Alternative Investment News – Weekly Updates

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 cont