald Investment Advisors, L.P. and sub-advised by Capital Innovations, LLC, which was founded in 2007 and “has advised, managed, or co-sponsored investment programs encompassing over $9 billion in assets.” Susan Dambekaln and Michael Underhill are co-founders and serve as portfolio managers of Capital Innovations.

The Fund will seek to invest according to “Megatrends” including enhancement of aging infrastructure, decarbonization trends, and digital transformation of communications infrastructure. Infrastructure assets may include assets involved in electricity generation, transmission and distribution, gas transportation and distribution systems, water distribution, waste-water collection and processing, transportation assets including toll roads, airports, seaports and railway assets, renewable power generation, and communication assets including wireless towers, fiber, data centers, distributed network systems and satellite networks.

The Fund anticipates a mixture of between 50-95% of investments in private funds and 5-50% in publicly-traded securities, which may include ETFs, closed-end funds, REITs, ABS, direct or indirect ownership of common and preferred stock of individual companies, and corporate and municipal debt securities.

For more information: CLICK HERE

REITs

Braemar Hotels & Resorts Inc. (NYSE: BHR) Announces Increased RevPAR in the Fourth Quarter

On January 6, 2022, the Dallas-based REIT announced that RevPAR in the fourth quarter was up 163% compared to the fourth quarter in 2020 and approximately 7% higher than in the (pre-pandemic) fourth quarter of 2019.

HGR Liquidating Trust (fka Hines Global REIT, Inc.)

On January 10, 2022, HGR Liquidating Trust provided an operational update reporting that it had sold three additional properties for an aggregate sale price of $216 million. The board of trustees further announced that it declared a special distribution of $0.60 per unit to be paid on or around January 14. Inclusive of the January 2022 special distribution, the company will have paid special distributions of $8.85 per unit. Shares were originally offered in the Company at $10.00 in an offering declared effective in 2009. Regular operating distributions from 2009 through 2018, when shareholders approved the company’s liquidation, totaled $5.64. Following the January 2022 special distribution, the board determined that the estimated value per unit is $0.69, based on the net asset value of $2.09 reported in 2019, reduced for subsequent special distributions.

The company noted that it had one remaining property, which it expects to sell and make a final liquidating distribution “in the coming months.”

For more information: CLICK HERE

Alternative Ramblings

Inflation Highest in Nearly 40 Years – Real Returns Turn Negative on New Issuances of High Yield Debt

Inflation crested 7% in December 2021, marking three straight months over 6%, according to the Bureau of Labor Statistics (with further context in this WSJ article). The following chart highlights the core CPI change over 12 months, including the inflation gauge less food and energy inputs. I personally use ribeye prices as my inflation index of choice, and in my non-scientific guesstimate based on recollections of purchases, I believe we’re up approximately 40% from the sepia-toned pre-COVID years. US Department of Agriculture data highlights that choice beef values per pound have increased from $5.70 in the first quarter of 2019 to $7.47 at year-end 2021, for an increase of 31%– so I’m not too far off. I prefer prime, but with current price trajectories on Angus, perhaps I should brush up on some pork recipes.

S&P Global Market Intelligence reported that average yields on primary issuance of high yield bonds and leveraged loans in the six months ending October 2021 was 5.26%, a step up from a record low yield of 4.38% in July, begging the question what is “high” in these high yield issuances. Net of recent inflation marks, the real yield has dipped to negative territory on the paper, and for many other income-oriented investment vehicles, including REITs for that matter. The following chart from Leveraged Commentary & Data highlights the decreasing primary issuance yields on high yield bonds since 2007.

New Year New Kind of Dividend

Microcap company BTCS, Inc. (NASDAQ: BTCS) announced that it would begin offering a dividend to its shareholders payable in Bitcoin. BTCS is “a blockchain technology focused company.” That holds certain digital assets including Bitcoin, Ethereum, and various other cryptocurrencies. Investors will need to have a Bitcoin wallet to receive the Bitcoin distribution from BTCS as the traditional DTC transfer agent arrangement will not facilitate payment of such a distribution. The bitcoin distribution is anticipated to be $.05 per share.

BDCs

Business Development Corporation of America Changes Name to Franklin BSP Lending Corporation

On January 4, 2022, the board of directors approved the name change effective January 1, 2022. The Company is externally advised by Benefit Street Partners. In 2019, Franklin Resources, Inc. and Templeton International, Inc. (Franklin Templeton) acquired Benefit Street Partners.

Chief executive officer Richard Byrne noted, “We think [the name change] will better align our brand with both Franklin Templeton and Benefit Street Partners, and best position us for future growth.”

FactRight notes the company’s reported NAV per share was $7.46 as of September 30, 2021, which marks an increase from the nadir of $6.47 as of March 31, 2021, during the broader market selloff at the beginning of the COVID-19 pandemic. The current NAV is off approximately 25% from the original offering price of $10.00 per share in 2011.

For more information: CLICK HERE

Sierra Income Corporation Terminates Advisory Agreement in Anticipation of Merger with Barings BDC, Inc. (NYSE: BBDC)

On December 30, 2021, Sierra Income Corporation reported that its board of directors approved the termination of the investment advisory agreement with SIC Advisors and the administration agreement with Medley Capital LLC, effective February 22, 2022, or the effective time of the merger of the company and Barings BDC, Inc.

The merger was previously announced on September 21, 2021. The company’s stockholders will receive 0.44973 shares of BBDC common stock per share of Sierra Income Corporation common stock they hold, as well as $0.98 per share in cash at the closing.  This was priced at $5.82 in total consideration based on BBDC’s closing price of $10.63 on September 20, 2021, and $5.95 per share based on the January 4, 2022, closing price. This marks a premium of 6.1% and 9.6%, respectively, to Sierra’s reported NAV per share as of the time of the deal announcement.

The merger is still subject to Sierra stockholder approval. The company reported that if for any reason the merger does not close, the board of directors anticipates considering alternatives, including the appointment of a new advisor, another merger transaction, or a liquidation of the company’s assets. If the merger is not completed due to a failure of the company’s shareholders to approve the merger, the company may be obligated to pay termination fees of $11.0 million.

For more information: CLICK HERE

REITs

Lightstone Value Plus REIT V, Inc. Announces Sale of Student Housing Property

On December 27, 2021, Lightstone Value Plus REIT V, Inc. (Lightstone V, fka Behringer Harvard Opportunity REIT II, Inc.) announced the sale of two off-campus student housing properties near the University of Georgia campus for $77.3 million. Lightstone V reported net proceeds of $45.1 million following the repayment of a mortgage secured to the properties, the buyout of a 15% JV partner in the properties, and closing costs. The properties were originally acquired in 2011 for $32.8 million with mortgage loans of $25.2 million. Not a bad bit of business there.

For more information: CLICK HERE

REITs

Bluerock Residential Growth REIT (NYSE: BRG) to be acquired by Blackstone Real Estate and Spin-Off Single-Family Rental Assets

On December 20, 2021, Bluerock Residential Growth REIT, Inc., announced that it reached an agreement with Blackstone Real Estate, which will acquire all of the outstanding shares of BRG common stock for $24.25 per share in a transaction valued at $3.6 billion including the assumption of debts. Prior to the close of the BRG transaction, BRG will spin off its single-family rental business through the taxable distribution of shares of common stock of a newly formed REIT named Bluerock Homes Trust, Inc. (BHT). BHT will be an externally managed REIT that will be managed by an affiliate of Bluerock Real Estate. BHT will have investments in approximately 3,400 homes, including 2,000 homes through mezzanine loan and preferred equity investments. BRG reported that BHT will have an estimated NAV per share of $5.60, based on valuation inputs from Duff & Phelps. The transaction is subject to the approval of BRG shareholders and is anticipated to close in the second quarter of 2022. The transaction is also contingent upon the completion of the spin-off transaction. As a result of the transaction, BRG will suspend all distribution reinvestment plans, including those of the various series of preferred stock offerings, and all distributions going forward will be made in cash.

Upon completion of the transaction with Blackstone Real Estate, all outstanding Series B, C, D and T preferred stock will be redeemed in cash, including payment of any accrued but unpaid dividends outstanding at the time.

BRG shares traded up significantly on the announcement as the following chart highlights.

For more information: CLICK HERE and CLICK HERE

CIM Income NAV, Inc. and CIM Real Estate Finance Trust, Inc. Complete Merger Following Shareholder Approval and CIM Real Estate Finance Trust Announces Portfolio Sale of Non-Core Assets to AFIN

On December 16, 2021, CIM Income NAV, Inc. (CIM Income NAV) completed its merger with CIM Real Estate Finance Trust, Inc. (CIM REFT). The merger closed following CIM Income NAV shareholder approval of the merger, which was received at a special meeting of stockholders on December 14, 2021. Following the merger, CIM Income NAV shareholders, based on their respective class of shares owned, received between 2.502 and 2.622 shares of CIM REFT common stock. For more information on details related to the CIM Income-CIM REFT merger, click here.

Following the close of the merger, on December 20, 2021, CIM REFT announced that it entered into an agreement to sell all 81 of its multi-tenant retail properties to American Finance Trust, Inc. (NASDAQ: AFIN) for consideration of up to $1.3 billion, including $53.4 million in AFIN stock. The consideration is inclusive of performance measures related to certain individual properties within the 81 property portfolio, specifically, how these properties perform in the 180 day period following the anticipated close of the transaction. The portfolio sale is anticipated to close in the first quarter of 2022. Following the sale of the assets to AFIN, CIM REFT’s portfolio will consist of 437 properties with a weighted average lease term of 10.8 years, comprising 13.2 million gross rentable square feet located in 45 states. Additionally, CIM REFT also held a loan portfolio with a principal balance of $1.6 billion as of September 30, 2021.

On a side note, AFIN announced that it was changing its name to The Necessity Retail REIT, which will trade under the ticker symbol “RTL”. AFIN also published additional details regarding the portfolio acquisition from CIM REFT available here.

For more information: CLICK HERE and CLICK HERE

Braemar Hotels & Resorts Inc. (NYSE: BHR) Reports November 2021 RevPAR Exceeds Pre-COVID November 2019 RevPAR

On December 16, 2021, Braemar Hotels & Resorts Inc. provided an operational update of portfolio performance as of November 2021. The Company reported RevPAR of approximately $212 across its portfolio of hotels, which marked an increase of 151% from November 2020, and an increase of 3.8% from November 2019 (in that halcyon pre-COVID year).

For more information: CLICK HERE

Brookfield Real Estate Income Trust Inc. Reports almost $0.6 Billion in Acquisition Activity

On December 21, 2021, Brookfield Real Estate Income Trust Inc. (fka Oaktree Real Estate Income Trust, Inc.) announced the completion of six acquisitions, including two multifamily properties, three in-fill logistics centers, and the DreamWorks Animation Campus in Southern California. The six properties were acquired for a total of $569.5 million. Cap rate information on the respective acquisitions was not disclosed.

For more information: CLICK HERE

Lightstone Value Plus REIT IV Announces Shareholders Approved Charter Amendments and its Board Subsequently Amended its Bylaws

On December 21, 2021, Lightstone Value Plus REIT IV, Inc. (Lightstone IV) reported that shareholders voted to approve various charter amendments at a special meeting of shareholders held on December 16, 2021. These charter amendments included:

• Removal of charter provisions defining a quorum as 50% of shareholders to conduct certain matters subject to a shareholder vote. The board of directors subsequently approved an amendment to the bylaws to reduce the definition of a quorum to be 35% of all the votes entitled to be cast at a shareholder meeting.
• Elimination of charter provisions requiring the board of directors to consider a liquidation or dissolution of the Company by March 31, 2022 (which is the fifth anniversary of the termination of Lightstone IV’s public offering) in the absence of a listing of the common shares on a national stock exchange.
• Reduce shareholder access to certain company books and records, including the stockholder list, to conform with Maryland default provisions, which restrict such access to shareholders who hold more than 5% of the outstanding shares of a class of stock.

We previously reported on these charter amendments and an update on Lightstone IV’s portfolio here.

For more information: CLICK HERE

Alternative Ramblings

Demographics are the Future

The latest U.S. Census Bureau data on population growth paints a dire picture regarding U.S. population growth. The Census Bureau reported that population growth, including net international migration, increased by 0.13% from July 2020 through July 2021. This 2021 growth rate was slower “than in any other year since the founding of the nation, based on decennial censuses and annual population estimates.” This tepid growth highlights the profound effects of the COVID-19 pandemic on American society Think about that as a matter of perspective: multiple world wars, the Great Depression, the Civil War, and countless boom and bust cycles in the past two centuries and presently we find ourselves at the point of our lowest population growth rate. This slowing population growth presents a headwind for continued economic expansion in the United States. As the chart below highlights, the rate of population growth in the U.S. has decelerated since the 1990s.

Additionally, the census data highlights net domestic migration within the United States, with the South region increasing by 657,682 people, whereas the Northeast region saw net outward migration of 389,638. New York alone saw 352,185 residents migrate out of the state from 2020 through 2021. States with the largest net domestic migration increases were, as expected, Sunbelt states, including Florida, (220,890), Texas (170,307) and Arizona (93,026).

Happy Holidays to all!

Apollo Global Management Inc. (NYSE: APO) Reaches Agreement to Acquire Distribution and Asset Management Businesses of Griffin Capital

On December 2, 2021, Griffin Capital announced that it had reached an agreement to sell certain parts of its securities distribution and asset management businesses to Apollo. The financial terms of the transaction were not disclosed. The transaction is anticipated to close in the first half of 2022. The transaction is subject to certain closing conditions, including approval by the shareholders of the two Griffin Capital interval funds, Griffin Institutional Access Credit Fund (GIACF), and Griffin Institutional Access Real Estate Fund. Definitive proxies for these interval funds will be forthcoming. Additionally, the transaction is subject to the closing of Apollo’s previously announced all-stock merger with insurance firm Athene Holding Ltd. (NYSE: ATH). Apollo announced it had reached an all-stock merger agreement with ATH earlier in 2021. The transaction is anticipated to close in January 2022 subject to the approval of Apollo and Athene shareholders. As of December 7, 2021, Apollo’s market capitalization was approximately $30.7 billion, and Athene’s market capitalization was approximately $15.6 billion. According to the press release, Apollo plans to integrate the Griffin Capital distribution team into its Global Wealth business. Apollo reported AUM of $481 billion as of September 2021, of which $361 billion was reported as fee generating AUM. Of the $481 billion in AUM, $54.1 billion of AUM was classified as real assets, $86.1 billion was classified as private equity, and $340.9 billion were classified as credit assets.

The Weekly Update notes that GIACF is sub-advised by an affiliate of Bain Capital and whether this arrangement continues remains to be determined. Given Apollo’s extensive experience with credit investments, including its advisory of publicly traded BDC Apollo Investment Corporation (NASDAQ: AINV), and other credit investment vehicles, one would anticipate Bain’s involvement as a sub-adviser to the interval fund could be coming to an end. We further note that the Apollo acquisition of certain Griffin Capital assets comes approximately six months following Ares’ acquisition of Black Creek Group, further galvanizing institutional manager entrances into the independent broker dealer and RIA distribution channels.

 

REITs

Black Creek Diversified Property Fund Changes Name to Ares Real Estate Income Trust Inc.

On December 1, 2021, Black Creek Diversified Property Fund reported that it was changing the name of the Company and its operating partnership to Ares Real Estate Income Trust Inc. and AREIT Operating Partnership LP, respectively.

Additionally, the Company adopted a third amended and restated share redemption program (SRP), in which the board of directors may modify or suspend the SRP if it determines such action to be in the best interest of the Company’s stockholders. Such factors to be considered by the Board include the Company’s liquidity and operations as well as regulatory and legal changes. If the SRP is suspended the Board must consider on a quarterly basis whether the continued suspension of the SRP is in the best interests of the shareholders. The Board may not terminate the SRP unless the shares are listed on a national stock exchange.

We note that these changes fall within typical parameters of share redemption programs at other NAV REITs.

For more information: CLICK HERE

Resource REIT Inc. Exploring Strategic Options According to Bloomberg

Bloomberg reports that Resource REIT Inc. (Resource REIT) has engaged an adviser to assist the REIT in exploring strategic options, which may include a sale of the REIT. Bloomberg notes that a potential sale may value the Philadelphia-based REIT at approximately $2 billion. Earlier this year, Resource REIT completed mergers with affiliates, including Resource Real Estate Opportunity REIT Inc., Resource Real Estate Opportunity REIT II Inc., and Resource Apartment REIT III Inc. Resource REIT reported ownership of 49 properties comprising over 14,600 multifamily units as of September 30, 2021. Total assets were reported at $2.4 billion and debt-to-gross properties at 65.4%.

Lightstone Value Plus REIT IV Seeks Shareholder Approval of Certain Proxy Provisions, Including Charter Amendments to Reduce Quorum to Amend Bylaws

Lightstone REIT IV (Lightstone IV) recently filed a definitive proxy in which it sought shareholder approval for certain matters, including charter amendments including, but not limited to, the following provisions:

• Removal of charter provisions defining a quorum as 50% of shareholders to conduct certain matters subject to a shareholder vote. The board of directors would like to amend the bylaws to define a quorum as 35% of all votes entitled to be cast. The Company noted in proxy materials that this “will reduce the cost and administrative burden to the Company in connection with obtaining a quorum at stockholder meetings.”
• Elimination of charter provisions requiring the board of directors to consider a liquidation or dissolution of the Company by March 31, 2022 (which is the fifth anniversary of the termination of the Company’s public offering) in the absence of a listing of the common shares on a national stock exchange.

• Reduce shareholder access to certain Company books and records, including the stockholder list, to conform with Maryland default provisions, which restrict such access to shareholders who hold more than 5% of the outstanding shares of a class of stock.

The Company has scheduled a shareholder meeting on December 16, 2021, to vote on these matters. Undoubtedly, these proposed charter amendments will erode meaningful shareholder participation in the governance of the Company, reduce potential shareholder transparency, and potentially lengthen the duration of an investment vehicle that was originally marketed as a life-cycle REIT, and as such one, has to question whether these provisions are really in shareholders’ best interests.

Lightstone IV’s offering of shares was declared effective on February 26, 2015. The Company had raised gross proceeds of $85.6 million through the sale of approximately 8.9 million shares through 2017. On March 25, 2020, the board of directors suspended share redemptions. Redemptions for hardship, including death and disability, were reinstated beginning in May 2021. While Lightstone IV shares were originally sold for $10.00, the most recently estimated NAV per share was $8.50 as of December 31, 2020.  The Company paid special distributions per share of $0.37 in January 2021 and $0.215 in September 2021.

According to the Company’s most recent SEC filings, the Company held two real estate assets: a 75% stake in the Williamsburg Moxy Hotel development project (with affiliate Lightstone REIT III holding the remaining 25% stake), and a 33.3% interest in the development of 40 East End Ave, a luxury condominium project, located in the Upper East Side of Manhattan. The 40 East End Development received its final temporary certificates of occupancy in March 2021 and had sold 10 of 29 available condominiums as of September 30, 2021. The 40 East End project has financing that is scheduled to mature on December 19, 2021. Lightstone IV has reported it is in discussions with the lender to extend this financing.

For more information: CLICK HERE

 

Alternative Ramblings

Metaverse Real Estate Investments: Enter the Matrix?

The Wall Street Journal reports that there is a boom in “real estate” sales in virtual worlds, including immersive multiplayer online games. The WSJ previously reported that certain “land sales” in the unreleased fantasy role playing game Mirandus had sold for seven figures. The virtual land sales are recorded on digital deeds held on nonfungible tokens (NFTs), which may be sold on secondary markets including OpenSea. The Journal notes:

A group of people last month paid $1.6 million for Citadel of the Stars, a large kingdom in the unreleased fantasy role-playing game Mirandus, said Eric Schiermeyer, a co-founder of  Zynga and now chief executive of Mirandus creator Gala Games. That purchase topped the $1.5 million paid for nine adjacent plots in the virtual pet universe Axie Infinity.

Tokens.com, a Canadian company (OTCQB: SMURF), reportedly closed on the largest Metaverse land acquisition in history. Tokens.com noted that the real estate “will be developed to facilitate fashion shows and commerce within the exploding digital fashion industry.” The Journal reports that Tokens.com is currently developing an 18-story skyscraper in a virtual world that “it hopes to lease to lawyers or cryptocurrency exchanges, which can use the building for events or advertising.” Tokens.com CEO Andrew Kiguel noted, “We can create something that’s the equivalent of a Rodeo Drive or Fifth Avenue, where the Guccis and Adidases will come.” One gets the senses this is reminiscent of the early days of the internet and the rush for domain names for websites, another form of location within the virtual world.

The Metaverse may usher in a paradigm shift for how people interact with video games, or the internet for that matter, as owners of these virtual lands may develop additional gaming features for users of the broader game. Additionally, advertising in these virtual worlds is attracting traditional brands including Chipotle, Verizon, Vans, Nike, and others. This is starting to sound like the Matrix or some kind of simulation. Just what everyone needs: more screen time! I guess the timing is appropriate considering there is another Matrix movie coming out this month.

REITs 

Hartman Short Term Income Properties XX, Inc.  

On November 24, 2021, Hartman Short Term Income Properties XX, Inc. (Hartman XX or the Company) hosted a third quarter conference call. Hartman XX distributions per share declined from a 7% annualized rate (based on the original offering price of $10.00 per share), to 3.38%, 3.68%, and 4.16%, respectively, in the first three quarters of 2021.  Reductions in distributions to common stockholders were due to uncertainties related to the COVID-19 pandemic. Chief executive officer Allen Hartman estimated that Hartman XX would be able to resume a 7% distribution by the end of 2022. However, Mr. Hartman noted that the Company was investing additional capital to build out spec office suites in certain office properties. The Company reported investing approximately $5.2 million in such renovation efforts through the third quarter of 2021. Mr. Hartman noted that these projects were being leased out with rent concessions of two or three months and that it was taking approximately two to three months to build out the spec suites, indicating that there could be a lag of six to eight months before rents were collected on these spaces. Mr. Hartman stated that renovation efforts limited the amount of capital available for distribution increases and shareholder redemptions.  

Regarding shareholder liquidity, Hartman XX reported that it had received 153 unfulfilled redemption requests in 2020, according to its annual report. The Company did not report total outstanding shares for which redemptions were requested. Hartman XX had previously restricted the share redemption program in 2020 to be available only for shareholder hardship, including death and disability. Mr. Hartman stated that a refinancing event of the portfolio was likely to occur in March 2022 which “would free up some capital to be able to do more redemptions,” estimating that such an event may allow for $10 million in redemptions. Mr. Hartman indicated that such an amount would cover all the redemptions that have been requested. Hartman XX’s debt-to-gross properties was 49.5% as of September 30, 2021. 

The Company also noted that it was likely that Hartman XX would complete a merger with Hartman vREIT XXI, Inc. by the end of 2022, noting that the respective companies were in the process of seeking a fairness opinion for such an affiliated transaction. No estimate regarding prospective timing of shareholder proxy materials was discussed. 

Hartman XX was formed in 2009 and raised $43.9 million before terminating its offering in 2013. The Company completed mergers with affiliates Hartman Short Term Income Properties XIX, Inc., and Hartman Income REIT, Inc., in July 2020. Hartman XX reported total assets of $512 million as of September 30, 2021, including 44 industrial, office, and retail commercial properties, comprising 6.8 million square feet located in the Houston, San Antonio, and Dallas MSAs. Harman XX reported an estimated NAV per share of $11.18 as of December 31, 2020. Shares were originally offered at $10.00 per share.  

For more information: CLICK HERE and CLICK HERE 

Mobile Infrastructure Corporation (fka The Parking REIT, Inc., fka MVP REIT) 

On November 24, 2021, Mobile Infrastructure Corporation (MIC or the Company) announced the resignation of chief financial officer Kevin Bland. The Company reported that Mr. Bland’s resignation was not due to any dispute or disagreement with the Company or its accounting practices or financial reporting. MIC’s board of directors subsequently appointed Stephanie Hogue to serve as interim chief financial officer.  

The Company reported in its most recent annual report that the SEC has been conducting an investigation into MIC, that in June 2019 MIC and its former chairman and former chief executive officer Michael Shustek received subpoenas, and that the SEC has subsequently requested additional information from the Company. On July 30, 2021, the SEC announced securities fraud charges against Mr. Shustek related to his interactions with REITs he controlled including the Company, Vestin Realty Mortgage I, and Vestin Realty Mortgage II. The complaint can be found here.    

For more information: CLICK HERE 

Bonds

GWG Holdings, Inc. (NASDAQ: GWGH) Files 2020 Annual Report, Files First and Second Quarter Reports, and Board of Directors Approves De-Consolidation of GWG and Beneficient

On November 5, 2021, GWG Holdings, Inc. (NASDAQ: GWGH) filed its annual report on Form 10-K for the year ending December 31, 2020. GWGH had ceased its offering of L Bonds in April 2021 after it was unable to file its annual report within the required timeframe. Additionally, GWGH has filed its quarterly reports on Form 10-Q for the quarters ending March 31, 2021, and June 30, 2021. GWGH anticipates that its L Bond offering will resume before the end of 2021 following the anticipated filing of its third quarter report on Form 10-Q.

On November 15, 2021, GWGH announced that its board of directors approved a de-consolidation of its investment in Ben LP, and its subsidiary Beneficient Company Holdings, L.P (BCH). This de-consolidation was previously outlined in a filing made in August 2021. The Weekly Update previously reported on that outline here. Management noted that the de-consolidation is designed to maximize the value of GWGH’s investment in BCH. GWGH announced that certain amendments were made to BCH’s limited liability company agreement, including the elimination of GWGH’s right to designate directors to serve on the board of directors of Beneficient Management, L.L.C. (the general partner of BCH). Additional amendments reportedly included the creation of certain securities in BCH that it intends to issue in connection with certain capital raising activities.

GWGH further announced that “GWGH and Ben LP agreed to enter into a payoff letter for the Commercial Loan Agreement pursuant to which Ben LP would repay the entire outstanding principal balance of the Commercial Loan Agreement of approximately $202 million, plus accrued interest to the date of the payoff, by issuing to GWG Life or GWGH 19,250,795 of common limited partnership units of Ben LP.”

For more information: CLICK HERE and CLICK HERE

REITs

The Parking REIT, Inc. Changes Name to the Mobile Infrastructure Corporation

November 12, 2021, The Parking REIT, Inc., announced that it had changed its name to the Mobile Infrastructure Corporation (MIC).  MIC also announced the results of its previous cash tender offer, noting that 878,082 shares were validly tendered.

Earlier in 2021, the Company engaged in a transaction with Bombe Asset Management LLC in which Bombe exchanged $35 million in cash and the contribution of certain parking assets and other property valued at more than $90 million, for operating partnership units and warrants to purchase common stock in the Company valued at $11.75 per unit or share. Following the transaction, Michael Shustek resigned as a director and CEO of the Company and his shares were acquired by affiliates of Bombe, which began its management of the Company.

The Company reported in its most recent annual report that the SEC has been conducting an investigation into MIC and that in June 2019, MIC and its then chairman and chief executive officer Michael Shustek received related subpoenas. The Company further disclosed that the SEC has subsequently requested additional information from the Company.

For more information: CLICK HERE

Alternative Ramblings

Zillow Sells 2,000 Homes to Pretium Partners

Zillow’s foray into home flipping has come to an ignominious end after the company noted that it couldn’t accurately predict future home prices and was losing too much money, as the Wall Street Journal reports. Zillow announced the sale of 2,000 homes across 20 markets to Pretium Partners, which reportedly owns 70,000 single family rental home. Zillow noted that it is in the process of selling an additional 9,800 homes, as well as another 8,200 homes that it is currently under contract to buy. Zillow is shopping the remaining homes to multiple major investors in single family homes are anticipated to bid on remaining Zillow homes, including Invitation Homes and American Homes 4 Rent. Zillow expects to lose between 5% and 7% on the sales and record losses of more than $500 million from this business. Somehow, someone figured out how to lose money in the current single family housing market environment.

Public Direct Participation Programs

CNL Strategic Capital LLC Follow-on Offering Declared Effective 

On November 1, 2021, the SEC declared CNL Strategic Capital LLC’s (CNL Strat Cap) follow-on offering effective. The follow-on offering is for up to $1.1 billion in common shares. CNL Strat Cap has raised approximately $264.7 million in gross proceeds since its initial public offering was declared effective in March 2018. Additionally, CNL Strat Cap has raised approximately $81.7 million in a private offering of common stock. CNL Strat Cap invests in a combination of equity and debt positions in private companies in various industries. According to its most recent quarterly report, CNL Strat Cap had invested over $270.5 million into nine portfolio companies with a reported fair value of approximately $333.0 million as of June 30, 2021. The Company is sub-advised by a subsidiary of Levine Leichtman Capital Partners.

FactRight’s follow-on offering due diligence report will be available on the FactRight Report Center within the next week.

For more information: CLICK HERE

REITs

Oaktree Real Estate Income Trust, Inc., Renamed Brookfield Real Estate Income Trust, Inc., Following Transition of Advisory Role to Affiliates of Brookfield Asset Management Inc. (NYSE: BAM)

November 3, 2021, Oaktree Real Estate Income Trust, Inc., announced that it had completed the transition of its advisory services from affiliates of Oaktree Capital Management, L.P. (Oaktree) to affiliates of Brookfield Asset Management Inc. (Brookfield). The Company was subsequently renamed Brookfield Real Estate Income Trust, Inc. (Brookfield REIT). Oaktree will retain a sub-advisory role in managing the Company’s liquid real estate securities portfolio, certain real estate properties, and certain debt investments. Brookfield REIT reported that it held liquid real estate securities that had a fair value of approximately $84 million as of June 30, 2021, according to its most recent quarterly filing. As of June 30, 2021, Brookfield REIT had total assets of approximately $450 million, and a debt to total assets ratio of approximately 51%.

Following the transition of advisory services, Brookfield managing director and Brookfield REIT CEO Zack Vaughan noted that “With three newly contributed investment properties from Brookfield, the total asset value of the REIT has more than doubled to approximately $1 billion.” Brookfield REIT had previously disclosed that it would receive consideration in the form of operating partnership units or class I shares in exchange for the contribution of these assets, which are multifamily properties located in Kissimmee, Florida, and Nashville, Tennessee, and a 20% stake in an office property located in London, United Kingdom. The value of the consideration payable to affiliates of Brookfield for the contribution of such assets “will be equal to the value of the Brookfield Portfolio based on an appraisal from Altus Group U.S. Inc. to be obtained as of a recent date prior to the contribution,” according to the Company’s second quarter report. Additional details regarding the contributed properties may be found here.

Brookfield REIT also reported that the investment strategy may expand geographically to include exposure to certain non-U.S. markets. Brookfield Oaktree Wealth Solutions, LLC, an affiliate of Brookfield, will serve as the dealer manager of the offering beginning in November 2021. Brookfield REIT currently offers four share classes, three of which (Class T, S, and D) feature upfront selling commissions, and a commission-free I share designed for advisors in fee based accounts.

For more information: CLICK HERE and CLICK HERE

Multifamily Rent Growth Continues to Buzz: Bluerock Residential Growth REIT, Inc. and Preferred Apartment Communities, Inc. Both Report Strong Rent Growth

Bluerock Residential Growth REIT, Inc. (NYSE: BRG) reported same store rental revenue increases of 7.7% and same store NOI growth of 9.2% in the third quarter of 2021 over the prior year. BRG reported that rent growth on new leases was 25.8% over the previous in-place leases.

Similarly, Preferred Apartment Communities Inc. (NYSE: APTS) reported same store multifamily rental revenues increased 7.5% in the third quarter over the same period in 2020. Additionally, APTS reported same store NOI growth of 8.8% compared to Q3 2020. APTS reported new leases featured 24.1% rent growth over the previous in-place leases. APTS raised its core FFO guidance to $1.00-1.07 per share in the third quarter based on the strong results. APTS previously raised guidance in its second quarter results to $0.90-$1.00 per share. This follows Cottonwood Communities, Inc. report of double-digit growth in new leases in the third quarter as well.

Just a year and a half ago analysts and investors were fixated on rent collection dynamics in the multifamily space as the COVID-19 pandemic yielded significant job losses across the economy. Fast forward to the present and the story is blistering rent growth. Interesting to note that APTS is reporting expansion in NOI during this period, a preliminary indication that increasing costs in the economy, due to rising inflation, are not eroding its earnings.

Alternative Ramblings

Trillion Dollar Infrastructure Package Would Require Reporting of $10,000 Cryptocurrency Transactions to the IRS

The recent infrastructure bill that was passed by the House of Representatives late Friday evening includes a provision that has rankled many proponents of digital assets.  As CoinDesk reports:

“Another provision in the bill to amend tax code section 6050I has also stoked fear in the crypto industry. The law, written nearly 40 years ago to apply to in-person cash transactions over $10,000, essentially requires recipients to verify the sender’s personal information and record his or her Social Security number, the nature of the transaction and other information, and report the transaction to the government within 15 days. Unlike other tax code violations, violations of 6050I are a felony, and some lawyers have pointed out that, applied to cryptocurrencies and other digital assets like non-fungible tokens (NFT), it would be nearly impossible to comply with the law.”

CoinDesk also notes that “[i]ndustry proponents worried [that the cryptocurrency related provision may be] too broad, capturing entities like miners and other parties that don’t actually facilitate transactions.”

Further guidance from the U.S. Treasury Department would be forthcoming following the anticipated signing of the legislation.

REITs

SmartStop Self Storage REIT Inc. Announces 45% Increase in Estimated NAV Per Share

On October 12, 2021, SmartStop Self Storage REIT Inc. (SmartStop) announced that its board of directors declared an estimated NAV per share of $15.08 as of June 30, 2021. This marks a 45% increase from its previous estimated NAV per share of $10.40 as of December 31, 2019.

SmartStop retained the services of Robert A. Stanger & Co. Inc. (Stanger) to assist as a third-party valuation firm in determining its estimated NAV per share. Stanger’s valuation work included an appraisal report on SmartStop’s 140 wholly owned properties, and five properties held in a joint venture. Additionally, Stanger provided an estimated value of SmartStop’s advisory, asset management, and property management businesses. SmartStop provides advisory and management services to Strategic Storage Trust VI, Inc. and Strategic Storage Growth Trust II, Inc., which collectively own 14 properties, and approximately 11,000 units comprising 1.1 million rentable square feet. Key assumptions in the real estate valuation estimates included a weighted average cap rate of 4.28% for the June 30, 2021, valuation date, which compares to a weighted average cap rate of 5.12% for the December 31, 2019, estimated valuation. This equates to 84 basis points of cap rate compression on SmartStop’s properties. EBITDA multiples utilized to value the advisory, asset management, and property management business were not disclosed in the SEC filings related to either valuation.

Management cited strong fundamentals in the self-storage sector over the past 18 months as a backdrop for the increase in estimated NAV per share. FactRight notes that indeed, the past 18 months have been rewarding for shareholders in SmartStop’s publicly traded peers. The following chart highlights the performance of some of the largest publicly traded self-storage REITs since December 31, 2019. As the chart highlights these respective REITs have experienced stock price increases (exclusive of dividends) ranging from 53% to 78% over this same period.

For more information: CLICK HERE

Cottonwood Communities Inc. Announces 20% Increase in Estimated NAV Per Share Month over Month

On October 12, 2021, Cottonwood Communities, Inc. (Cottonwood) announced a 20.1% increase in its estimated NAV per share as of September 30, 2021 ($15.48), compared to its NAV per share as of August 31, 2021 ($12.89). Cottonwood reported that the increase “is reflective of observed increases in the values of multifamily assets across the country, particularly in many of the growth markets where we have investments. Cap rates have moved favorably. Rental rates across our portfolio of operating properties have also grown substantially over the course of the year, with significant growth in recent months.” Cottonwood reported the following weighted average rental increase data. Note trade-outs are newly signed leases versus the previous lease on the same unit. The data is inclusive of rents from assets acquired with the mergers of Cottonwood Residential II, Inc., Cottonwood Multifamily REIT I, Inc. and Cottonwood Multifamily REIT II, Inc. (These mergers closed in May and June 2021.)

FactRight notes that this is robust rent growth and reflects a broader trend in the multifamily space that is emerging in the second and third quarters of 2021. Data from Apartment List indicates that median rents in the United States increased 16.4% from January through September 2021. This compares to median rental increases of 3.4% over the same period from 2017-2019.

For more information: CLICK HERE

Cantor Fitzgerald Income Trust, Inc. 

On October 22, 2021, Cantor Fitzgerald Income Trust, Inc. (CFIT) filed an amendment to its quarterly report on Form 10-Q for the quarter ending June 30, 2021. The amendment has been filed to correct the funds from operations and modified funds from operations originally reported in the second quarter report. The discrepancy was due to adjustments related to non-controlling interests. CFIT originally reported FFO and MFFO of $5.8 million ($0.78 per share) and $5.2 million ($0.70 per share), respectively, for the six months ending June 30, 2021. The amended FFO and MFFO values are $4.9 million ($0.66 per share) and $4.3 million ($0.57 per share), respectively, for the same period. Distributions declared during the same period were $0.69 per share. Following the amendment, the FFO and MFFO payout ratios were 104.7% and 120.0%, respectively. Prior to the amendment the FFO and MFFO payout ratios were 88.1% and 98.8%, respectively.

For additional information: CLICK HERE

United Development Funding IV, Inc. 

Four United Development Funding IV, Inc. (UDF IV) executives, including Hollis Greenlaw, chief executive officer and chairman of the board of UDF IV, Ben Wissink, president, Cara Obert, chief financial officer, and Brandon Jester, director of asset management were indicted on charges of conspiracy to commit securities fraud, conspiracy to commit wire fraud affecting a financial institution, and multiple counts of securities fraud according to an indictment filed in the United States District Court for the Northern District of Texas on October 15, 2021.

Among many allegations, the indictment notes that “money raised from (UDF IV investors) was used to pay distributions to Fund III investors and to pay other Fund III financial obligations.” Note Fund III refers to United Development Funding III, Inc. an affiliate of UDF IV, with largely the same executive team as UDF IV. The indictment details that these payments, from UDF IV to Fund III, totaled approximately $65 million from 2011 to 2015. In similar fashion, the indictment alleges that approximately $2.7 million in Fund V (United Development Funding V, Inc.) investors’ money was used to pay returns to UDF IV investors, and an additional $4.7 million of Fund V investors’ money was used to pay returns to UDF III investors.

The indictment further alleges that in January 2011, upon learning that Fund III had insufficient cash to pay distributions to investors, three of the defendants, and others, transferred money from a UDF IV bank account to a Fund III bank account to pay Fund III investors’ distributions. Additionally, around December 2014, certain defendants made presentations to financial advisors, broker-dealers, third party due diligence entities that Fund V would not participate in affiliate transactions. According to the indictment, beginning around December 2014, certain defendants caused Fund V to issue loans to borrowers for developments that already had loans outstanding with Fund III and Fund IV.

The indictment also alleges that certain SEC filings made by Fund III, UDF IV, and Fund V, respectively in 2015, included false and materially misleading information concerning the source of funds used to pay investor distributions. The indictment seeks that the defendants shall forfeit all property constituting or derived from proceeds traceable to the respective offenses.

In 2018, UDF IV settled certain charges with the SEC for approximately $8 million without admitting any wrongdoing. Additional information related to UDF IV, and the indictment can be found in the following DI Wire article.

NexPoint Strategic Opportunities Fund (NYSE: NHF) issued a press release on October 22, 2021, regarding the recent indictment noting that UDF IV has not complied with NHF’s August 2020 demand to inspect UDF IV’s books and records. NHF reported that it was the largest UDF IV shareholder in the recent press release. NHF further stated that:

“The indictment is the latest in a long list of charges and complaints surrounding [UDF], including a 2018 SEC enforcement action against the Company and its executives, multiple private securities fraud actions, and shareholder derivative cases. Despite substantive evidence of corporate wrongdoing and management’s blatant disregard of a permanent injunction that resulted in the Company’s shares being deregistered in 2020, the Board continues to permit management to withhold information from investors, collect millions of dollars in management fees, and spend material amounts of corporate funds on litigation that shows no evidence of enhancing shareholder value.”

In an October 1, 2021, press release NHF announced that it would extend its offer to purchase any and all outstanding UDF IV shares at a price of $1.10 per share, in an offer that ends on October 29, 2021. More information can be found at www.udfitenderoffer.com.

Taxing Unrealized Gains?

Proposals to tax unrealized gains are making their way through the Congress. The tax proposal, reportedly limited to billionaires, would represent a novel approach to taxation, and certainly would be challenged in the courts. A detailed proposal on the prospective unrealized gains tax has not been released though it is anticipated that the plan would be assessed on an annual basis, and prospectively limited to publicly traded assets.

Treasury Secretary nominee Janet Yellen, in confirmation hearing testimony before the Senate back in January  2021, suggested that the U.S. Treasury would consider taxing unrealized gains on investments via a “mark-to-market” mechanism.  This is a radical concept, begging the question: will Uncle Sam give out refunds on unrealized losses too?

Following Formation of Bitcoin Futures ETF – The World’s Largest Bitcoin Fund Seeks to Convert into an ETF

Grayscale Bitcoin Trust (NYSE: GBTC), the largest Bitcoin investment vehicle in the world, which according to the GBTC holds approximately 3.44% of all Bitcoins in circulation, has announced that it is seeking to convert into an exchange traded fund.  GBTC subsequently filed an application with the SEC to convert to an ETF. The SEC will have 75 days to review the application. Many analysts are not optimistic of GBTC’s likelihood of success in obtaining SEC approval to convert to an ETF. Skepticism is based on the key difference that a Bitcoin futures ETF, which holds cash settled futures contracts traded on commodities exchanges registered with the U.S. Commodity Futures Trading Commission, presents very different risks than a spot bitcoin ETF (which GBTC is seeking to become), which would have its bitcoin prices based on market prices found on non-regulated cryptocurrency exchanges. The SEC has expressed concern about this predicament and has not approved any spot price cryptocurrency ETFs to date. Canadian regulators have approved multiple cryptocurrency spot ETFs in 2021. GBTC’s announcement follows the SEC’s approval of the ProShares Bitcoin Strategy ETF (NYSE: BITO), which launched last week and quickly became the fastest ETF ever to reach $1 billion assets, taking just two trading days to reach three commas worth of assets. Note that BITO’s expense ratio is 95 basis points. If the ETF maintains a $1 billion AUM, that translates to approximately $10 million in management fees per year—not a bad bit of business, though competition will undoubtedly follow and seek to compress expense ratios. Bitwise has already filed to launch a Bitcoin futures ETF. Grayscale Investment, the sponsor of GBTC, notes that it plans on converting 14 other similar investment products in the cryptocurrency markets that it manages into ETFs. GBTC reports total assets under management of nearly $40 billion.

The following chart highlights the trading history of GBTC relative to its NAV per share over the past three years.

As the chart highlights, for many years GBTC traded at a premium to its NAV per share, and only in early 2021 has it begun to trade at persistent discounts to NAV. Some have noted that the beginning of discounts to NAV coincided with the approval of certain Bitcoin ETFs on the Toronto Stock Exchange, which due to authorized participant incentives do not typically trade at wide discounts to their respective NAVs. GBTC does not currently have any unit redemption provisions in its charter, whereas an ETF structure would provide incentives for authorized participants (GBTC currently has a single affiliated authorized participant, which has been very lucrative for its sponsor) to close out the discount on its trading price to NAV. A primer on ETF unit creation and redemption mechanics is available here. In March 2021, GBTC announced that its sponsor would purchase up to $250 million shares of GBTC to support the share price in lieu of a unit redemption mechanism. Grayscale’s head of ETFs has noted, “when we’re able to convert into ETF, that discount will collapse, and we look forward to that opportunity.”

Space (REITs) the Final Frontier?

Jeff Bezos has announced plans to construct a space station to facilitate greater opportunities for space tourists and other businesses.  No cost estimates were furnished on the project or estimated completion date.  Perhaps such assets will migrate to REITs in the future. I look forward to that site visit!

REITs

Steadfast Apartment REIT, Inc. Files Definitive Proxy For Merger With Publicly Traded REIT 

On September 29, 2021, Steadfast Apartment REIT, Inc. (STAR) filed its definitive proxy related to its previously announced merger with Independence Realty Trust, Inc. (NYSE: IRT). We previously reported on this merger here.

Note that the exchange ratio, of IRT shares to be exchanged for STAR shares, is fixed at 0.905 shares of IRT per STAR share. Based on the closing price at the time the merger was announced, this represented approximately a 16% premium to the most recent estimated NAV per share of STAR common stock ($15.55 as of December 31, 2020).  IRT common stock closed at $21.00 per share on October 13, 2021, representing a 22% premium to the most recently estimated NAV per share.

The merger is anticipated to close, pending stockholder approval, at a special stockholders meeting scheduled for December 13, 2021.

For more information: CLICK HERE

Franklin BSP Realty Trust, Inc.

On October 12, 2021, Franklin BSP Realty Trust (Franklin BSP, fka Realty Finance Trust) announced the final exchange ratio with Capstead Mortgage Corporation (NYSE: CMO) for its previously announced merger. We reported on this merger here. The final consideration package would include the right for CMO shareholders to receive 0.3288 shares of Franklin BSP stock, plus cash consideration of $0.94 per share. Cash consideration would be funded $0.21 from Benefit Street Partners L.L.C. (the external advisor to Franklin BSP) and $0.73 from CMO. Following the closed of the merger the combined entity will be renamed Franklin BSP Realty Trust and would trade on the NYSE under the ticker symbol “FBRT”.

The merger also contemplates a six-month lockup period for approximately 94% of current Franklin BSP shares and $100 million earmarked to support the combined entities stock price in the open market, of which $35 million will come from the external advisor and Franklin Templeton.

The merger is anticipated to close on October 19, 2021.

For more information: CLICK HERE

SmartStop Self Storage REIT Inc. Delays Distributions Pending Estimate of NAV Per Share

On October 12, 2021, SmartStop Self Storage REIT Inc. announced that it was delaying payment of distributions for one week in October 2021 as the board of directors was “in the final stages of completing an updated NAV calculation as of June 30, 2021”. Distributions originally scheduled for October 15, 2021, are now to be made on October 22, 2021.

For more information: CLICK HERE

Griffin-American Healthcare REIT III, Inc. and Griffin-American Healthcare REIT IV, Inc. Close Merger and Rebrand to American Healthcare REIT, Inc.

On October 1, 2021, the merger of Griffin-American Healthcare REIT III, Inc. (GAHR III) and Griffin-American Healthcare REIT IV, Inc. (GAHR IV) closed. GAHR IV was the surviving entity of the merger and has been renamed American Healthcare REIT, Inc (AHR). Following the merger, AHR is a self-managed REIT after an internalization transaction. We previously reported on the merger and internalization transaction here. Post-merger, AHR has total assets of approximately $4.2 billion. CEO Danny Prosky noted “As a large, diverse, and self-managed healthcare REIT, we believe we are strategically positioned to pursue a future listing or IPO on a national stock exchange that would provide liquidity to our existing stockholders.”

On October 4, 2021, AHR reinstated its distribution reinvestment program (DRIP), which was suspended pending completion of the merger, beginning with the scheduled October 2021 distribution. Stockholders who were previously enrolled in the DRIP will be automatically re-enrolled in the DRIP. Additionally, AHR reinstated its share repurchase plan, which currently is limited to repurchases only in the case of shareholder death or disability.

For more information: CLICK HERE and CLICK HERE

Vinebrook Homes Trust, Inc. Announces Acquisition of a Portfolio of Approximately 3,000 SFRs and Appoints Interim President

On September 27, 2021, Vinebrook Homes Trust, Inc. (Vinebrook) announced that its board of directors appointed Brian Mitts as its interim president. Mr. Mitts will continue to serve as Vinebrook’s chief financial officer, treasurer, and assistant secretary.

In August 2021 James Dondero resigned from his positions as chief executive officer, president and as a director of Vinbeook. Vinebrook reported that Mr. Dondero’s resignation was not a result of any disagreement with Vinebrook’s operations, policies, or practices.

On October 1, 2021, Vinebrook announced that it reached an agreement to purchase a portfolio of single-family rental homes located across eight states and concentrated in the southeast U.S. The transaction was priced at $354.2 million. Vinebrook reported the portfolio was 84.8% occupied with average effective monthly rent of $1,043. Vinebrook also purchased certain assets used by the management company of the portfolio in a separate agreement for approximately $7.5 million. The transactions are anticipated to close in December 2021 or January 2022.

For more information: CLICK HERE and CLICK HERE

BDCs

CION Investment Corporation

On October 5, 2021, CION Investment Corporation (CION) listed its shares of common stock on the NYSE. Shares began trading under the ticker symbol “CION”. On September 21, 2021, CION effected a 2-to-1 reverse split of its shares of common stock. Post-reverse split there are approximately 57.0 million shares of outstanding common stock. The NAV per share adjusted for the reverse split was $16.34. Shares of CION were originally offered at a reverse split adjusted price of $20.00 per share in an offering declared effective in 2012.

CION has approved a share repurchase policy authorizing CION to repurchase up to $50 million of its outstanding common stock following the listing of common shares on the NYSE. The timing and number of shares to be repurchased will be determined by CION and its discretion.

Concurrent with the listing, CION’s second amended and restated investment advisory agreement (Amended Advisory Agreement) became effective.  Under the Amended Advisory Agreement, which was approved by shareholders in August 2021, CION’s annual base management fee was reduced from 2.0% of average gross assets to 1.5% of average gross assets. Additionally, the subordinated inventive fee was reduced from 20% (of all pre-incentive fee net investment income after a 9.375% return) to 17.5% (of all pre-incentive fee net investment income after a 7.879% return). The hurdle was reduced from 7.5% to 6.5% as well.

The following charts highlight the trading price range and volume of CION since its listing on October 5, 2021:

CION’s stock has traded within a range of $11.09 and $13.64 per share since the listing.

For more information: CLICK HERE

Thanks to all who Attended our Recent Conference in Denver

We want to thank the over 300 attendees that came to Denver for our recent conference. We hope that the event was productive, informative and a great opportunity to connect with asset managers, wealth managers and other industry professionals. To those who could not make it, you were missed, and those who would like to attend future FactRight conference please reach out and we’ll work with you to ensure your attendance at one of our future events. Thanks again and we look forward to seeing you in Spring 2022, details will be coming soon!

BDCs

Sierra Income Corporation to Merge with Barings BDC

On September 21, 2021, Sierra Income Corporation (SIC) announced that it had entered into a merger agreement with Barings BDC, Inc. (NYSE: BBDC).  BBDC is externally managed by Barings LLC (Barings), a subsidiary of MassMutual.  SIC shareholders will receive a package of consideration including cash and stock totaling $588.6 million, or $5.76 per SIC share, which represents a premium of 6.1% to SIC’s most recent net asset value per share of $5.43 as of June 30, 2021.

Barings announced that it would provide $100 million in credit support related to unrealized and realized losses on the SIC portfolio over the next ten years. Additionally, BBDC will provide up to $30 million in secondary market support via share repurchases over the next 12-months, if its trading price declines below certain levels in relation to NAV. BBDC currently trades at approximately a 4% discount to its most recent NAV per share of $11.39. Two unnamed, current independent directors of SIC will also join the board of directors of BBDC following the close of the merger. The merger is subject to approval by stockholders of both SIC and BBDC.

The merger agreement marks (subject to shareholder approval) the end of a long saga for SIC, which at one point in time was the subject of a proposed three-way merger with affiliated publicly traded BDC Medley Capital Corporation and its publicly traded asset manager Medley Management, Inc. Institutional Investor chronicled the aborted three—way merger here and the recent merger announcement here. SIC’s original offering for common shares at $10.00 per share was declared effective in 2012.

For more information: CLICK HERE

Cion Investment Corporation to List on the NYSE on October 5, 2021

On September 8, 2021, CION Investment Corporation (CION BDC) announced that its shareholders approved a series of proposals including the listing of the company’s common stock and a revised fee structure. The revised fee structure would include a 1.50% management fee on average gross assets and a 17.5% inventive fee on income, subject to a 6.5% hurdle and a 17.5% incentive fee on capital gains net of all unrealized and realized losses.

CION BDC announced that it anticipates listing its shares of common stock on the NYSE within 30 days. Trading will commence under the ticker symbol “CION”.

CION BDC also announced that it completed a 2:1 reverse stock split on September 21, 2021. Following the reverse stock split the adjusted NAV per share is $16.34 as of June 30, 2021. The fourth quarter distribution of $0.1324 per share was updated to $0.2648 following the reverse split. CION BDC also announced a special distribution anticipated to be between $0.07 and $0.10, payable on December 23, 2021. Future distribution payments will be made quarterly as opposed to monthly, beginning in the fourth quarter of 2021.

CION BDC common stockholders will be permitted to trade 1/3 of their common shares immediately upon listing, with another 1/3 of their shares available for trading at the 180-day mark from the listing and the final 1/3 of shares available for trading at the 270-day mark from the listing. CION BDC anticipates that its shares will commence trading on October 5, 2021.  CION BDC has also announced that it will support trading of its shares with an authorization to repurchase up to $50 million of its common stock post-listing.

The Weekly Update notes that publicly traded BDCs have largely rebounded from early pandemic lows, during which time the entire BDC market was trading at a discount to NAV. Presently 18 of the 42 publicly traded BDCs trade at NAV or a premium to NAV with the overall BDC market trading at 1.20(x) NAV, according to data from bdcinvestor.com. Encouraging signs for CION BDC, which originally went effective in 2012.

For more information: CLICK HERE, CLICK HERE and CLICK HERE

REITs

CIM Real Estate Finance Trust, Inc. and CIM Income NAV, Inc. Announce Merger Agreement

On September 22, 2021, CIM Real Estate Finance Trust, Inc. (CMFT) and CIM Income NAV, Inc. (CIM Income) announced that they had agreed to an all-stock merger agreement. Under the merger agreement CIM Income shareholders would receive the following consideration:

*Based on CMFT’s most recent NAV per share of $7.21 as of March 31, 2021. This represents approximately a 10.6% premium to CIM Income’s respective NAV per share of $16.57 as of July 31, 2021.

The combined CMFT will have total assets of approximately $6.0 billion. CIM Income shareholders will comprise approximately 17% of the combined entity’s total shareholders.

CIM Income’s portfolio is comprised of single tenant and multi-tenant net leased commercial real estate. CMFT announced in April 2019 of its intention to shift its investment strategy from core commercial real estate assets leased to creditworthy tenants to pursue exposure to commercial mortgage loans and other real estate-related credit investments that CIM would originate, acquire, finance or manage. CMFT notes that the combined entity would be the third largest publicly-traded mortgage REIT based on equity value, with approximately $3.2 billion in total equity. Thus the proposed combination represents a shift in investment thesis for CIM Income investors.

The proposed merger is anticipated to close in the fourth quarter of 2021, subject to CIM Income shareholder approval. CMFT further noted that they anticipate post-merger a listing transaction on a securities exchange in 2022.

This marks the latest in affiliated mergers completed by CMFT. In December of 2020 CMFT completed mergers with affiliated REITs Cole Office and Industrial REIT (CCIT III), Inc. and Cole Credit Property Trust V, Inc. in stock-for-stock transactions.

For additional information: CLICK HERE and CLICK HERE

Inventrust Properties Corp. to List Common Stock on NYSE

On September 20, 2021, Inventrust Properties Corp. (Inventrust, fka Inland American Real Estate Trust, Inc.) announced that it will seek a listing on the NYSE under the ticker symbol “IVT”. Inventrust announced that it has retained BofA Securities, Inc. and Wells Fargo Securities, LLC to act as advisors to its management and board of directors with the listing anticipated to occur in October 2021.

Inventrust noted that it intends to provide up to $100 million in a modified “Dutch Auction” tender offer to support the share price post listing. Inventrust has done modified Dutch Auctions in the past, see here for a video explanation from Inventrust management. The price range for the tender offer has not yet been determined.

Inventrust completed a 1-for-10 reverse stock split on August 5, 2021. Earlier in 2021, Inventrust reinstated its share repurchase program in which Inventrust would repurchase shares at a 25% discount to its estimated NAV per share. Inventrust further noted that it anticipates increasing its dividend by 5% beginning with the fourth quarter of 2021. The updated fourth quarter dividend would be $0.205 per share, representing approximately a 2.84% distribution yield based on the most recent estimated NAV per share of $28.90 per share as of December 1, 2020, adjusted for the recent reverse stock split.

Inventrust’s offering was declared effective in 2006 and the company offered common stock at $10.00 per share ($100 per share adjusted for the recent reverse stock split). Inventrust reports total assets of $2.3 billion as of June 30, 2021. Inventrust shares have traded OTC with a market capitalization of approximately $1.4 billion based on recent transactions priced between $19-21 dollars per share. In 2015 Inventrust spun off Xenia Hotels & Resorts Inc. (NYSE: XHR) a hospitality focused REIT, which currently has a $2 billion market capitalization. In 2016, Inventrust spun-off certain non-core assets into Highlands REIT, Inc. (Highlands) and distributed shares in Highlands to its stockholders.

For more information: CLICK HERE and CLICK HERE

HGR Liquidating Trust (fka Hines Global REIT, Inc.)

On September 23, 2021, HGR Liquidating Trust announced that it had completed the sale of one of its five remaining properties, The RIM for $219.7 million. HGR Liquidating Trust further noted that it would make a special distribution of $0.80 per unit on September 29, 2021. HGR Liquidating Trust reported that it had paid a total of $13.89 per investor since its inception, including $5.64 in regular operating distributions and $8.82 in special liquidating distributions between 2018 and September 2021, inclusive of the announced $0.80 special distribution. HGR Liquidating Trust estimated a NAV per unit of $2.09 in March 2021 ($1.29 inclusive of the $0.80 special distribution).

Hines Global REIT, Inc. was initially declared effective in 2009 with an offering price of $10.00 per share.

For more information: CLICK HERE

Private Equity

GPB Automotive Portfolio, LP

On September 12, 2021, GPB Automotive Portfolio, LP (GPB Auto) announced that it had reached an agreement to sell its portfolio of auto dealerships to Group 1 Automotive, Inc (NYSE: GPI), for “approximately $880 million in cash”. Upon the close of the sale GPB Auto will place $45 million in escrow as a contingent reserve for any post-closing indemnifiable losses to the seller for up to 24 months. The sale includes all real property, vehicles, parts and accessories, goodwill, permits, intellectual property and substantially all contracts, that relate to their automotive dealership and collision center businesses. GPI is a publicly traded automotive retailer based in Houston, TX, with a market capitalization of approximately $3.2 billion.

GPB Auto reported total assets of $1.0 billion as of June 30, 2021. Net of cash, total assets were $870 million. GPB Auto reported total liabilities of $516.7 million, including approximately $145.4 million in outstanding debt. It is not entirely clear at this time what net returns to investors are anticipated to be following the announced automotive portfolio sale to GPI.

In other GPB news David Gentile, former CEO of various GPB entities, is reportedly suing GPB Capital Holdings LLC for $5.1 million to cover estimated tax liabilities for calendar year 2020. Mr. Gentile claims that the court appointed monitor has blocked tax distributions to him since January 2021. Mr. Gentile also claims that GPB entities have defaulted on approximately $5.5 million in six loans that he and family members made to various GPB entities from 2016 to 2019.  Further details can be found in this Wall Street Journal article.

For more information: CLICK HERE and CLICK HERE

Alternative Ramblings

A World of Junk

Junk bond issuance is at record levels in 2021 as comparative stability from the volatility of 2020 combined with investors insatiable appetite for yield has proved accommodative to credit issuance. S&P Capital IQ reports that approximately $$40 billion in leveraged loans and $361 billion in junk bonds were issued in 2021 through mid-September. Which, as the following chart highlights, is already a record year for high yield credit issuance.

In a sign that inflation worries may continue to ruminate, and (continue to) threaten real returns, the WSJ reported:

“The consumer-price index spiked above average yields on junk bonds earlier this year, upending the conventional logic of investing in bonds, which are typically prized for protecting investors’ money.”

Public vs. Private Equity Real Estate

The former head of the Abu Dhabi Investment Authority joined NAREIT for an interesting discussion on investment returns across publicly-traded REITs and private equity real estate investments. NAREIT sponsored the research which can be found here. Mr. Arnold noted that a survey of 375 private real estate investment funds, comprising over $220 billion in AUM, from 2000 to 2014 compared to the FTSE EPRA / NAREIT Global Index yielded the conclusion that 53% of the funds underperformed the index.

Additionally, Mr. Arnold noted that the previous assertion was based on a direct comparison without any expectation of an enhanced return on the private equity real estate related to the illiquidity premium or additional expected returns anticipated from comparatively greater leverage at the private real estate funds. When such illiquidity and risk premiums are estimated at 200-400 basis points per year, Mr. Arnold reported that the index beat their private fund competitors approximately 2/3 of the time. Further information on the methodology behind the research and other anecdotes on public vs. private real estate dynamics are available at the aforementioned links.

Mr. Arnold concedes that private funds generally offer investors more targeted exposures to real estate sectors and geographies than publicly traded peers. However, the general track of Mr. Arnold’s research is fascinating and worth further inquiry.

Bonds

GWG Holdings, Inc. 

On September 7, 2021, GWG Holdings, Inc. (NASDAQ: GWGH) announced that it reached an agreement with the Listings Qualification Department of the Nasdaq Stock Market. GWGH will continue to be traded on NASDAQ with the qualification that it files current financial statements through June 30, 2021, by October 31, 2021, and hold its 2020/2021 annual meeting by December 31, 2021.

For more information: CLICK HERE

REITs

Strategic Student & Senior Housing Trust, Inc. 

On August 31, 2021, Strategic Student & Senior Housing Trust, Inc. (SSSHT) filed a shareholder letter providing recent updates on its portfolio performance. SSSHT announced that its senior housing portfolio occupancies began to increase from a nadir of 77.2% as of Q1 2021, to 80.5% as of June 30, 2021. However, SSSHT noted that such increases in occupancies came with “significant expenses related to concessions, sales incentives and higher payroll due to labor shortages.” Student housing occupancies were reported at 96.3% and 100.0% on its two student housing properties as well.

SSSHT also noted that it was having liquidity issues noting that is bridge loans mature in April 2022, and “we do not have the cash flow to pay off these loans.” FactRight notes that $44.7 million of SSSHT’s total principal balance of $206.3 million is due in 2022. Additionally, lender mandated cash reserves were subject to increase by $1.8 million on January 1, 2022. SSSHT noted “we do not have the cash on hand to meet this obligation.”  SSSHT management noted that they were exploring all options for liquidity and recapitalization of the company.

SSSHT suspended its offering on March 20, 2021.

For more information: CLICK HERE

Pacific Oak Strategic Opportunity REIT, Inc. 

On September 1, 2021, Pacific Oak Strategic Opportunity REIT, Inc. announced that Eric Smith resigned from the board of directors.  Mr. Smith’s resignation was not related to any disagreement with the Company.  Mr. Smith served on the Audit and Conflict Committees.

For more information: CLICK HERE

Lightstone Value Plus REIT V, Inc. Chairman David Lichtenstein Resigns 

On September 3. 2021, Lightstone Value Plus REIT V, Inc. (Lightstone 5, fka Behringer Harvard Opportunity REIT II, Inc.), announced that David Lichtenstein resigned from his positions as director and chairman of the board of directors (The Board). Mr. Lichtenstein’s departure was not related to any disagreement with Company. Mr. Lichtenstein will remain in his positions as CEO of Lightstone 5’s external advisor and affiliated external property manager.

Mitchel Hochberg, Lightstone 5’s chief executive officer, was subsequently appointed to the board of directors and to serve as chairman. Mr. Hochberg serves as President of multiple affiliated REITs including Lightstone Value Plus Real Estate Investment Trust, Lightstone Value Plus REIT II, Inc. and Lightstone Value Plus REIT III, Inc.

Lightstone 5 reported total assets of $330 million as of June 30, 2021, comprised of six multifamily properties and a student housing property. Lightstone 5 began raising capital in 2008. In 2020 the Board indicated that it was extending the targeted timeline of a shareholder liquidity event from the previously targeted 2023 until 2028.

For more information: CLICK HERE

Alternative Ramblings

We look forward to seeing many of you out in Denver for our upcoming fall conference!

Bonds

GWG Holdings, Inc. 

On August 25, 2021, GWG Holdings, Inc. (NASDAQ: GWGH) announced that it entered into a non-binding term sheet with its non-wholly owned subsidiaries The Beneficient Company Group, L.P. (Ben) and Beneficient Company Holdings, L.P. that include a series of transactions that would result in Ben no longer being a consolidated subsidiary of GWGH and GWGH no longer having the right to appoint directors on the board of directors of Beneficient Management, L.L.C., among other developments. GWGH has noted that it believes such changes are needed for Ben “to establish an operational technology-enabled fiduciary financial institution (“TEFFI”) under the newly enacted Kansas Technology-Enabled Fiduciary Financial Institutions Act, which, is important to Ben’s long-term business objective of providing liquidity and other services to holders of alternative assets.” Ben received a conditional TEFFI charter on July 1, 2021.

The term sheet, which was not filed with the SEC, reportedly “sets forth a summary of the current discussions between GWGH and Ben and, among other items, contemplates the following”:

• “GWGH and Ben would agree to have the Commercial Loan Agreement between GWGH and Ben along with the associated underlying assets assigned to a third party.
• Ben would form an employee administration joint venture company with GWGH that would employ current national sales team members and certain related support members to support sales, sales operations, and national account product management for the companies.
• The companies would enter into an amendment to their administrative shared services agreement to facilitate the efficient separation of the companies while supporting GWGH’s continued operations during an interim period.
• GWGH would receive improved conversion rights with respect to certain of its holdings in BCH and additional registration rights to facilitate GWGH’s ability to monetize certain of its investments in Ben and BCH.
• The companies would enter into an agreement pursuant to which GWGH would swap certain Ben securities held by GWGH or a subsidiary thereof for GWGH securities held by Ben or a subsidiary thereof.”

GWGH reported that it is working to complete definitive documentation related to the items outlined in the term sheet and anticipates that the definitive documentation will be complete on or around October 1, 2021. There is no assurance that such documentation will be completed.

GWGH also reported that:

“In light of Ben becoming an independent company, GWGH expects that Ben would reduce its reliance on GWGH to fund its operations and would raise future capital from other sources. Ben’s capital raising efforts may include the issuance of equity or debt of Ben or one of its subsidiaries, and the newly issued securities may be dilutive to GWGH’s investment in Ben and BCH and may include preferential terms relative to GWGH’s investments in Ben and BCH. 

GWGH would still retain a substantial investment in Ben, and GWGH expects that the composition of assets backing the L Bonds and preferred stock issued by GWGH would not be negatively impacted by Ben no longer being a consolidated subsidiary. GWGH intends to continue to pursue its current business strategies following the transactions contemplated by the Term Sheet if those transactions are consummated.” 

FactRight previously reported that GWGH has not filed financial statements for the first quarter of 2021 and also its annual report for 2020. Additionally, on August 1, 2021, GWGH announced that its board of directors determined that certain previously issued financial statements including its annual report for the year ended 2019, and the quarterly reports for the first three quarters of 2020 “should no longer be relied upon.” GWG reported that the Board’s determination was based upon the resolution of the consultation process with the SEC’s Office of the Chief Accountant (SEC OCA). GWGH noted that following the consultation with the SEC OCA it will consolidate the trusts, that hold secondary alternative assets that GWG has provided loan financing to as part of its core strategy, into its financial statements.

GWG previously reported that it “is unable at this point to estimate when those restatements will be complete.”

GWG suspended its offering of L Bonds upon its failure to timely file its 2020 annual report.  Additionally, multiple members of the board of directors including chairman Brad Heppner resigned from the Board in the second quarter of 2021.

For more information:  CLICK HERE

REITs

Vinebrook Homes Trust, Inc. 

On August 22, 2021, Vinebrook Homes Trust, Inc. (Vinebrook), an externally advised single-family residential REIT, announced that James Dondero had resigned from his positions as chief executive officer, president and as a director of Vinbeook. Vinebrook reported that Mr. Dondero’s resignation was not a result of any disagreement with Vinebrook’s operations, policies or practices. Following Mr. Dondero’s resignation the board of directors of Vinebrook (appointed current chief financial officer Brian Mitts to serve as the company’s principal executive officer.

For more information: CLICK HERE

Griffin Realty Trust, Inc. (fka Griffin Capital Essential Asset REIT, Inc.) Provides no Recommendation Related to Third-Party Tender Offer

On August 27, 2021, Griffin Realty Trust, Inc. (GRT) announced that its board of directors (the Board) was not making any recommendation related to whether Class AA shareholders should accept or reject a third-party tender offer from Comrit Investments I, Limited Partnership (Comrit). Comrit’s offer is to purchase up to $4 million in outstanding Class AA common stock at a price of $6.91 per share. GRT most recently estimated a NAV per share of $9.04 as of June 30, 2021.  The Board noted that currently shareholders ability to redeem their shares “is very limited”. Shareholder redemptions are presently limited to death and disability and hardship, subject to a quarterly cap based on the aggregate NAV of shares issued under the distribution reinvestment plan. GRT reported in the second quarter that it redeemed 871,550 shares and that 437,298 shares were tendered for redemption and not redeemed due to the limitations on redemptions. The number of outstanding shares not redeemed totaled approximately 0.1% of the outstanding shares as of June 30, 2021.

The Board further noted that in light of the current and ongoing illiquidity related to GRT shares that it would adopt neutral stances related to all tender offers as a matter of policy.

The Board had unanimously recommended that shareholders reject a third-party offer from CMG Partners, LLC as recently as April 2021. The CMG offer was for $4.08 per share, at a time when GRT shares (then known as Griffin Capital Essential Asset REIT, Inc.) had an estimated NAV per share of $8.97 as of December 31, 2020.

For more information: CLICK HERE

Alternative Ramblings

Data from S&P Capital Market Intelligence in the able below highlights the short interest in publicly-traded REITs by sector as of August 27, 2021. This data provides some illumination on investor sentiment regarding various property sectors and anticipated recovery outlooks amidst ongoing COVID-19 pandemic. Unsurprisingly regional malls continue to face the most scrutiny as a combination of secular trends with migrating consumer trends to digital shopping channels and operational challenges amidst the pandemic continue to exert pressure on the sector. Shopping centers, largely comprised of grocery-anchored REITs, have fared considerably better as there comparative foundational positioning in Maslow’s hierarchy of needs has distinguished them from their retail regional mall kin. Additionally, farmland REITs and communications sectors have also avoided significant short interest as their essential functions in a modern economy are rewarded.

Interestingly, the third largest short position in a REIT, by short interest as a percentage of outstanding shares, is Independence Realty Trust, Inc. (NYSE: IRT), which had 17% of its shares sold short.  IRT and Steadfast Apartment REIT (STAR) announced a merger agreement on July 26, 2021. We previously reported on this merger here. The short interest in IRT has increased 10-fold since the announcement of the merger agreement. If the merger agreement receives stockholder approval and closes, it will provide liquidity for STAR shareholders who have not had access to significant liquidity for a number of years. One expects a significant portion of STAR shareholders may seek liquidity at their first chance upon the close of the merger.

Bonds

GWG Holdings, Inc. 

On August 11, 2021, GWG DLP Funding VI, LLC (DLP VI) a subsidiary of GWG Holdings, Inc. (NASDAQ: GWGH) established a new credit facility (NF Credit Facility) and drew $107.6 million on the newly created credit facility.

GWGH reports the following regarding the NF Credit Facility:

“Granted the administrative agent, for the benefit of the lenders under the agreement, a security interest in substantially all of GWGH’s remaining life insurance policy assets not pledged by GWG DLP Funding IV, LLC under its senior credit facility with LNV Corporation. In addition, amounts owing under the NF Credit facility have been guaranteed by GWGH upon the occurrence of a Guarantee Trigger Event (as defined in the guarantee), including certain bankruptcy events related to the Borrower or the Parent or a Change in Control (as defined in the NF Credit Agreement).”

“A portion of the proceeds from the funding under the NF Credit Facility was used to purchase life insurance policies that were owned by DLP IV, which used the funds to repay the most recent advance of $52.5 million under the LNV Credit Facility described in GWGH’s Current Report on Form 8-K filed with the SEC on July 2, 2021. At August 11, 2021, the aggregate face value of life insurance policies owned by the Borrower, DLP VI, was approximately $433.1 million. As of such date, the aggregate face value of life insurance policies owned by DLP IV was approximately $1.42 billion.”

“The Borrower may voluntarily prepay amounts owing under the NF Credit Facility upon payment of all accrued and unpaid interest on such prepaid amounts and payment of the applicable Prepayment Premium (as defined in the NF Credit Agreement).”

“The NF Credit Facility permits DLP VI to pay dividends and distributions from the proceeds of the one-time advance. As a result, the funding under the NF Credit Facility, less amounts used to purchase the life insurance policies from DLP IV, will be available to GWGH and will improve GWGH’s cash position while it works to complete its Annual Report on Form 10-K for the year ended December 31, 2020 and its Current Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, which GWGH expects will permit it to resume the issuance of its L Bonds.”

FactRight notes that a copy of the underlying credit agreement for the NF Credit Facility was not filed with the SEC and the identity of the lender under the NF Credit Facility was not disclosed.

FactRight notes that GWGH reported in its 2020 third quarter report that the face value of its life insurance policies totaled $1.92 billion as of September 30, 2020. Based on the information noted above, it appears that approximately $1.85 billion in life insurance policies have been pledged to various lenders as of August 2021.

On August 17, 2021, GWGH reported that it was unable to file its second quarter financials for the quarter ended June 30, 2021.

FactRight previously reported that GWGH has not filed financial statements for the first quarter of 2021 and also its annual report for 2020. Additionally, on August 1, 2021, GWGH announced that its board of directors determined that certain previously issued financial statements including its annual report for the year ended 2019, and the quarterly reports for the first three quarters of 2020 “should no longer be relied upon.” GWG reported that the Board’s determination was based upon the resolution of the consultation process with the SEC’s Office of the Chief Accountant (SEC OCA). GWGH noted that following the consultation with the SEC OCA it will consolidate the trusts, that hold secondary alternative assets that GWG has provided loan financing to as part of its core strategy, into its financial statements.

GWG previously reported that it “is unable at this point to estimate when those restatements will be complete.”

GWG suspended its offering of L Bonds upon its failure to timely file its 2020 annual report.  Additionally, multiple members of the board of directors including chairman Brad Heppner resigned from the Board in the second quarter of 2021.

For more information: CLICK HERE and CLICK HERE

REITs

Black Creek Industrial REIT IV Appoints New Director to its Board

On August 18, 2021, Black Creek Industrial REIT IV Inc. (BCI IV) announced that it expanded the size of its board of directors (The Board) with the appointment of Rajat Dhanda to a director position on the Board. Mr. Dhanda serves as BCI IV’s Managing Director and Co-President. Mr. Dhanda is the chief executive officer of the Black Creek Group (BCG) and also serves as Co-President of the Black Creek Diversified Property Fund, a non-traded REIT managed by BCG.

For more information: CLICK HERE

We previously reported that BCG (fka Dividend Capital) announced in May 2020 that it had reached an agreement to sell its real estate advisory and distribution business to affiliates of Ares Management Corporation (NYSE: ARES).  BCG has been a longtime sponsor of multiple non-traded and publicly traded REITs, private offerings, and various 1031 exchange offerings dating back to 1993. The acquisition is anticipated to close in the third quarter of 2021. No changes to portfolio management teams are anticipated at this time according to Black Creek’s press release. It is anticipated that the advisory contracts on BCG’s non-traded REITs will be assigned to affiliates of Ares.

Black Creek Industrial REIT IV, Inc., and Black Creek Diversified Property Fund, Inc. each noted that:

The principals of Black Creek Group, the rest of the management team and our current officers are expected to continue to serve in their roles for the foreseeable future, although certain Ares Management personnel are expected to join our board of directors and the Advisor’s investment committee. 

BCG notes that combined with its $11.6 billion in AUM, Ares and its affiliates will have total real estate assets of approximately $29 billion. Ares reports over $200 billion in AUM, consisting of private equity, credit and real estate assets.

For more information: CLICK HERE

REITs 

Preferred Apartment Communities Inc. (NYSE: APTS) Revises Guidance on NOI Growth 

On August 10, 2021, Preferred Apartment Communities Inc. (APTS) hosted an earnings call to discuss second quarter operating results. Key highlights included: 

• Updated guidance regarding same property net operating income (NOI) growth of 5-7% from the previous NOI growth forecast of 2-3%.  Management attributed this upward revision to a strong rental market in the sunbelt geographies where the portfolio is invested in.   
• Rental and property revenues increased 5.5% and same property NOI increased 6.4% in Q2 year-over-year. 
• Rental collection on multifamily properties in the second quarter of 2021 was 99.3%, consistent with 2020 collections. Grocery anchored retail property rental collection was reported at 98.9% in the second quarter of 2021, an uptick from 97.4% in 2020.  APTS reported that total deferred rent on grocery-anchored retail properties was 1.7% of cumulative retail revenues over the past five quarters.   

We previously reported on APTS efforts to reposition its balance sheet and redeem out preferred stock here.  

For more information: CLICK HERE and CLICK HERE 

Lightstone Real Estate Income Trust Inc. and Lightstone Value Plus Real Estate Investment Trust II, Inc. Appoint New Board Director 

On August 11, 2021, Lightstone Real Estate Income Trust Inc., and Lightstone Value Plus Real Estate Investment Trust III Inc. (collectively the Lightstone REITs) announced that their respective boards of directors (the Boards) had elected Michael DeMarco to serve on the Boards following the passing of director Edwin Glickman in June of 2021. Mr. DeMarco will serve as a member of the Lightstone REITs respective audit committees.  Mr. DeMarco will receive annual cash compensation of $40,000 for service on each of the Boards of the Lightstone REITs. 

For more information: CLICK HERE and CLICK HERE 

Lightstone Value Plus Real Estate Investment Trust III, Inc. 

On August 11, 2021, Lightstone Value Plus Real Estate Investment Trust III Inc. (Lightstone III) announced that its board of directors had elected Yehuda “Judah” L. Angster to serve on the board of directors following the passing of director Edwin Glickman in June of 2021. Mr. Angster will serve as member of Lightstone III’s audit committee. Mr. Angster will receive annual cash compensation of $40,000 for service on each of the board of directors. 

For additional information: CLICK HERE 

Steadfast Apartment REIT, Inc.  

On August 16, 2021, Steadfast Apartment REIT, Inc. (STAR) published a frequently asked questions (FAQ) letter to shareholders related to its previously announced merger with Independence Realty Trust (NYSE: IRT).  We previously reported on the merger, which was announced in late July, here.  

The FAQ features some (refreshingly) direct questions including:  

Why did you lower distributions last year and make it harder to redeem shares last year?” 

“During 2020, with the onset of COVID and the resulting economic downturn, we focused on ensuring we had sufficient liquidity to run our business. In doing so, we determined to reduce our distribution rate and limit our share redemption plan to death and qualifying disability only. These changes were made after careful consideration by our board of directors and were not made lightly. We believe we have a stronger company coming out of the pandemic in part as a result of these decisions.” 

FactRight notes that STAR shareholders received an annualized distribution of $0.525 per share and that adjusted for the stock-for-stock consideration in the proposed merger, STAR shareholders are anticipated to receive stock that would have an annualized distribution of $0.48 per share, based on IRT’s historical distributions. 

How did you justify your executive officer and director compensation packages? 

“Compensation plans are designed to provide a balanced approach that incorporates cash incentives subject to an assessment of our financial and operating results and equity awards that promote retention and alignment with our stockholders.  We engaged the services of an independent executive compensation consulting firm to assist our Compensation Committee in reviewing and establishing our programs and policies. We believe our practices are in line with industry standards. We review our compensation policies regularly to ensure continued alignment of strategic and operational objectives.  With respect to director fees paid in 2020, it should be noted that we formed special committees of independent directors to navigate the merger of our Company with Steadfast Income REIT and Steadfast Apartment REIT III in March 2020; the internalization transaction in August 2020; and the ongoing evaluation of strategic alternatives available to the Company throughout the year. Our independent directors received additional consideration in the form of retainers and meeting fees during this period. Given the extraordinary activity, the independent directors held a higher number of meetings than would occur in a typical year.” 

FactRight notes that director compensation nearly trebled to a combined $1.47 million across five independent directors in 2020 compared to $0.56 million in 2019. 

For more information: CLICK HERE 

Alternative Ramblings 

Distressed Funds False Start and Healthy Conditions for Continued REIT Merger Activity 

NAREIT’s REIT Report podcast had an interesting discussion with Lynn Kawaminami and Nathan Florio, both from Deloitte, regarding recent REIT M&A activity and market conditions.  The duo forecasted that additional merger activity was anticipated in the hospitality sector and in alternative real estate asset classes including data centers and wireless towers and potentially in the office space as various investor bases have different expectations about the future of the office market.  Ms. Kawaminami also provides an overview of certain tax favorable property transaction structures, including the use of operating partnership units as consideration for properties.  FactRight has reviewed multiple funds that have been employing such a strategy.   

Mr. Florio reported that Deloitte revamped their distressed asset practice in 2020 and that they have not seen a significant uptick in distressed real asset transactions following the market dislocations of 2020 and into 2021 related to the pandemic, outside of some shopping malls and hotel deals.  This coming on the heels of a flurry of capital raising activity in various distressed fund vehicles in 2020.  Mr. Florio points out significant government assistance to individuals and tenants, broader support for capital markets and accounting modifications related to lease modifications contributing materially to the lack of distressed deals to date.   

REITs

Preferred Apartment Communities Inc. (NYSE: APTS)

On August 4, 2021, Preferred Apartment Communities Inc. (APTS) reported that it closed on the sale of five office properties to Highwood Properties, Inc. (NYSE: HIW) for $645.5 million. Following the repayment of $404 million in property level debts the transaction will yield net proceeds of $241.5 million (approximately $4.74 per share). APTS further reported that it reached an agreement to sell additional office properties to Northwood Investors on July 22, 2021. APTS CEO Joel Murphy stated that it is APTS’ intention to “fully exit the office asset class”.

APTS also announced on July 30, 2021, that it intends to redeem $221 million of its 6.00% Series A Redeemable Preferred Stock. APTS reported that this is approximately 13.5% of its current outstanding preferred stock. Mr. Murphy further noted that since November (2020) APTS has redeemed over $550 million in its Series A Preferred stock representing approximately 28% of the amount in place as of the end of the third quarter 2020. Mr. Murphy noted that the sale of “the substantial majority of our office assets has allowed us to harvest capital to realign our balance sheet and to further simplify our investment focus.” APTS previously sold off its student housing assets in 2020. The remaining portfolio consists predominantly of multifamily assets and grocery-anchored shopping centers.

For more information: CLICK HERE

Bonds

GWG Holdings Inc. (NASDAQ: GWGH)

On August 1, 2021, GWG Holdings Inc. (GWG) announced that its board of directors (the Board) in consultation with GWG’s management determined that certain previously issued financial statements including its annual report for the year ended 2019, and the quarterly reports for the first three quarters of 2020 “should no longer be relied upon.” GWG reported that the Board’s determination was based upon the resolution of the consultation process with the SEC’s Office of the Chief Accountant (SEC OCA). GWGH noted that following the consultation with the SEC OCA it will consolidate the trusts, that hold secondary alternative assets that GWG has provided loan financing to as part of its core strategy, into its financial statements.

GWG has not filed its annual report for the year ending December 31, 2020, and has not filed its form 10-Q for the quarter ending March 31, 2021. GWG reported that it is working to complete restatements regarding the financial statements in its 2019 annual report and its quarterly reports for the first three quarters of 2020. GWG notes that it “is unable at this point to estimate when those restatements will be complete.” GWG further noted that “these restatements do not arise from or cause any negative changes in the Company’s operations, the underlying economics attributable to the Company or its subsidiaries, the terms of the Company’s existing assets, or its expected prospects for future business.” GWG also noted that it continues to make all required payments under its L Bonds and preferred equity and is “working on financing options to further supplement its cash position.”

GWG suspended its offering of L Bonds upon its failure to timely file its 2020 annual report. Additionally, multiple members of the board of directors including chairman Brad Heppner resigned from the Board in the second quarter of 2021.

For more information: CLICK HERE

Alternative Ramblings

Pumped Up Kicks

The market for investment in fractional ownership of artwork from major artists including Banksy, Warhol, and Basquiat is growing. This has been evidenced by the expansion of Masterworks, which has become a serial sponsor of Regulation A offerings. However, maybe canvas art isn’t your style, perhaps sneakers pique your interest. In that case, Rares is offering fractional interests in exotic athletic footwear including Apple sneakers, designed and issued for employees in the early 1990s, and 1980s Nike Jordan 1 OG shoes, among others. Rares is offering interests in the sneakers in a Regulation A offering that received a notice of qualification in March 2021. Shares in entities that own old gym shoes can typically be purchased for between $10 and $30 in the primary offering. Rares anticipates secondary liquidity will be facilitated in the future via an online marketplace. More information can be found in the Rares offering circular and this FAQ. Rares recently made headlines for purchasing a pair of Kanye West’s sneakers for $1.8 million at a Sotheby’s auction. An encompassing story about Rares and the broader sneaker market is available here.

Speaking of esoteric and expensive frivolities, the Department of Justice reported that it completed the sale of Martin Shkreli’s Wu-Tang Clan album “Once Upon a Time in Shaolin”. The sale of the album was related to a $7.4 million forfeiture money judgment entered against Mr. Shkreli related to his 2017 conviction for securities fraud.  A recap of the Shkreli saga can be found here. The DOJ did not report the sale price, or the identity of the purchaser, but noted that the album was marketed “as both a work of art and an audio artifact.” Mr. Shkreli’s copy was the only copy of the album that the rap group produced, the Museum of Modern Art provides an artsy overview of the album and interviews with Wu-Tang Clan members about the unique album.

REITs

Steadfast Apartment REIT, Inc. Announces Merger With Independence Realty Trust (NYSE: IRT)

On July 26, 2021, Steadfast Apartment REIT, Inc. (STAR) announced that it had reached a merger agreement with Independence Realty Trust (NYSE: IRT). STAR shareholders will receive 0.905 shares of IRT common stock as consideration for the merger. The combined entity will feature pro forma ownership of approximately 50% STAR shareholders and 50% IRT shareholders. IRT’s management team will operate the combined company and Ella Neyland, STAR’s President and CFO, will become the chief operating officer of the combined company. The combined entities board of directors will be comprised of 10 directors including 5 each from IRT and STAR. The merger requires the approval of IRT and STAR stockholders and is anticipated to close in the fourth quarter of 2021. STAR has 73 properties located across 14 states with $3.3 billion in total assets.

IRT reports that it anticipates $28 million in corporate expense savings and operational synergies related to the merger. The merger agreement also includes termination provisions in which each respective REIT would be obligated to pay the other REIT $10 million if its respective shareholders reject the proposed merger.

Upon announcement of the merger agreement STAR’s board of directors voted to suspend its distribution reinvestment program and the share repurchase plan, effective August 1, 2021, and July 31, 2021, respectively.

FactRight notes that based on the consideration of 0.905 IRT shares per STAR share, STAR shareholders, based on IRT’s current distribution rate, can anticipate an annual distribution amount of $0.4344 compared to the current $0.525 annual distribution amount.

In March of 2020 STAR completed affiliated mergers with Steadfast Income REIT, Inc. and Steadfast Apartment REIT III, Inc. Additionally, STAR completed an internalization transaction of its external advisor in August 2021, in exchange for approximately $125 million in consideration, consisting of $31.2 million in cash and 6.2 million OP Units.

For more information: CLICK HERE, CLICK HERE and CLICK HERE

IRT additionally priced an offering of 14 million common shares at $17.75 per share in a public offering expected that closed on July 30, 2021, the offering including an overallotment option allowing the underwriting syndicate to purchase an additional 2.1 million shares, which was subsequently exercised. IRT anticipates using proceeds to paydown existing debts. IRT shares closed at $19.05 on July 29, 2021.

Sila Realty Trust, Inc. Completes Sale of Data Center Portfolio, Announces NAV Per Share and a Special Distribution of $1.75 per Share.  

On July 23, 2021, Sila Realty Trust, Inc. (SRT) announced an updated NAV inclusive of the closing of the sale of its 29-property data center portfolio. SRT previously announced it had reached an agreement to sell the portfolio for $1.32 billion in the second quarter.  SRT reports that the portfolio properties were originally acquired for $965.2 million, and the sale represented a gain of $354.8 million (approximately $1.59 per share, based on total outstanding shares as of March 31, 2021). Following the close of the portfolio sale SRT announced a special distribution of $1.75 per share, scheduled to be paid on July 29, 2021.

SRT also announced an estimated NAV per share of $9.95 as of May 31, 2021. This valuation was inclusive of the $1.32 billion in consideration received for the sale of the data center portfolio. SRT previously announced an estimated NAV per share of $8.69 per share as of September 30, 2020. Following the announced special distribution of $1.75 per share, SRT reported an estimated NAV per share of $8.20 as of July 26, 2021.

SRT was formed from the merger of Carter Validus Mission Critical REIT II, Inc. and Carter Validus Mission Critical REIT, Inc. FactRight notes that shares in Carter Validus Mission Critical REIT, Inc. were originally offered at $10.00 per share in an offering that originally was declared effective in December 2010.

For more information: CLICK HERE

Benefit Street Partners Realty Trust to Merge With Capstead Mortgage Corporation (NYSE: CMO) and Become Publicly Traded

On July 26, 2021, Benefit Street Partners Realty Trust (BSP Realty Trust, fka Realty Finance Trust) announced that it had reached an agreement to merge with Capstead Mortgage Corporation (NYSE: CMO). Following the close of the merger the combined entity would be renamed Franklin BSP Realty Trust and would trade on the NYSE under the ticker symbol FBRT. The combined entity would continue to be externally managed by BSP Realty Trust’s advisor.

CMO shareholders will receive a cash payment at the closing of the merger equal to a 15.75% of the premium to diluted book value per share and common stock in BSP Realty Trust on an adjusted “book-for-book” basis that will be set on a date prior to the closing of the announced transaction. BSP’s external advisor will fund approximately $75 million of the cash merger consideration (approximately 2/3 of the cash consideration according to CMO CEO Phillip Reinsch) to be paid to CMO shareholders.

The merger also contemplates a six-month lockup period for approximately 94% of current BSP Realty Trust shares and $100 million earmarked to support the combined entities stock price in the open market, of which $35 million will come from the external advisor and Franklin Templeton.

CMO reported that the proposed deal terms would total approximately $7.30 per share in consideration, marking a premium for CMO shareholders. CMO stock traded up 7% on the news closing at $6.50 a share. The merger agreement is subject to the approval of CMO stockholders.

Following a 2016 transaction BSP Realty Trust migrated from being managed by AR Global affiliates to Benefit Street Partners, which subsequently was acquired by Franklin Templeton in 2018.

For more information: CLICK HERE and CLICK HERE

Griffin American Healthcare REIT III and Griffin American Healthcare REIT IV Announce Definitive Merger Agreement and Internalization Transaction

On July 23, 2021, Griffin-American Healthcare REIT III (GAHR III) and Griffin American Healthcare REIT IV (GAHR IV, and together the REITs) announced that they had entered into a definitive merger agreement. The merger contemplates the merger of GAHR III into GAHR IV. The combined entity will be renamed American Healthcare REIT, Inc and will have total assets in excess of $4 billion, which would rank 11th as far as largest healthcare focused REITs globally. GAHR III reports that it is estimated that the combination and internalization will save investors in the combined entity approximately $21 million annually, “which will help support an anticipated annual distribution rate of $0.40 per share.” Prior to this combination, GAHR III is to acquire American Healthcare Investors, LLC (AHI) in an internalization transaction. GAHR III has subsequently filed a definitive proxy seeking certain shareholder approvals related to the merger and internalization, including an amendment to its charter to remove limitations on the collection of an internalization fee.  AHI owns 75.0% of each respective REITs external advisor. The remaining 25.0% of the respective advisors are owned by Griffin Capital Company, LLC.  AHI is in turn owned 47.1% by AHI Group Holdings, LLC and 45.1% by Colony Capital, Inc. (NYSE: CLNY) and 7.8% by James Flaherty III, a former partner of Colony Capital. FactRight notes that total consideration related to the internalization was not presently ascertainable.  The REITs noted that additional information will be presented on a virtual presentation available on their respective websites on Thursday August 19, 2021.

For more information: CLICK HERE

Additional color on the transaction can be found at the following Senior Housing News article from Tim Mullaney.

Invesco Real Estate Income Trust Inc.  

On July 20, 2021, Invesco Real Estate Income Trust Inc. (Invesco REIT) announced that it entered into an amended and restated advisory agreement.  The amended advisory agreement will allow the Advisor to elect to receive its management fee and performance participation interest in either cash or certain share classes of common stock.  Shares received as compensation for management fees are not subject to the limitations of Invesco REIT’s share repurchase plan. Shares issued related to the performance participation interest are not subject to the minimum holding period prior to repurchase, however Invesco REIT’s board of directors may determine that such repurchase of performance participation interests will not be made in cash at various times.

For more information: CLICK HERE

Alternative Ramblings

SEC Obtains Judgment against former First Capital CEO Suneet Singal

The SEC announced it obtained a final judgment of more than $7 million from Suneet Singal and multiple entities affiliated with Mr. Singal related to two separate frauds disclosed in a complaint from December 2019. Mr. Singal served as CEO of First Capital Real Estate Trust Inc. (the REIT) until his resignation in December 2019. Mr. Singal noted in his resignation letter that he “negotiated an exit price of $20.00 per share for our shareholders, a gain over the original share pricing paid of $10.45 and $12.49 per share respectively.” The REIT has not reported financial statements since the second quarter of 2015. Additionally, Mr. Singal served as acting chief executive officer and acting chief financial officer of First Capital Investment Corporation (the BDC). Mr. Singal, through a series of transactions, came to own the external advisor of the BDC, which was subsequently sold to StHealth Capital Partners LLC, which renamed the BDC to StHealth Capital Investment Corp in 2018.

According to the SEC’s complaint from December 2019:

“Singal and the REIT made material misrepresentations and omissions concerning the REIT’s ownership of 12 hotels in several Forms 8-K. As to the BDC, the SEC’s complaint alleged that Singal acquired an interest in the BDC’s external adviser and then caused the BDC to make two $1.5 million loans to an entity that he controlled, which he then used for his own purposes.” 

Mr. Singal did not admit or deny the allegations in the SEC’s complaint. Singal and First Capital Investments, LLC agreed to pay $3.2 million in disgorgement and $0.7 million in prejudgment interest. Mr. Singal further agreed to pay a civil monetary penalty of $3.2 million.  The SEC barred Mr. Singal from the securities industry. Mr. Singal may reapply to reenter the securities industry after 10 years. Additionally, Mr. Singal is barred from serving as a director or officer of a publicly traded company for 10 years. Additional information on the matter is available here from the DI Wire.

SEC Announces Securities Fraud Charges Against Michael Shustek 

The SEC brought fraud charges against Michael Shustek on August 2, 2021. The SEC’s complaint alleges that “since at least 2012, Shustek fraudulently enriched himself and one of the REITs he controlled, The Parking REIT (TPR), at the expense of two publicly traded REITs he earlier had founded, Vestin Realty Mortgage I (VRTA) and Vestin Realty Mortgage II (VRTB).” The complaint alleges Mr. Shustek “drained $29 million from VRTA and VRTB in order to funnel the money into the Parking REIT” and “deceived the boards of directors of VRTA and VRTB and violated his fiduciary duties to those companies in two separate securities transactions to get the companies to pay him almost $10 million.” Additionally, the complaint notes that “Shustek repeatedly misled investors by causing VRTA and VRTB to make false and misleading statements in their public filings, which hid his self-dealing.”

The complaint alleges violations of the antifraud provisions section 10(b)5 of the Securities Exchange Act of 1934, among other charges. The complaint seeks permanent injunction, disgorgement, prejudgment interest, civil penalties, and an officer and director bar and penny stock bar against Mr. Shustek.

We previously reported that TPR was seeking to close a transaction with Bombe Asset Management LLC (Bombe), in which Bombe would invest approximately $125 million into TPR including the purchase of TPR shares held by VRTA, VRTB, Mr. Shustek and affiliates. The transaction was anticipated to close in mid-2021, subject to certain conditions, including the settlement of three class action lawsuits and the close of the SEC investigation into TPR, and receipt of written correspondence from the SEC “stating that it does not intend to recommend any enforcement action against the Company”. TPR reported in its most recent annual report that the SEC has been conducting an investigation into TPR and that in June 2019 TPR and its chairman and chief executive officer Michael Shustek received subpoenas and that the SEC has subsequently requested additional information from TPR. Upon completion of the transaction Mr. Shustek was to resign as a director and officer of TPR. No update from TPR has been filed regarding the SEC’s complaint.

YOLO

Retail Brokerage cum meme stock trading platform Robinhood Markets Inc. began trading on the NASDAQ and its debut was less than well received trading down 8% on its opening day. However, Robinhood bounced back up 8.4% from its opening day close to close at $37.68 on August 2, 2021. Interestingly, Robin Hood (NASDAQ: HOOD), per its Registration Statement, derived 75% and 81% of its respective 2020 and 2021 Q1 revenues from payment for order flow, “PFOF”. Robin Hood explains PFOF revenues as “consideration in exchange for routing our users’ equity, option and cryptocurrency trade orders to market makers for execution.” Robin Hood is not the only retail brokerage that accepts PFOF with Charles Schwab deriving approximately 13% of its 2021 Q1 revenues from “order flow revenue”. The practice has many critics who point out the conflict with investors best interests related to execution pricing risks. One notable critic is SEC chairman Gary Gensler, who announced that the SEC would study the matter as part of broader market structure reform efforts.  The practice is banned in other countries including the U.K. and Australia.

REITs

Blackstone Real Estate Income Trust Inc.

On July 14, 2021, Blackstone Real Estate Income Trust Inc. (BREIT) announced that it was acquiring an affordable multifamily housing portfolio from American International Group, Inc. (AIG) for $5.1 billion.  The portfolio includes 678 multifamily communities totaling approximately 83,000 apartment units.  The portfolio is concentrated in California, Colorado, Texas, and Virginia.  BREIT noted that the AIG portfolio was developed using Federal Low Income Housing Tax Credits and 100% of units in the portfolio were subject to rent restrictions.

It has been a busy 2021 for BREIT with two other major transactions announced recently, including the $8.7 billion acquisition of data center REIT QTS Realty Trust, Inc. (NYSE: QTS). The go-shop period on the transaction recently expired with no superior offer.  The $8.7 billion acquisition, priced at $78 per share, is anticipated to close in the second half of 2021.  BREIT also announced in June 2021 that it was acquiring 17,000 single-family rental homes (SFR) through its acquisition of Home Partners of America for $6.0 billion.  The SFR portfolio is concentrated in Atlanta, Dallas, Denver, Seattle, and Tampa with a current occupancy rate of 98%.

Three deals constituting approximately $20 billion in asset acquisitions, in less than a year, truly staggering.  Pricing information on the portfolio acquisitions were not disclosed.

For more information: CLICK HERE and CLICK HERE

Black Creek Industrial REIT IV Inc. 

On July 14, 2021, Black Creek Industrial REIT IV (BCI IV) announced that it has closed on the acquisition of 48 industrial properties for $920 million. BCI IV acquired the portfolio, which encompasses 8.3 million square feet of industrial space, from affiliates of Prologis, Inc. (NYSE: PLD). The portfolio includes properties in 13 markets and is 96.4% occupied by 83 tenants with a weighted average lease term of 3.4 years. Radial, Inc., a multinational e-commerce company leases 1.0 million square feet of the portfolio under a lease that expires in 2026 subject to two five-year extension options.

BCI IV noted that 12 of the 48 properties would be offered in DST offerings to investors in which BCI IV’s operating partnership would guarantee long-term leases to the respective DSTs.

Prologis previously closed on a $4 billion transaction with an affiliate of BCI IV, Industrial Property Trust, in January 2020.

For more information: CLICK HERE

Mackenzie Realty Capital Inc. 

On July 14, 2021, MacKenzie Realty Capital, Inc. (MRC) announced that its CFO Paul Koslosky tendered his resignation effective immediately. MRC reported that Mr. Koslosky’s retirement is not a result of any disagreement with the company or its independent auditors regarding any accounting principles or practices, financial statement disclosure or internal controls. MRC’s director of accounting, Angche Sherpa, was subsequently promoted to the CFO position. Mr. Sherpa has been employed by MRC’s administrator, MacKenzie Capital Management, LP, since 2012 and obtained his CPA license in California in 2011.

For more information: CLICK HERE

Preferred Apartment Communities Inc. 

On July 15, 2021, Preferred Apartment Communities Inc. (NYSE: APTS, known as PAC) announced that it had reached a separation agreement with Parker Boone Dupree, who has served as President of Office at PAC since March 2020, and as CEO of Preferred Office Properties, LLC.  Mr. Dupree’s employment will expire on or around August 31, 2021. Total compensation to be paid to Mr. Dupree is anticipated to be approximately $924,000 payable over the next two years, in addition to certain insurance premiums until February 2022.

Mr. Dupree is the son of Dan Dupree, who served as Executive Chairman of PAC since 2018, and previously served as CEO from April 2018 until January 2020.

PAC had previously announced in April 2020 that it had agreed to sell a portfolio of seven office properties to Highwood Properties, Inc. (NYSE: HIW) for $717.5 million.  The Highwood portfolio sale is anticipated to close in the third quarter.  PAC noted that the sale of the office properties would further simplify its portfolio which is focused on multifamily properties and grocery-anchored retail centers.  PAC had previously sold off its student housing assets in 2020.

For more information: CLICK HERE

Hines Global Income Trust, Inc. 

On July 16, 2021, Hines Global Income Trust, Inc. announced that it had engaged the Altus Group to provide third party valuation services to support its board of directors in establishing estimated NAV per share data on a monthly basis.

For more information: CLICK HERE and CLICK HERE

Alternative Ramblings

Vinebrook Homes Trust Inc. contemplates IPO.

Bloomberg reports that NexPoint is exploring an IPO for the rental home landlord amidst incredibly strong market conditions in the sector. Vinebrook manages over 13,500 housing properties in the United States and is potentially seeking to capitalize on current sentiment with an IPO possible later in 2021 or 2022.

Inflationary Divergence

It seems one can’t escape media coverage of inflation expectations these days.  I’m sure you’re just as sick of seeing the latest buzzwords “transitory inflation” scribbled across every news piece.  Some of the more thoughtful views on the subject include Guggenheim’s recent research, which diverges from the emerging consensus of increased across the board inflation over the near to medium term.  Guggenheim notes that increased inflation within the CPI has been primarily driven by a few sectors including new and used autos, car rentals, hotels and airfare as highlighted in the following charts.

The Rent is Too Damn High!

Residential rent is increasing across many markets and subsectors including multifamily and single-family properties. We previously noted that Green Street Advisors forecasted strong NOI growth for apartments and student housing of approximately 4-5% for the next couple of years. This includes surging rental prices in multifamily properties as noted in the following Newsweek article.  CoreLogic highlights that inaccessibility in purchasing single family homes has led to rent increases of 5.3% on single family rental properties year-over-year. CoreLogic notes that is the fastest increase since 2006, a year that will surely make any real estate investor pause (and perhaps shudder). The following chart highlights CoreLogic’s rent index dating back to 2005.

Perhaps this may lead to a resurgence in the political fortunes of Jimmy McMillan and his Rent is Too Damn High Party.  Here are excerpts from the NYC mayoral debate in 2010, in which Mr. McMillan receives some support from future NY Governor Andrew Cuomo.  Mr. McMillan further delivers the message in the following campaign piece (better described as an anthem).

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REITs

Phillips Edison & Company Inc. 

On July 2, 2021, Phillips Edison & Company Inc. (PECO) completed a one-for-three reverse stock split following shareholder approval of a reclassification of its common stock on June 14, 2021.  Following the reclassification and reverse stock split, each shareholder received one share of Class B common stock for every three shares of common stock that they previously held.  Class B common stock is identical to common stock, except that upon the six-month anniversary of the potential listing of PECO’s common stock on a securities exchange, or such earlier date as approved by PECO’s board of directors, the Class B common stock will be converted into shares of the listed common stock.

Additionally, PECO filed a registration statement on Form S-11 to offer 17 million shares of common stock to the public with an additional 2.55 million available for the underwriters to purchase on a 30-day option.  The registration statement has not yet been declared effective by the SEC. The initial public offering price is anticipated to range between $28.00 and $31.00 ($9.33 and $10.33, adjusted for the one-for-three reverse stock split).  PECO anticipates that the common stock will be listed on the NASDAQ under the ticker symbol “PECO”. PECO also reported “that it plans to commence a roadshow for its proposed public offering.”  PECO had previously reported on its intent to list its stock in May 2021 in order to provide shareholder liquidity and raise additional capital. PECO had previously completed a tender offer at $5.75 per share in January 2021, in which 13.5 million shares of common stock, approximately 4.1% of the total outstanding common stock, were tendered for purchase and redeemed.  PECO’s most proximate estimated NAV per share to the tender offer was $8.75 as of March 31, 2020.  PECO reported an estimated NAV per share of $10.55 as of March 31, 2021.

PECO has reported that it anticipates using offering proceeds to repay approximately $375 million in debt on an unsecured term loan, acquire additional properties and fund other corporate uses.

FactRight has previously noted that publicly traded grocery anchored REITs have rebounded strongly following pricing dislocation during the pandemic. This was highlighted by the acquisition of Weingarten Realty (NYSE: WRI) by Kimco Realty (NYSE: KIM), which was announced in April 2021.  S&P Capital IQ reports the deal is priced at 18.4x Trailing 12-Month FFO. Both REITs were trading near their pre-pandemic levels prior to the announced merger. Following the deal announcement, KIMCO has traded higher than its pre-pandemic levels and above its average price over the past 5 years. FactRight notes that presently the publicly traded market for internally managed grocery anchored REITs appears robust, which may provide a solid runway for PECO’s anticipated listing and capital raise. FactRight notes that an 18.4x FFO multiple would price PECO common stock at $11.04, based on trailing 12-Month FFO.

For more information: CLICK HERE

BDCs

Sierra Income Corp. Reports Broken Tender Offer

On July 2, 2021, Sierra Income Corporation (SIC) reported the results of a recent tender offer that terminated on June 29, 2021. SIC reported that approximately 8.3 million shares were validly tendered under the purchase offer. The purchase offer was for up to 391,863 shares. Total shares tendered represented 8.1% of outstanding common stock as of March 31, 2021.  The purchase offer was priced at $5.28 per share, which equaled the NAV per share reported on March 31, 2021.

SIC reported in May 2021, that its board of directors was evaluating strategic options and had retained Broadhaven Capital Partners to assist in the process. SIC’s founding executives and members of the board of directors, brothers Seth and Brook Taube, had respectively resigned from their positions in April and May of 2021. This follows the aborted three-part merger with SIC’s external advisor Medley Management Inc. (NYSE: MDLY) and Medley Capital Corporation (NYSE: MCC).

MDLY has subsequently failed to file its form 10-Q for the first quarter of 2021 and has voluntarily filed for Chapter 11 bankruptcy. MDLY is also subject of an SEC investigation and certain officers and MDLY received a Wells Notice in May 2021.  MDLY was notified by the NYSE on July 6, 2021, that trading on its common stock was halted and that it determined to delist the stock immediately. MCC has subsequently rebranded as PhenixFin Corporation (NASDAQ: PFX) and adopted an internalized management structure headed by interim CEO David Lorber.  Mr. Lorber had previously served as an independent director on MCC’s board of directors since 2019, a board seat obtained as part of a stipulation agreement with MCC management following litigation with Mr. Lorber’s firm FrontFour Capital Group against MCC and certain executives and directors related to the proposed three-part merger.

For more information: CLICK HERE

Alternative Ramblings

While many employers and workers embraced (or tolerated) work from home as the new normal during the pandemic, knee-jerk reactions were that everything would be different forever. However, it appears that the chorus of companies chanting get back to the office is growing significantly.  Count Cantor Fitzgerald CEO Howard Lutnick among the group noting that front-office personnel need to be in the office. Goldman Sachs and JP Morgan have similarly demanded workers return to the office. The training and apprenticeship and collaborative aspects of office culture were cited by each of these firms as driving forces in the return to office work. Many technology companies including Apple, Facebook and Google are taking more of a hybrid approach…for now.

In an interview with NAREIT’s REIT Report Podcast Green Street Advisors Cedrik Lachance, director of global REIT research, affirmed Green Street’s earlier projection that they anticipate a 15% decline in long-term office demand as a result of the pandemic and shifting work office dynamics. (Sidenote, Mr. Lachance also forecasted strong NOI growth for apartments and student housing of approximately 4-5% for the next couple of years, a welcome sign to investors and perhaps an indication of the resiliency of multifamily in an increasing inflationary environment).

Multiple real estate managers and real estate brokers do not believe there will be any significant long-term fallout in demand to office properties, citing that many office tenants will be looking to increase square footage per employee for future office leasing and the age old notion that there is a fundamental reason why businesses have organized their operations around collective space for collaboration, training, and the development of corporate culture. Bill Himmelstein and Brian Kasal provide a thorough examination of these dynamics available here.

Of interest, Mr. Lutnick when questioned about long hours and potential employee burnout, likely in response to this Goldman Sachs story based on this internal survey of junior employees, indicated that if (young) people weren’t interested in working the long hours that are part and parcel of certain sectors of finance and banking that they could find another job….or as Alec Baldwin put it bluntly in The Departed, the world needs plenty of bartenders.

REITs

Hospitality Investors Trust, Inc. Pre-Packaged Bankruptcy Plan Becomes Effective

On July 1, 2021, Hospitality Investors Trust, Inc. (HIT) reported that its pre-packaged bankruptcy plan originally disclosed on May 19, 2021, was judicially approved and became effective on June 30, 2021. As a result, all common stock outstanding prior to the bankruptcy was cancelled, extinguished, and discharged in exchange for contingent value rights (CVRs). The CVRs are limited to a maximum payout of $6.00 each. The payment of distributions under the CVR’s are contingent upon the achievement of certain returns on Brookfield’s investment in HIT.  If any payout is made on the CVRs such payment will be made between 5 and 7 years after the effective date of the pre-packaged bankruptcy.   HIT notes that “the CVRs will not be transferable, except in limited instances such as upon the death of the holder…and they will not be securities or otherwise subject to registration under the Securities Act of 1933.”

In conjunction with the effective date the outstanding preferred equity interests owned by Brookfield were converted into common stock for the reorganized entity. HIT filed a securities registration termination on Form 15 on July 1, 2021, indicating that it will no longer file annual, quarterly or current reports with the SEC following the cancellation, extinguishment, and discharge of the previously outstanding common stock in exchange for the CVRs.

For more information: CLICK HERE and CLICK HERE

Ares Management Corporation Closes on Acquisition of Black Creek Group’s Real Estate Advisory and Distribution Business

On July 1, 2021, Black Creek Industrial REIT IV, Inc. and Black Creek Diversified Property Fund Inc. (collectively, the REITs) each respectively reported that Ares Management Corporation (Ares) had closed on the acquisition of the external advisor of the REITs. The REITs noted that “certain Ares personnel are expected to join (each respective REITs’) board of directors and have joined (each respective REITs) advisor’s investment committee.” Any changes to the REITs’ respective investment policies will require approval of the board of directors and “although such changes may be made in the future, no such changes have been approved at this time.”

For more information: CLICK HERE and CLICK HERE

NorthStar Healthcare Income Inc.

On July 1, 2021, NorthStar Healthcare Income Inc. (NHI) reported that its board of directors approved a one-year renewal of its advisory agreement with its external advisor. The renewal also includes two amendments to the advisory agreement including that the asset management fee will be paid to the advisor in common shares of NHI (valued at the most recent estimated NAV per share). The second amendment reduces NAV, for purposes of calculating the asset management fee, beginning in 2022, to the extent that NHI maintains an unrestricted cash balance in excess of $75 million for any 30-day period, adjusted for any outstanding balance on its revolving line of credit with affiliates of NHI’s sponsor.

NHI reported total assets of $1.8 billion as of March 31, 2021. NHI suspended distributions to common stockholders in February 2019, and share repurchases under its share repurchase program in April 2020. NHI’s board of directors most recently estimated a NAV per share of $3.89 as of June 30, 2020. NHI common shares traded, in limited volumes, within a range of $1.36-$1.56 on the pink sheets in the last six months.    NHI raised approximately $2.0 billion in a common stock offering that was declared effective in 2012. Shares were originally offered at $10 per share.

For more information: CLICK HERE and CLICK HERE

Alternative Ramblings

Jim Grant’s secondary publication Almost Daily Grant’s provides a worthwhile summary of recent developments in the leveraged loan space. Grant’s notes that leverage on buyout deals is up and credit covenant quality continues its multi-year erosion, further signaling that in a world awash in capital chasing yield, it is indeed a very accommodating environment for borrowers. Grant notes that syndicated leveraged buyout debt deals are becoming more stretched with 42 deals booked in 2021 that exceeded 7 turns of EBITDA, compared to 11 and 20 such deals in the first halves of 2020 and 2019, respectively. Similarly, covenant lite loans comprise approximately 85% of the current vintage of leveraged loan issuances, compared to 66% in 2016 and 17% in 2017.

Despite the increased leverage and covenant erosion on certain offerings, this has not translated yet into significantly increased losses for leveraged loan investors to date. As the chart below indicates default rates peaked at just above 4% in the fall of 2020.

FactRight notes that the major ratings agencies including Fitch Ratings, S&P, and Moody’s were predicting significant default rates throughout 2020 (Ranging in the 6-8% range) compared to a historical default rate of approximately 2.85% from 2015 to 2020. While broader market defaults have largely been avoided, surely historically unprecedented government intervention and support of broader markets in the midst of the pandemic materially contributed to this avoidance of such pain. Certain sectors including leisure and entertainment, retail and energy are anticipated by Fitch Ratings to respectively reach default rates of 14%, 7%, and 5% by year-end 2021, as previously noted forecasted default rates have tended to err higher than realized defaults over the past year.

Have a Happy Fourth of July!

Bonds

Griffin-American Healthcare REIT III and Griffin-American Healthcare REIT IV Reach Merger Agreement and Internalization Agreement.  Management Guides on a Planned Listing for 2022.

On June 24, 2021, Griffin-American Healthcare REIT III, Inc. (GAHR III) and Griffin-American Healthcare REIT III, Inc. (GAHR IV) agreed to an all-stock combination with GAHR IV the surviving entity of the merger, which is anticipated to be called American Healthcare REIT Inc. GAHR III stockholders will receive 0.9266 shares of GAHR IV common stock. The estimated NAV per shares of GAHR III and GAHR IV were, $8.55 and $9.22, respectively, as of September 30, 2020.

Concurrent with the merger announcement GAHR III announced that it would acquire the external advisors and assets of American Healthcare Investors (AHI) in exchange for 15.464 million operating partnership units of GAHR III.  Based on the estimated NAV per share of GAHR III and the convertibility of OP Units, the value of such consideration is estimated at approximately $132.2 million.  The internalization transaction is anticipated to occur immediately prior to the contemplated merger.  Management has estimated that the internalization of the external advisors of the respective REITs will save investors approximately $21 million annually.

The post-merger and post-internalization ownership of the combined entity will be as follows:

The proposed merger is anticipated to close in the fourth quarter of 2021 and is subject to the approval of GAHR III and GAHR IV stockholders.  Approval is predicated on stockholders agreeing to certain charter amendments, including amendments prohibiting roll-up transactions.  Such proposals will be included in a future definitive proxy proposal.  Fairness opinions were provided by Robert A. Stanger & Company, Inc. and Truist Securities, Inc. to GAHR III and GAHR IV, respectively. The combined entity would own 314 properties, comprising medical office buildings, skilled nursing facilities and senior housing communities, totaling 19.0 million square feet, located in 36 states, and the United Kingdom.  Management has guided that it anticipates post-merger distributions to equal $0.40 per share on an annual basis, which based on the estimated NAV per share of GAHR IV stock of $9.22, as of September 30, 2020, would equal an annual distribution rate of 4.34%.  Additionally, management has noted that they anticipate a listing of the combined entity by the end of 2022, noting that the combined entity would be the 11^th largest of 17 publicly traded REITs with total assets of approximately $4.2 billion.

For more information: CLICK HERE, and CLICK HERE

Hines Global Income Trust, Inc.

On June 22, 2021, Hines Global Income Trust, Inc. (Hines Global) announced that its board of directors added two new directors Dr. Ruth Simmons and Laura Hines-Pierce.  Laura Hines-Pierce, who serves as senior managing director in the office of the CEO at Hines, will be an internal director, and Dr. Simmons will serve as an independent director.

Ms. Hines-Pierce is the daughter of Jeffrey Hines, who serves as the chairman and CEO of Hines Global, and owns HGIT Advisors LP, the external advisor to Hines Global.  Dr. Simmons has previously served on the respective boards of directors of Goldman Sachs and Texas Instruments.

For more information: CLICK HERE and CLICK HERE

Bonds

GWG Holdings, Inc.  

On June 17, 2021, GWG Holdings, Inc. (NASDAQ: GWGH) reported that multiple directors had resigned from the board of directors (the Board) effective June 14, 2021.  Directors that resigned included Brad Heppner (outgoing Chairman of the Board), Thomas Hicks, Dennis Lockhart, and Bruce Schnitzer.  GWGH has noted that it is preparing for the issuance of a conditional trust banking charter to the Beneficient Company Group, L.P. (BEN) by the Kansas State Office of the State Bank Commissioner.  GWGH believes that the receipt of such charter will be instrumental towards achieving its long-term objectives of building out a portfolio of alternative investments via secondary transactions.  GWGH has reported that the resigning directors of GWGH’s board of directors are anticipated to serve on the board of directors of a to be created subsidiary of BEN that will hold the bank charter.   

GWGH has subsequently appointed Murray Holland, CEO of GWGH, and Tim Evans, CFO of GWGH, to serve as directors of the Board.  Mr. Holland was appointed Chairman of the Board. GWGH notes that the resignations of the respective Board members was not due to any disagreements related to the operations, policies or practices of GWGH. 

GWGH’s Board has experienced significant turnover following the completion of the reverse merger with BEN in December 2018.  Following the close of the reverse merger all seven members of the then current Board, including GWGH founder Jon Sabes, resigned from the Board and 11 directors designated by BEN were appointed to the Board.  A chronology of the Board’s membership since the reverse merger is as follows: 

May 13, 2019, expanded the Board from a maximum of 13 members to 15 maximum members and appointed Kathleen Mason, David Chaveson, Dennis Lockhart to the Board. 

October 11, 2019, David Glaser, Richard Fisher, Sheldon Stein, and Bruce Zimmerman resigned from the Board.  GWGH noted that the reduction in board membership was designed to make the “nimble and action-oriented”.  Mr. Fisher remained as a senior partner director and member of the board of directors of BEN.   

February 21, 2020, Michelle Caruso-Cabrera resigned as a director of the Board to conduct a campaign for Congress in New York’s 14th congressional district.  

March 16, 2020, Roy Bailey was appointed to the Board. 

June 15, 2020, 1963 Heisman trophy winner Roger Staubach resigned from the Board. 

September 3, 2020, Daniel Fine and David Gruber were appointed to the Board. 

October 27, 2020, David Gruber resigned from the Board for personal reasons.  Mr. Gruber served on the Board for 54 days. 

January 6, 2021, Jeffrey MacDowell was appointed to the Board.   

June 14, 2021, Brad Heppner, Thomas Hicks, Dennis Lockhart, and Bruce Shnitzer resigned from the Board. 

None of the aforementioned resignations from the Board were related to any disagreements with GWGH’s operations, policies or practices.  

The current board is comprised of the following members with tenure on the board noted:  

FactRight notes that GWGH has file forms NT 10-K and NT 10-Q, respectively, on April 1, 2021, and May 18, 2021, and is not current on its two most recent periodic SEC filings.  GWGH has received a notice of non-compliance from NASDAQ regarding certain listing requirements due to its lack of currently filed periodic reports. 

For more information: CLICK HERE 

REITs

Cottonwood Communities, Inc.  

On June 7, 2021, Cottonwood Communities, Inc. (Cottonwood) filed a current report correcting its previously reported estimated NAV per share.  On May 28, 2021, Cottonwood reported an estimated NAV per share of $11.0615, as of May 7, 2021, for both Class A and Class TX shares.  The corrected estimated NAV per share was reported as $10.8315, as of May 7, 2021, for both Class A and Class TX shares.   The corrected NAV per share marks a 2.1% decline from the previously reported NAV per share.  NAV assumptions including capitalization and discount rates were unchanged between the two valuations, the major differences are attributable to a 2.0% increase in the estimated fair value of secured real estate debt financing and minor adjustments to the estimated values of certain multifamily development properties and other current assets.   

On May 7, 2021 Cottonwood completed a merger with Cottonwood Residential II, Inc., an affiliated entity.  Cottonwood has also previously announced mergers with Cottonwood Multifamily REIT I (CMRI I), and Cottonwood Multifamily REIT II (CMRI II), which are also affiliated entities.  The mergers with CMRI I and CMRI II are subject to stockholder approval.  CMRI I and CMRI II reported total assets of $27.5 million and $37.9 million, respectively.  CMRI I and CMRI II cumulatively own 5 multifamily properties. Upon the conclusion of the respective mergers Cottonwood would own 35 multifamily properties, across 12 states, with total assets of approximately $1.6 billion. 

For more information: CLICK HERE 

Alternative Ramblings

Blackstone acquires Data Center REIT  

Blackstone has reached an agreement to acquire QTS Realty Trust (NYSE: QTS) in a deal totaling $6.7 billion. Blackstone will place portions of the deal in the non-traded REIT juggernaut Blackstone Real Estate Income Trust (BREIT) and also in a private fund Blackstone Infrastructure Partners.  The acquisition price of $78 per share marks a 24% premium to the 90-day volume-weighted average price of QTS. S&P Capital IQ reports that the deal is priced at a FFO multiple of 25.9(x), and an implied capitalization rate of approximately 5.1%.  QTS owns 35 data center properties located across the U.S. and the Netherlands.  The transaction is anticipated to close in the second half of 2021 subject to approval of QTS shareholders. 

A report from Savills estimated that the total global real estate market was worth approximately $228 trillion, as of 2017.  Based on the tremendous pace of BREIT’s equity capital raising…there will still be plenty of real estate to go around before BREIT acquires everything. 

Single Family Homes Rent Growth 

Invitation Homes Inc. (NYSE: INVH) reported robust rent growth on their portfolio of single-family rental homes in the first quarter of 2021.  INVH reported that leases to new tenants on existing homes in its portfolio were up 10.8% in April 2021, and 7.9% in the first quarter.  Renewal lease rates with existing tenants increased 5.5% in April and 4.4% overall in the first quarter.  Very strong rent growth in one of the best performing sectors of the REIT market, which has only been strengthened by evolving consumer trends throughout the pandemic. 

Chairman of the Public Company Accounting Oversight Board Dismissed  

This past week the SEC dismissed William Duhnke III as chairman of the PCAOB.  Mr. Duhnke’s dismissal is to be followed by a wholesale changing of the five-member board of the PCAOB.  The personnel changes  came in the wake of recent criticism by Senators Elizabeth Warren and Bernie Sanders of the PCAOB.  

An engrossing narrative of the history of the PCAOB (way back from Sarbanes-Oxley in 2002), recent change in leadership, and a broader discussion of the historical politicization of the PCAOB and the  morass that is administrative law can be found here at ComplianceWeek.com.   

REITs

Griffin Healthcare REIT III and IV

On June 1, 2021, Griffin-American Healthcare REIT III (GAHR III) and Griffin Healthcare REIT IV (GAHR IV) filed shareholder letters detailing updates on their respective senior housing properties.  GAHR III reported occupancy on its senior housing properties, operating under a RIDEA structure, increased from 70.0% to 70.3% from the end of the fourth quarter to the first quarter in 2021.  GAHR IV reported that such occupancies were unchanged at 68.1% quarter-over-quarter.  This is still below the pre-pandemic occupancies of 77.4% and 84.7% for each respective REIT.  Both GAHR III and IV noted that the recovery in occupancies on senior housing properties was continuing throughout the second quarter.   Last week CNL Healthcare Properties Inc. reported that inquiries regarding move-ins at its healthcare residences were at pre-pandemic levels.   These are data points suggesting that stabilization in senior housing occupancies may be occurring following the brunt of the pandemic during which occupancies on senior housing properties decreased and move-in activity was largely non-existent due to pandemic restrictions and prospective tenants’ reluctance to move in.

For more information: CLICK HERE and CLICK HERE

Alternative Ramblings

Doubtlessly inspired by the innovations in the budding intangible art market brought forth by non-fungible tokens, Italian artist Salvatore Garau has sold an “invisible statue” for $18,300. The artist noted:

““The auction witnessed an irrefutable truth. The void is nothing but an energetic field, and according to Heisenberg’s principle of uncertainty, even if we empty our void and nothing is left, nothing has weight. Therefore, it is condensed and, in short, within us. “It has energy that turns into particles.”

There is definitely a void in this tomfoolery.  Our tenuous grasp of physics does not extend much beyond those of the Newtonian variety, so we will take him at his word. This supplants our now former favorite piece of modern art, which sold for $120,000:

Creative taxpayers are hard at work planning to charitably contribute invisible statues as part of their tax planning strategies for 2021.  I know I am looking for an enterprising art appraiser!

BDCs

Sierra Income Corporation Forms Special Committee to Evaluate Strategic Alternatives

On May 17, 2021, Brook Taube resigned from the board of directors (the Board) of Sierra Income Corporation (SIC).  SIC reported that Brook Taube “did not express any disagreement on any matter relating to the Company’s operations, policies or practices.”  The resignation follows the resignation of Seth Taube (Brook and Seth are twin brothers) from his positions as chief executive officer and as a member of the Board effective April 27, 2021.  Seth Taube had served as CEO since the founding of SIC in 2011.

The Board announced on May 27, 2021, that it was entering a formal review process to evaluate strategic alternatives.  The Board formed a special committee of independent directors to evaluate options.  The special committee retained Broadhaven Capital Partners as a financial advisor.  No timetable was disclosed regarding the strategic review or what prospective options were being contemplated.

FactRight notes that SIC reported a net asset value per share of $5.28 as of March 31, 2021. SIC announced a second quarter distribution of $0.01 per share for each of April, May, and June 2021.  This equates to an annualized distribution rate of 1.2% based on the original offering price of $10.00 per share.  SIC, Medley Management Inc. (NYSE: MDLY, the publicly traded external advisor of SIC) and Medley Capital Corp. (NYSE: MCC, another BDC under management of MDLY) were to complete a series of mergers originally announced in August 2018.  The mergers were terminated in May 2020.  Institutional Investor published an interesting and informative history of SIC and the Taube brothers in the fall of 2019.  FactRight notes that certain major shareholders of SIC affiliates proposed their own strategic alternatives prior to the termination of the aforementioned mergers in May 2020.

MDLY, the publicly-traded manager of SIC and MCC, subsequently filed a current report on May 28, 2021, noting that its management contract with SIC represented approximately 44% and 41% of its total revenues for 2020 and 2019, respectively, and that any termination of the advisory contract would have a significant and material adverse impact on its business.  MDLY shares have languished trading below $5 per share after listing in 2014 at $164 per share.  MDLY executed a 1:10 reverse split in 2020.  MDLY shares have a total return of approximately -95% since their initial listing.

For more information: CLICK HERE and CLICK HERE

FS KKR Capital Corp. and FS KKR Capital Corp. II Announced Shareholder Approval of Merger

On May 24, 2021, FS KKR Capital Corp. (NYSE: FSK) and FS KKR Capital Corp. II (NYSE: FSKR) announced that their respective shareholders had agreed to a merger originally announced in November 2020.  The respective BDCs are managed by FS/KKR Advisor, LLC a partnership between FS Investments (fka Franklin Square) and KKR Credit Advisors.   The NAV-for-NAV merger is anticipated to close on June 16, 2021.  Shares in the combined entity will trade under the ticker symbol “FSK”.  The combined entity will have a market capitalization in excess of $6 billion, which places it as the second largest BDC in the sector by market capitalization.  FactRight notes that FSK and FSKR closed at 18% and 17% discounts to their reported NAV per share, respectively, as of May 27, 2021.

For more information: CLICK HERE

 

Bonds

GWG Holdings Inc.

On May 24, 2021, GWG Holdings, Inc. (NASDAQ: GWGH) reported that it was notified by NASDAQ that it was not in compliance with listing requirements due to not having timely filed its quarterly report for the quarter ending March 31, 2021, and for not filing its annual report for the year ending December 31, 2020.  NASDAQ requires GWG to submit a plan to regain compliance by June 15, 2021.  If NASDAQ accepts the written plan, then GWG will have up to 180 calendar days from the due date of the annual report to regain compliance.  GWG’s annual report was due April 1, 2021.  The notification does not affect the listing or trading of GWG shares.  GWG common share trading has been largely unaffected by the lack of filing of the most recent current and annual reports.  GWG has a limited public float of approximately 10% of outstanding shares, with a majority of outstanding shares held in trusts controlled by CEO Murray Holland.

For more information: CLICK HERE

 

REITs

CNL Healthcare Properties Inc.

On May 27, 2021, CNL Healthcare Properties Inc. (CNL Healthcare) announced amendments to its advisory agreement reducing the advisor’s asset management fee from 1.00% per year to 0.80%, and similarly reducing the disposition fee from 1.00% to 0.80%.  CNL Healthcare also reported that as of May 25, 2021, approximately 92% of its residents had been vaccinated as well as 52% of its healthcare staff.  CNL Healthcare noted in a shareholder letter that inquiries regarding move-ins at its healthcare residences were at pre-pandemic levels.  FactRight notes this is a welcome sign as the pandemic had begun weighing on occupancy of senior housing properties as many properties and operations were curtailed due to pandemic restrictions and reluctance by prospective tenants to move in.

For more information: CLICK HERE

REITs

Black Creek Group acquired by Ares Management Corporation (NYSE: ARES)

On May 20, 2021, Black Creek Group announced that it had reached an agreement to sell its real estate advisory and distribution business to affiliates of Ares Management Corporation (NYSE: ARES). Black Creek Group (fka Dividend Capital) has been a longtime sponsor of multiple non-traded and publicly-traded REITs, private offerings, and various 1031 exchange offerings dating back to 1993. The acquisition is anticipated to close in the third quarter of 2021. No changes to portfolio management teams are anticipated at this time according to Black Creek’s press release. It is anticipated that the advisory contracts on Black Creek’s non-traded REITs will be assigned to affiliates of Ares.

Black Creek Industrial REIT IV, Inc., and Black Creek Diversified Property Fund, Inc. each noted that:

The principals of Black Creek Group, the rest of the management team and our current officers are expected to continue to serve in their roles for the foreseeable future, although certain Ares Management personnel are expected to join our board of directors and the Advisor’s investment committee.

Black Creek notes that combined with its $11.6 billion in AUM, Ares and its affiliates will have total real estate assets of approximately $29 billion. Ares reports over $200 billion in AUM, consisting of private equity, credit and real estate assets.

For more information: CLICK HERE

Hospitality Investors Trust, Inc. files for Bankruptcy

On May 19, 2021, Hospitality Investors Trust, Inc. (HIT) announced that it and certain operating subsidiaries had filed voluntary bankruptcy petitions under Chapter 11 of the Bankruptcy Code. The United States Bankruptcy Court for the District of Delaware is administering the cases under the caption In re: Hospitality Investors Trust, Inc., et al.

HIT and affiliates filed for first day relief including the authority to pay certain vendors, suppliers and employee wages and benefits in the ordinary course of business as well as for approval of a debtor in possession (DIP) financing facility of up to $65 million in aggregate principal balance. Brookfield (via multiple affiliates), which had previously made an approximately $300 million investment in HIT, has agreed under a restructuring support agreement to “support and take any and all commercially reasonable, necessary or appropriate actions in furtherance of the consummation of the restructuring transactions.” HIT noted that it had received approval from “certain of the Company’s lenders, franchisors and other parties in interests” regarding the planned restructuring and that implementation of the planned restructuring will not constitute a default or triggering event under certain loans or financial obligations.

Under the restructuring plan “existing common stock in HIT will be cancelled and exchanged for a right to receive contingent cash payments (each such right, a “CVR”) pursuant to a contingent value rights agreement.” Computershare, Inc. will serve as the CVR agent. The maximum amount of payments made per CVR will not be permitted to exceed $6.00 per CVR. The payment of distributions under the CVR’s are contingent upon the achievement of certain returns on Brookfield’s investment in HIT. HIT common stock was originally offered at $25.00 per share. HIT notes that “the maximum amount may allow a holder of a share of Old Common Stock with a tax basis greater than $6.00 that receives a CVR to claim a loss for the difference.” HIT notes that “the CVRs will not be transferable, except in limited instances such as upon the death of the holder…and they will not be securities or otherwise subject to registration under the Securities Act of 1933.”

Following the prospective effective date of the proposed bankruptcy plan, HIT intends to suspend its reporting obligations under the Securities Exchange Act of 1934 and no longer file annual or quarterly reports with the SEC.

HIT notes that there is no assurance that the CVR agreement will be entered into and that the CVR agreement is subject to confirmation of the bankruptcy plan by the Bankruptcy Court.

HIT’s compensation committee approved the payment of certain retention bonuses to HIT’s executive officers including $1.0, $0.3, and $0.3 million, respectively to CEO Jonathan Mehlman, General Counsel Paul Hughes and CFO Bruce Riggings. Such payments were approved on May 13, 2021 and paid on May 18, 2021. Such retention payments are subject to clawback if the respective executives resign or are terminated for cause prior to February 18, 2022, or in Mr. Mehlman’s case the effective date of the bankruptcy plan. Mr. Mehlman will also receive a $3.5 million cash severance payment subject to certain increases if his termination does not occur before June 30, 2021.

For more information: CLICK HERE

Sila Realty Trust Inc. Sells of Data Center Assets in $1.3 Billion Transaction

On May 19, 2021, Sila Realty Trust Inc. (SRT and fka Carter Validus Mission Critical RIET I & II) announced that it had agreed to sell its data center property portfolio to Mapletree Industrial Trust, a Singapore listed REIT (XSES: ME8U). The $1.32 billion, 29 property portfolio sale is anticipated to close in installments by the third quarter of 2021. Valuation data on the sale was not available, however according to SRT’s 2020 annual report, data center property NOI was approximately $82.4 million, pricing the transaction at an approximately 6.24% cap rate based on trailing 12-month NOI.

SRT most recently reported a NAV per share of $8.69 as of September 30, 2020. SRT did not disclose cap rates utilized to provide color on its most recently estimated NAV per share.

SRT shares have traded on the Grey Market in limited volumes, with a cumulative trading volume of under 100,000 shares in 2021 and shares have traded in a range of $6.29 – $7.12 in the past 52 weeks as reported by OTCmarkets.com.

For more information: CLICK HERE and CLICK HERE

KKR Real Estate Select Trust Inc.

On May 18, 2021, KKR Real Estate Select Trust Inc. received a notice of effect on its $2 billion REIT offering. The perpetual life REIT will offer four classes of common shares including Class S, Class D, Class U, and Class I shares and price NAV daily, and accept subscriptions daily. The Class A shares include a maximum sales load of 3.0% and a dealer manager fee of 0.5%. The REIT has a broad investment thesis targeting single-tenant net lease properties, preferred equity investments and private real estate debt primarily located in the United States and in developed markets in Asia and Europe.

For more information: CLICK HERE

Pacific Oak Strategic Opportunity REIT, Inc.

On May 20, 2021, Pacific Oak Strategic Opportunity REIT, Inc. (Pac Oak SOR) announced that it had entered into sales agreements with unaffiliated entities on the sale of 193 developable acres in North Las Vegas, Nevada, and an office building containing approximately 435,000 square feet of leasable space located in Orange, California. The respective sales were for $56.2 million and $150.5 million. PAC SOR notes that the Orange, CA property is subject to a mortgage with an outstanding principal balance of $98.8 million as of April 30, 2021.

PAC SOR anticipates utilizing proceeds from the respective sales to “provide liquidity for stockholders who desire it, new opportunistic investments, capital projects and the reduction of existing obligations, as well as other general corporate purposes.”

PAC SOR redeemed approximately $0.9 million in outstanding common stock in the first quarter of 2021, with 12.7 million shares, representing approximately 13% of outstanding shares, unredeemed due to limitations of under its existing share redemption program. PAC SOR has filed a registration statement with the SEC to convert itself into a perpetual life NAV REIT that will sell and redeem shares on a continuous basis.

For more information: CLICK HERE

 

Bonds

GWG Holdings Inc.

On May 18, 2021, GWG Holdings Inc. (NASDAQ: GWGH) filed a form NT 10-Q indicating that it would be unable to file its quarterly report for the first quarter of 2021 in a timely fashion. GWGH filed a form NT 10-K on April 1, 2021, indicating that it would be unable to file its 2020 annual report in a timely manner. GWGH subsequently suspended its offering of L bonds as its SEC filings are not current.

For more information: CLICK HERE

 

Alternative Ramblings

GPB Automotive Portfolio Files Form 10

GPB Automotive Portfolio, LP, filed a Form 10 on May 14, 2021, which included its audited financial statements for 2018, 2019, and 2020, and disclosed a significant number of developments over the last few years which have, and could continue to have, a material adverse impact on GPB Automotive Portfolio’s business, financial condition, and Investor’s investment in the program. Material disclosures in the filing include, but are not limited, to the following matters:

Litigation and Regulatory Matters

GPB Automotive Portfolio and its general partner, GPB Capital Holdings, LLC, (GPB), are involved in material litigation arising from GPB Automotive Portfolio’s operations. Of particular significance, in February 2021, the SEC filed a civil claim against GPB, Ascendant Capital, LLC (Ascendant), David Gentile, Jeffry Schneider, and Jeffrey Lash, in U.S. District Court alleging violations of securities laws, including securities fraud. In addition, the U.S. Attorney’s Office brought a criminal indictment against Mr. Gentile, Mr. Schneider, and Mr. Lash, alleging conspiracy to commit securities fraud, conspiracy to commit wire fraud, securities fraud, and wire fraud. In association with these events, Mr. Gentile, GPB’s founder and chief executive officer, resigned from all management and board positions with GPB, GPB Automotive Portfolio, and their affiliates. Mr. Gentile, Mr. Schneider and Mr. Lash were each arrested in February 2021.

The Form 10 noted a significant number of other legal and regulatory matters, including, but not limited to the following:

• Between 2020 and 2021, approximately eight state securities regulators have filed suits against GPB, alleging material misstatements and omissions associated with GPB-managed funds, among other things.
• In October 2019, a federal grand jury indicted GPB’s previous chief compliance officer, Michael Cohn, related to alleged conduct that occurred while Mr. Cohn was employed by the SEC, prior to joining GPB.
• GPB is a party to litigation with two automobile manufacturers arising from the termination of the chief executive officer of a dealership group acquired by GPB in 2018.
• Various lawsuits between GPB, its managed-funds, and former executives/operating partners related to the ownership of specific dealerships.
• Approximately 14 shareholder/class action lawsuits have been filed against various parties including GPB, GPB Automotive Portfolio, Ascendant, and certain affiliates and executives.
• The United States District Court Eastern District of New York appointed an independent monitor related to the February 2021 SEC civil claim noted above. The independent monitor is to assess GPB Automotive Portfolio’s operations and business and make recommendations to the court, which may include recommendations to continue operations, liquidate assets or file for reorganization in bankruptcy. The independent monitor is further granted authority to approve or disapprove proposed material corporate transactions by GPB, GPB Automotive Portfolio or its subsidiaries including those related to extensions of credit outside the ordinary course of business, distributions to limited partners, or decisions to file bankruptcy, among other actions. The independent monitor will remain in place until terminated by court order.

Substantial Doubt About Ability to Continue as a Going Concern

GPB Automotive Portfolio has incurred substantial debt to acquire dealerships and finance working capital and capital improvements. EisnerAmper, LLP, identified that there is substantial doubt about GPB Automotive Portfolio’s ability to continue as a going concern, noting that management does not believe that cash on hand and internally generated cash flow will be sufficient to repay its liabilities arising from normal business operations unless it obtains additional financing and that the credit facility for the majority of GPB Automotive Portfolio’s dealerships is due to mature in February 2022, among other factors.

The audit opinion also identified measurement uncertainty in evaluating intangible assets and that significant judgments are required by management in assessing the likelihood of loss being incurred and in estimated the range of loss relating to pending legal and regulatory matters.

Dealership Dispositions

Throughout 2020, GPB Automotive Portfolio had been selling assets, in some instances at a loss, to meet its debt obligations. Proceeds from the sale of assets increased its overall cash position, however 78% of total cash is held by GPB Automotive Portfolio’s largest subsidiary, which is restricted in making distributions up to the GPB Automotive Portfolio because of lender constraints. Current management is now considering strategic transactions on an opportunistic basis such as co-investments, spin-offs of businesses, a public listing or merger, or a sale of individual dealerships or groups of dealerships and disposing of dealerships to provide operational liquidity to the Partnership. However, GPB Automotive Portfolio’s investments in private dealerships are illiquid, the value of the dealerships is difficult to ascertain, and an expedited sale of dealerships is unlikely.

Business Operations

The Form 10 addressed numerous developments that have, and may continue to impact, GPB Automotive Portfolio’s operations, including, but not limited to, the following:

• GPB Automotive Portfolio’s ability to sell new and used vehicles has been negatively impacted by the COVID-19 Pandemic and associated factors.
• Due to the impact of COVID-19, and to mitigate and plan for potential business slowdowns, GPB reduced it workforce by approximately 700 employees in March 2020.
• GPB has received termination notices from a manufacturer representing two existing dealerships and two planned dealerships. The litigation addressed above poses significant risks, including that manufacturers may terminate rights to operate dealerships selling their brands and that lenders may terminate or adversely modify financing arrangements.
• GPB Automotive closed a Massachusetts Volvo dealership in 2019 because GPB did not anticipate realizing an attractive return on the manufacturer’s capital improvement requirements.

Internal Controls

GPB identified in the filing that there are pervasive material weaknesses in its system of internal control over financial reporting, which if not remediated, could materially affect GPB Automotive Portfolio’s ability to timely an accurately report financials going forward.

While the foregoing is by no means an exhaustive list of all of the material disclosures contained in the filing, FactRight will continue to review the Form 10, monitor further developments related to GPB and share additional information as it becomes available.

REITs

Phillips Edison & Company Inc. 

On May 4, 2021, Phillips Edison & Company Inc. (PECO) reported an update to its estimated net asset value per share of $10.55 as of March 31, 2021.  This marked an increase of 21% from the previously reported estimated value per share of $8.75 as of March 31, 2020.  PECO noted the increase was attributable to several factors including “a significantly improved outlook for grocery-anchored shopping centers, a decrease in the applied discount rate as a result of a more stable economic environment, and the 4% decrease in share count resulting from PECO’s 4th quarter 2020 tender offer.” PECO further noted that rent and recovery collections were 95% for the first quarter of 2021 and that it had executed 316 leases, including renewals, on 1.4 million square feet of space.   

Grocery anchored REITs have experienced buoyancy in their share prices in the wake of the COVID-19 pandemic, as rent collection dynamics have generally been more favorable than other (non-net lease) segments of the retail real estate market.  Additionally, the Kimco Realty Corp. (NYSE: KIM) and Weingarten Realty Investors (NYSE: WRI) merger has been well received by the market with stock prices trading favorably following the announcement of the deal in April.  Both entities’ respective stock are trading at pre-pandemic values.  The Wall Street Journal reports that based on KIM’s Wednesday closing price of $19.48, the total consideration on the deal represents an 11% premium to WRI’s Wednesday closing price of $27.34.   S&P Capital IQ reports the deal is priced at 18.4x Trailing 12-Month FFO.  Robust multiples and premiums indeed.   

 For more information: CLICK HERE 

 

Alternative Ramblings

Syndicated Conservation Easements: Internal Revenue Service Establishes IRS Office of Promoter Investigations 

The syndicated conservation easement space had a recent major development with The IRS creating a specialized office for investigating such offerings.  The IRS in a press release noted: 

“By establishing the Office of Promoter Investigations, we are continuing our increased focus on promoters of abusive tax avoidance transactions, which we have demonstrated over the last year,” said IRS Commissioner Chuck Rettig. ”This office will coordinate efforts across multiple business divisions to address abusive syndicated conservation easements and abusive micro-captive insurance arrangements, as well as other transactions.” 

The Office of Promoter Investigations (OPI) is located within the IRS Small Business/Self-Employed division and will work with other divisions across the IRS including the Office of Fraud Enforcement, Tax Exempt/Government Entities, and Criminal Investigations regarding issues involving promoters of abusive transactions.   

De Lon Harris Deputy Commissioner of SB/SE Examination noted: 

“These groups are exclusively dedicated to investigating those who peddle abusive tax schemes. Bringing these agents together, in combination with the creation of the service-wide Office of Promoter Investigations, will help strengthen our compliance work and is yet another opportunity to increase our capacity to conduct these investigations. Our promoter office will strategically focus resources to help expand detection and deterrence efforts of promoter work across the IRS.” 

Other major developments in the past year in the syndicated conservation easement space have included the June 2020 IRS’ blanket settlement offer for investors in syndicated conservation easements currently in tax court, which yielded its first reported settlement in August 2020, and a broader emphasis on enforcement regarding abusive practices within syndicated conservation easement programs.  The Senate Finance Committee report on Syndicated Conservation-Easement Transactions from August 2020, which as far as government reports go, reads more like a Michael Lewis’ book than the typical wonky technobabble of bureaucrats, provides an overview of relevant tax law governing conservation easements as well as historical background regarding the syndicated conservation easement market. The Senate Finance Committee report characterized the syndicated conservation easement transactions at issue as abusive tax shelters and concluded that the IRS has strong reason for taking enforcement against syndicated conservation easement transactions as it has to date.    

No legislative proposals or policy recommendations were included in the report, or have been subsequently proposed in Congress, though it is clear the committee is displeased with this cottage industry and recent IRS settlement offers and the establishment of the OPI indicates a similar sentiment.  

Grayscale Bitcoin Trust’s Sponsor to Increase Purchase of Shares 

Digital Currency Group, Inc. (DCG), the sponsor of the Garyscale Bitcoin Trust (OTCQX: GBTC), announced that it planned to purchase up to $750 million worth of GBTC shares on the open market.  DCG reported that it had purchased a total of $193.5 million worth of shares as of April 30, 2021.  DCG had previously announced that it would repurchase up to $250 million in GBTC shares on March 10, 2021.   GBTC has a market capitalization of approximately $30 billion.  Recently, GBTC has been trading at a discount to NAV after trading at significant premiums over the past year as highlighted in the chart below. 

David Swensen Yale Endowment Chief and Longtime Advocate of Alternative Investments Passes Away 

David Swensen, who headed Yale’s endowment since 1985, passed away at the age of 67 after a battle with renal cancer.  The WSJ reports that Mr. Swensen grew the endowment from $1 billion in 1985 to $31.2 billion as of 2020.  Mr. Swensen notably placed significant emphasis on investments outside of traditional stocks and bonds and favored portfolio expansion into alternative investments including real estate, timber, hedge funds, and other alternative investments.  Yale reported that the endowment recorded an average annual return of 13.1% since 1985 compared to an 8.8% average annual return on a traditional 60/40 stock and bond portfolio over the same period.  Based on the endowment’s performance during Mr. Swensen’s guidance, former Yale President Richard Levin noted that Mr. Swensen was the biggest donor in Yale’s history. 

BDCs

Sierra Income Corporation and Medley Management Inc. 

On April 23, 2021, Sierra Income Corporation (SIC) reported that Seth Taube was resigning from his positions as chief executive officer and a member of the board of directors (the Board) effective April 27, 2021.  Mr. Taube’s resignation was not related to any disagreements regarding SIC’s operations, policies or procedures.  Mr. Taube had served as CEO since the founding of SIC in 2011.  The Board subsequently appointed Dean Crowe, SIC’s President, to serve as CEO and to take the board seat vacated by Mr. Taube’s resignation.  Mr. Crowe has served as a senior portfolio manager at SIC since 2012.   

This follows the announcement on April 14, 2021, that Brook Taube and Seth Taube were resigning from their positions as Co-CEOs of Medley Management Inc. (NYSE: MDLY) effective May 3, 2021.  MDLY reported that Seth and Brook were expected to continue in their roles as Co-Chairmen of MDLY.  MDLY’s board of directors subsequently appointed Howard Liao as CEO.  MDLY, through subsidiary SIC Advisors, LLC (the Advisor), manages SIC.    

Additionally, SIC announced that it had entered into an incentive fee waiver and expense limitation agreement with the Advisor and Medley Capital LLC (the Administrator).  Under the expense limitation agreement, expenses payable and reimbursable by SIC will be limited to $2.2 million in 2021.  Under the incentive fee waiver, the Advisor has agreed to waive 50% of any incentive fee on income payable to the Advisor for quarters ending September 30, 2021 through June 30, 2022.   

FactRight notes that SIC reported a net asset value per share of $5.12 as of December 31, 2020. SIC announced a second quarter distribution of $0.01 per share for each of April, May, and June 2021.  This equates to an annualized distribution rate of 1.2% based on the original offering price of $10.00 per share.  SIC, MDLY and Medley Capital Corp. (NYSE: MCC, another BDC under management of MDLY) were to complete a series of mergers originally announced in August 2018.  The mergers were terminated in May 2020.  

For more information: CLICK HERE and CLICK HERE 

 

REITs

Steadfast Apartment REIT, Inc. 

On April 27, 2021, Steadfast Apartment REIT, Inc. (STAR), acting through its subsidiary STAR REIT Services, LLC, amended its property management agreements with affiliates of Steadfast REIT Investments, LLC (STAR’s former Sponsor, prior to its internalization transaction in August 2020).  The amended property management agreements increase the property management fee from 2.0% of gross collections to 3.0% of gross collections of certain properties owned by affiliates of STAR’s former Sponsor.  According to STAR’s 2020 annual report, property management services were furnished related to nine properties owned by STAR’s former Sponsor. 

For more information: CLICK HERE 

Sila Realty Trust 

On April 15, 2021, Sila Realty Trust announced that it expanded its board of directors (the Board) from five to six directors with the appointment of Adrienne Kirby.  Ms. Kirby will serve as an independent director on the Board and its audit, nominating and corporate governance committees.  Ms. Kirby most recently served as Executive Chairman and Chief Executive Officer of Cooper University Health Care.   

For more information: CLICK HERE 

NorthStar Healthcare Income, Inc.  

On April 12, 2021, NorthStar Healthcare Income, Inc. (NHI) announced that director Jack Smith Jr. announced that he would not stand for re-election at the end of his current term.  Additionally, NHI reported that CFO and Treasurer Frank Saracino was resigning from his positions at NHI.  Mr. Saracino serves as CFO of Colony Credit Real Estate, Inc. (CCRE) another company managed by Colony Capital, Inc. (the Sponsor of NHI), and would continue to focus on his duties at CCRE.   

NHI announced that Neale Redington was appointed by the board of directors (the Board) to serve as CFO and Treasurer following Mr. Saracino’s resignation.  Mr. Redington has served in various capacities at the Sponsor of NHI since 2008.  Jonathan Carnella was subsequently appointed to serve as an independent director on the Board following Mr. Smith’s resignation.   

For more information:  CLICK HERE 

 

Alternative Ramblings

President Biden Proposes Dramatic Tax Reform including changes to 1031 Exchange, Capital Gains Tax Rates, Carried Interest Taxation and an IRS Budget Increase 

President Biden recently unveiled a broad economic and tax plan.  Further details on the plan can be found here.  We highlight the following excerpt: 

“The President is also calling on Congress to close the carried interest loophole so that hedge fund partners will pay ordinary income rates on their income just like every other worker. While equalizing tax rates on wages and capital gains will address this disparity, permanently eliminating carried interest is an important structural change that is necessary to ensure that we have a tax code that treats all workers fairly.  The President would also end the special real estate tax break—that allows real estate investors to defer taxation when they exchange property—for gains greater than $500,000, and the President would also permanently extend the current limitation in place that restricts large, excess business losses, 80 percent of which benefits those making over $1 million.” 

The effects of the limitations on the 1031 exchange provisions could have a profound effect on the syndicated 1031 market and broader commercial real estate markets in general.  For further information I encourage you to view the IPA’s resources related to the Biden proposals.  

President Biden further sought an increase in the IRS’ budget of approximately $80 billion over 10 years (the IRS budget was approximately $11.5 billion in 2020).  The increased IRS budget is aimed at enhancing collection and audit efforts on tax returns of the wealthiest Americans.  Some estimates note that increased IRS compliance efforts may yield the state’s coffers an additional $1.1 trillion in  revenue over the next decade.  One wonders if enhanced scrutiny of the wealthiest Americans tax returns will lead to further enforcement efforts regarding syndicated conservation easement transactions.  

Time will tell if such proposals pass through Congress. 

VEREIT Inc. Agrees to All-Stock Deal with Realty Income Corporation 

VEREIT Inc. (NYSE: VER, and formerly known as American Realty Capital Properties) agreed to an all-stock merger with Realty Income Corporation (NYSE: O) that is expected to close in the fourth quarter of 2021. 
VER shareholders will receive 0.705 shares of O stock for each share of VER stock that they hold.  The transaction consideration represented a 17% premium to VER’s common stock price at the time of the announcement, and according to data from S&P Global a price to estimated FFO multiple of 15.2(x).  VER shares closed at $47.88 on April 29, 2021.  VER completed a 5:1 reverse stock split on December 17, 2020.  VER also completed a merger with American Realty Capital Trust III, Inc. in 2012 following its listing on the NASDAQ exchange in 2011.  VER shares were originally offered at $12.50 per share in an offering that was declared effective in 2011. 

VER owns approximately 3,800 properties and its shareholders would own approximately 30% of the combined entity, which will be managed by Realty Income’s existing management team.  Two of VER’s directors are anticipated to join Realty Income’s board of directors.  The companies have also agreed to spin off their 97 office properties into a new, self-managed publicly traded REIT upon the completion of the merger.   

Realty Income anticipates the merger will be over 10% accretive to its shareholders on an AFFO per share basis. Additionally, Realty Income noted that it expects cost savings of approximately $45-55 million per year, with 75% of those estimated savings occurring within one year of the close of the merger.   

The merger is contingent upon the approval of both Realty Income and VEREIT shareholders.   

Psychedelics, Bitcoins, a Deli and SPACs 

German billionaire investor Christian Angermayer noted that he “finally understood bitcoin” after consuming hallucinogenic mushrooms.  Mr. Angermayer has backed multiple ventures seeking to commercialize certain therapies and medicines from hallucinogenic drugs.   

The Weekly Update is curious if consumption of hallucinogenic mushrooms might help one understand the stratospheric valuation of a certain single location deli in Paulsboro, New Jersey.  The deli, Hometown International Inc., which on a fully diluted basis, was approaching a $2 billion valuation is reportedly lining up interest as a reverse merger target and is more akin to a small-scale SPAC, according to Bloomberg, than you know, a sandwich shop.   

REITs

Mackenzie Realty Capital, Inc.

On April 13, 2021, Mackenzie Realty Capital, Inc. (Mackenzie) filed an offering circular for a Regulation A offering of up to $50 million of Series A Preferred Stock.  The Series A Preferred Stock is offered at $25.00 per share and includes a selling commission of up to 7.0%.  Total underwriting compensation and commissions are not to exceed 10.0% of the offering price.  The Series A Preferred Stock will include a 6.0% annual preferred cash dividend.  Arete Wealth Management, LLC serves as the dealer manager of the offering, which is yet to receive a notice of qualification from the SEC.

Mackenzie, formerly a BDC, is a REIT that has historically made third party tender offers on other alternative asset offerings distributed through the independent broker-dealer and RIA channels.  Mackenzie reported total assets of $123 million, including investments in 28 non-traded REITs, as of December 31, 2020.

For more information: CLICK HERE

CIM Real Estate Finance Trust, Inc. Third Party Tender Offer Results

On April 13, 2021, Comrit Investments 1, Limited Partnership (Comrit) reported that it had received a total of 896,231 shares of CIM Real Estate Finance Trust, Inc. (CIM REFT) from CIM REFT shareholders at a purchase price of $4.50 on a third party tender offer that was filed in February 2021.  CIM REFT reported a net asset value per share of $7.31 per share, as of December 31, 2020.  Comrit’s purchase represents approximately 0.2% of outstanding CIM REFT common stock.  Comrit and its affiliates now own approximately 0.3% of the outstanding common stock of CIM REFT, from previous tender offers.

CIM REFT previously suspended its share redemption program pending the completion of its affiliated mergers with Cole Office & Industrial REIT (CCIT III), Inc. and Cole Credit Property Trust V, Inc. The affiliated mergers were closed on December 22, 2020.  According to its 2020 annual report CIM REFT noted that its share redemption program was reinstated effective April 1, 2021.  The amount of shares available to be redeemed is limited to 5% of the outstanding common shares in a twelve month period and the net proceeds received under CIM REFT’s distribution reinvestment program.  CIM REFT’s redemption program has been oversubscribed dating back to 2015.

For more information: CLICK HERE

Phillips Edison & Company Inc.

On April 9, 2021, Phillips Edison & Company Inc. (PECO) filed a definitive proxy seeking shareholder approval for certain matters including the election of certain directors, appointment of its auditing firm, certain incentive compensation matters, and a charter amendment to better facilitate a listing of its common stock on an exchange.

PECO’s charter amendment proxy would convert certain outstanding common stock into a newly created series of common stock which would subsequently convert back into the original common stock up to six-months after a listing of the original common stock on a national securities exchange.  Such a charter amendment has been pursued by multiple other REITs that are seeking to list on a securities exchange in an effort to reduce trading volumes, and prospectively downward selling pressure immediately following a listing of the common stock.

PECO noted that grocery anchored retail REITs were trading more favorably following a volatile 2020 and provided a window for a prospective listing of the common stock.  See Alternative Ramblings below for more information on grocery-anchored retail and a recently announced merger in the space.

For more information: CLICK HERE

American Finance Trust, Inc. (NASDAQ: AFIN)

On April 12, 2021, American Finance Trust, Inc. reported the shareholder vote results for its Class I directors.  Mr. Stanlely Perla and Governor Edward Rendell were re-elected to their respective board seats.  However, the results of the voting were ignominious to say the least.

Gov. Rendell would not have won re-election in Pennsylvania with these results!  FactRight notes that AFIN directors are elected by a plurality of all votes cast at the annual stockholders meeting.  In 2018 Mr. Perla and Gov. Rendell were each respectively re-elected with much fewer votes against as shown in the table below:

AFIN common stock performance has been lackluster since listing on NASDAQ in July 2018, declining from an initial closing of $14.61 to under $10 per share as of April 2021.  Shares were originally offered at $25.00 per share.

For more information: CLICK HERE

Alternative Ramblings

SPAC Inquiry

The SEC released new accounting guidance on SPACs that may provide a hiccup to the blistering pace of capital raising in the space.  Institutional Investor reports that the accounting guidance centers on issues related to the accounting for warrants sold or given to investors as part of their investment in the SPAC.  Specifically, whether such warrants are properly classified as equity (as is the current practice) or if they should instead be classified as liabilities.  This may lead to material restatements of SPAC financial statements over prior periods and prospectively chill the market until the accounting guidance can be digested and implemented.

Grocery Anchored REITs Kimco Realty and Weingarten Realty Investors Announce Merger Agreement

Kimco Realty Corp. (NYSE: KIM) announced that it had reached a cash and stock deal to merge with Weingarten Realty Investors (NYSE: WRI) this past week.  WRI shareholders will receive 1.408 shares of Kimco stock and $2.89 in cash per share of WRI.  The Wall Street Journal reports that based on KIM’s Wednesday closing price of $19.48, the total consideration on the deal represents an 11% premium to WRI’s Wednesday closing price of $27.34.   S&P Capital IQ reports the deal is priced at 18.4x Trailing 12-Month FFO.

The merger, which is subject to the approval of both Kimco and Weingarten shareholders, is anticipated to close in the second half of 2021.  Kimco shareholders are anticipated to own approximately 71% of the combined entity, which will own 559 grocery anchored shopping centers totaling approximately 100 million square feet of gross leasable area.

The following charts highlight the stock performance of KIM (orange) and WRI (blue) dating back to Q3 2019.

Blackrock Alternative Investment Expansion

Blackrock, the world’s largest asset manager, earnings call this week provided some insight into the firm’s alternative investment plans.  CEO Larry Fink noted:

“We began expanding our alternative platform more than 5 years ago. And today, we manage nearly $200 billion in these strategies for all our clients. Our leadership in alternatives has only just begun, and we’re seeing momentum accelerate as we scale our offerings, as we source our capabilities and our integration of data and technology into the management of private market assets.”

“In illiquid alternatives, we are seeing the magnitude of client flows increase every year. In the first quarter, we generated a record $11 billion of inflows and commitments, results spanning from private credit to infrastructure to private equity solutions, including the final close of our inaugural $3 billion private equity secondary fund.”

$11 billion of inflows and capital commitments in the first quarter to illiquid alternative strategies alone, truly staggering.

Blackrock President, Co-Founder, and Director Robert Kapito further noted that “We’ve raised $2 billion in 10 funds” and noted the firm’s current focus is on credit, renewable energy and infrastructure.  Additionally, Mr. Kapito noted:

“So what we’re trying to do is really have a very careful eye on where we think the next value chain is and can that be described both in a liquid form and an alternatives fund. But what I would tell you is that our general theme is alternatives are going to become less alternative.”

Interestingly, BlackRock noted that it was not having significant discussions with clients regarding digital assets and cryptocurrencies at this point in time.

Always interesting to catch up on the thought process and alternative investment growth of Blackrock.  The notion of alternatives becoming less alternative is a theme that we have been seeing as well, with more strategies moving into wrappers including interval funds, or prospective trading on emerging secondary platforms, and over-the-counter markets there seems to be momentum and increasing chatter of providing more diverse liquidity options on assets that are historically illiquid.  One has to imagine there will be continued evolution in liquidity options in the alternative investment space over the coming decade.

Office Landlords Now Offering More Than a Year of Free Rent | GlobeSt

Office Lease Concessions Increasing

GlobeSt.com reports that average lease concessions in the office space market have increased to over one year of free rent, an increase from 8.5 to 9.5 months in Q1 to Q3 2019.  Unsurprising given the increasing remote work phenomenon that has led some advisors to speculate on 10-15% structural demand decreases for office space over the next few years.  Only time will tell.

REITs

Healthcare Trust Inc.

On April 2, 2021, Healthcare Trust Inc. (HTI) reported an estimated net asset value per share of $14.50 as of December 31, 2020.  HTI’s previously reported estimated NAV per shares were $15.75 as of December 31, 2019, and $17.50 as of December 31, 2018.  HTI engaged Duff & Phelps, LLC to perform appraisals of its real estate assets and assist the board of directors in estimating a NAV per share.

Interestingly, in HTI’s earnings webinar slide deck filed on April 8, 2021, FactRight noticed the following bullet point:

FactRight notes that in reference to the ”Proven track record” language, HTI’s original offering price per share was $25.00, based on the most recent estimated NAV per share this marks a 42% decline from the original offering price per share.

HTI also announced a stock dividend equivalent to an annualized distribution of $0.85 per share on April 2, 2021.  The stock dividend reflects the updated estimated NAV per share.

For more information: CLICK HERE

Hospitality Investors Trust Inc.

On April 5, 2021, Hospitality Investors Trust (HIT, fka American Realty Capital Hospitality Trust, Inc.) reported that it is engaged in ongoing discussions with its largest investor Brookfield Strategic Real Estate Partners II Hospitality REIT II, LLC (an affiliate of Brookfield Asset Management) regarding the prospect of HIT filing a pre-packaged Chapter 11 bankruptcy to restructure its capital stack.

HIT reported that negotiations with certain of its lenders have yielded an extension of certain expiration dates of existing forbearance periods related to the Georgia Tech Hotel & Conference Center (GTHCC) ground lease, until June 30, 2021 or the effectiveness of a pre-packaged bankruptcy.  HIT defaulted on the GTHCC ground lease in February 2021.  The lenders also agreed to waive certain HIT obligations including monthly capital reserve deposits through December 31, 2020, and a reduction of principal balance of $1.3 million related to certain brand-mandated property improvement plan (PIP) reserves.

For more information:  CLICK HERE

Hartman Short Term Income Properties XX, Inc.

On April 1, 2021, Hartman Short Term Income Properties XX, Inc. (Hartman XX) announced that Mark Torok, COO, General Counsel and Corporate Secretary would resign effective April 9, 2021.

In November 2020, Hartman reported that Mr. Torok had been selected to succeed Allen Hartman as CEO of the Hartman family of non-traded REITs.  No timetable was given in the November press release and a long transition period was anticipated.

For more information: CLICK HERE

BDCs

StHealth Capital Investment Corp

On April 1, 2021, StHealth Capital Investment Corp (StHealth) filed a notice that it was unable to file its annual report for the year ending December 31, 2020, within the prescribed period.  StHealth anticipates filing the annual report within 15 days.

StHealth also reported that on March 31, 2021 Anthony Raftopol had resigned from his position as Chief Compliance Officer.  Mr. Raftopol’s resignation was not due to any disagreement with StHealth’s operations, policies or practices.  StHealth appointed Hayley Lowe to serve as Chief Compliance Officer and Chief Legal Counsel following Mr. Raftopol’s resignation.

For more information: CLICK HERE and CLICK HERE

CION Investment Corporation

On April 7, 2021, CION Investment Corporation (CION) filed a preliminary proxy statement noting its intention to solicit certain amendments to its charter and advisory agreement.  The charter amendments are to become effective upon a listing of CION’s common stock on a national securities exchange, whereas the incentive fee amendment to the advisory agreement amendment will become effective irrespective of a listing of the common stock.

One such charter amendment would be to change the removal of directors, from CION’s board of directors (the Board), from the current simple majority of interested shareholders to removal for cause and the affirmative vote of at least two-thirds of the votes entitled to be cast.  CION has noted that the Board “believes that the adoption of these antitakeover provisions may discourage others from trying to (i) acquire control of (CION), which may reduce your ability to liquidate your investment in (CION) or to receive a control premium for your (common stock), or (ii) change the composition of the Board which may make it more difficult to influence (CION)’s management, which could result in policies, actions or Board composition that are not as favorable to shareholders as they otherwise would be.  Nevertheless, the Board believes that increasing the vote required to remove a director for cause and defining cause are in the best interests of (CION) and its shareholders.”

CION is also seeking shareholder approval to issue common stock (not to exceed 25% of its then outstanding shares) at a price below its net asset value (NAV) during the next twelve months.  Such issuances below NAV would be dilutive to existing common stockholders.  CION has noted that such efforts are designed to maintain compliance with asset coverage requirements in the event of reductions in portfolio valuations of its investments.  CION noted that its shareholders had approved a similar measure in 2020 and that CION issued no shares at a price below NAV under the prior shareholder approval.

The proposed Advisory Agreement Amendments include a reduction of the management fee from 2.0% of the average value of CION’s gross assets to 1.5% of the average value of CION’s gross assets, and 1.0% for gross assets beyond an asset coverage ratio test of 200%.  CION has not sought shareholder approval to obtain increased leverage (up to an asset coverage ratio of 150% under the Small Business Credit Availability Act) as many BDCs in the market have done.  The proposed Advisory Agreement Amendments would also reduce the hurdle for the incentive fee to the Advisor from the current annual 7.5% to 6.5%.  Additionally, the incentive fee on capital gains would be reduced from its current 20% (net of all realized capital losses and unrealized capital depreciation) to 17.5%.

CION reported that 2020 advisory fees payable would have been reduced from $31.8 million to $24.5 million under the Proposed Advisory Amendment.

For more information: CLICK HERE

 

Alternative Ramblings

Grayscale Bitcoin Trust seeks conversion into an ETF

Grayscale Bitcoin Trust (OTCM: GBTC) filed a current report noting that it is committed to converting GBTC into an ETF in the future.  The following chart highlights the premium or discount to NAV of GBTC over the past year:

Historically, GBTC has traded at a premium to its reported NAV ranging from approximately 10-40%, however, recently GBTC has traded at a discount to its reported NAV of up to 14%.  GBTC does not have any unit redemption provisions in its charter, whereas an ETF structure would provide incentives for authorized participants (GBTC currently has a single affiliated authorized participant which has been very lucrative for its Sponsor) to close out the discount on its trading price to NAV.  A primer on ETF unit creation and redemption mechanics is available here.  In March 2021, GBTC announced that its sponsor would purchase up to $250 million shares of GBTC to support the share price, in lieu of a unit redemption mechanism.

GBTC first approached the SEC regarding a bitcoin ETF in 2016.  Multiple sponsors have filed to launch a bitcoin, or other cryptocurrency ETF, and to date the SEC has not approved any cryptocurrency ETFs. Canada approved a bitcoin ETF, the Purpose Bitcoin ETF (TSC: BTCC), for listing on the Toronto Stock Exchange in February 2021.

Prospective SPAC Real Estate Acquisition

Bloomberg reports that Sonder, a company that refurbishes apartments and lists them for short-term rental on its own website as well as VRBO and AirBnB, is in discussions to merge with black-check company Gores Metropoulos II, Inc. (NASDAQ: GMII).  The proposed SPAC acquisition values Sonder, which was founded in 2012, at approximately $2.5 billion.  Sonder reportedly has raised $560 million in multiple rounds of venture capital financing. GMII stock has been trading flat on reported news of the prospective transaction.

SPAC Inquiry

The Weekly Update has reported extensively on the accelerating capital raises of SPACs throughout 2020 and into 2021.  SPACs have reportedly raised $170 billion in capital proceeds in 2021 following $157 billion in capital raises in 2020.  Reuters reports that the SEC’s enforcement division has now opened inquiries with multiple Wall Street investment banks regarding their underwriting and risk management practices in the booming sector.  Reuters reports that the SEC is asking for information regarding deal fees, internal controls, compliance, reporting and due diligence of acquisition targets.  Anytime a market grows with such speed and size there are likely corners cut somewhere on certain deals.