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

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

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

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

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

 

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

For more information: CLICK HERE

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

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

For more information: CLICK HERE

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

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

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

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

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

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

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

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

For more information: CLICK HERE and CLICK HERE

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

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

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

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

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

 

For more information: CLICK HERE 

Happy Memorial Day

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

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

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

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

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

REITs

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

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

For more information: CLICK HERE

REITs

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

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

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

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

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

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

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

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

REITs

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

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

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

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

For more information: CLICK HERE

Hines Global Income Trust Acquires Warehouse in the Netherlands

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

For more information: CLICK HERE

Late Notices

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

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

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

REITs

Lodging Fund REIT III, Inc. Files 2022 Annual Report  

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

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

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

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

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

For more information: CLICK HERE  

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

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

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

For more information: CLICK HERE

Sila Realty Trust Terminates Chief Accounting Officer and Chief Investment Officer  

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

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

For more information: CLICK HERE

Alternative Ramblings

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

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

For more information: CLICK HERE 

SEC Fines Advisors over AI Washing 

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

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

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

Baseball is Back!   

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

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

REITs

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

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

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

For more information: CLICK HERE

CNL Healthcare Properties Inc. Announces Lower Estimated NAV Per Share

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

For more information: CLICK HERE

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

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

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

For more information: CLICK HERE

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

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

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

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

Alternative Ramblings

Building Stockholder Value and Burning Short Sellers

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

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

REITs

Blackstone REIT Clears Out Redemption Backlog

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

For more information: CLICK HERE

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

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

For more information: CLICK HERE

Alternative Ramblings

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

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

For more information: CLICK HERE

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

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

For additional information: CLICK HERE

REITs

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

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

For more information: CLICK HERE

Alternative Ramblings

Westin Tempe Hotel Heading for Foreclosure Sale in April 2024

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

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

REITs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For additional information: CLICK HERE

Braemar Hotels & Resorts Provides Update on 2024 Debt Maturities

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

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

For additional information: CLICK HERE

REITs

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

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

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

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

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

For more information: CLICK HERE

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

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

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

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

For more information: CLICK HERE 

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

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

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

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

For more information: CLICK HERE and CLICK HERE

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

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

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

For more information: CLICK HERE

Interval Funds

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

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

We previously reported on these developments here.

For more information: CLICK HERE

Alternative Ramblings

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

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

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

For more information: CLICK HERE

Short Term Rental Headwinds

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

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

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

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

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

REITs 

American Healthcare REIT Board is Neutral on Third Party Tender Offer 

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

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

For more information: CLICK HERE 

Regulation A 

Arrived Homes, LLC CFO Resigns  

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

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

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

Alternative Ramblings 

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

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

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

BlackRock Acquires Global Infrastructure Partners in $12.5 Billion Acquisition  

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

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

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

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

BDCs 

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

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

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

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

For more information: CLICK HERE

REITs 

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

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

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

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

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

For more information: CLICK HERE

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

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

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

For more information: CLICK HERE

Lodging Fund REIT III Extends Maturities on Two Loans

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

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

For more information: CLICK HERE

Silver Star General Counsel Resigns Subsequently Appoints New General Counsel

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

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

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

We note the second sentence of the petition verbatim:

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

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

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

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

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

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

For more information: CLICK HERE

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

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

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

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

For more information: CLICK HERE

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

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

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

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

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

For more information: CLICK HERE

REITs

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

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

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

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

For more information: CLICK HERE

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

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

For more information: CLICK HERE

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

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

For additional information: CLICK HERE

Ares Real Estate Income Trust Appoints New CFO 

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

For additional information: CLICK HERE

 

Private Equity

GPB Capital Holdings, LLC Monitorship Converted to Receivership

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

For more information: CLICK HERE and CLICK HERE

 

Alternative Ramblings

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

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

Crime that Doesn’t Pay

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

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

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

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

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

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

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

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

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

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

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

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

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

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

REITs

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

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

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

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

Impact Investing

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

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

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

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

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

For more information: CLICK HERE

REITs

Brookfield Real Estate Income Trust Inc. Director Resigns

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

For more information: CLICK HERE 

Interval Funds

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

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

For more information: CLICK HERE 

REITs

Silver Star Properties Announces Chapter 11 Bankruptcy Filing of Subsidiary

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

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

For more information: CLICK HERE and CLICK HERE 

Alternative Ramblings

Sovereign Partners Sells Connecticut Office Complex for $29.75 million 

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

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

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

W.P. Carey CEO Jason Fox noted:

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

For more information: CLICK HERE 

What’s in a Name?

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

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

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

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

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

Cantor Fitzgerald Appoints Danny Salinas to Serve as CFO

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

Minnesota Nice

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

REITs

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

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

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

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

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

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

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

For more information: CLICK HERE

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

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

For more information: CLICK HERE

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

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

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

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

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

For more information: CLICK HERE

Procaccianti Hotel REIT, Inc. Announces Pro Rata Share Redemptions

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

For more information: CLICK HERE

BDCs and 1940 Act Funds

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

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

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

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

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

REITs

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

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

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

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

For more information: CLICK HERE

Alternative Ramblings

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

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

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

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

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

The Cult of Pickleball

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

Take a Load Off Robbie

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

REITs

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

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

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

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

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

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

For more information: CLICK HERE

Bonds

GWG Holdings Reorganization Plan Approved by Bankruptcy Court

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

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

For more information: CLICK HERE

Alternative Ramblings

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

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

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

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

Speaking of Work From Home Productivity

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

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

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

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

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

Fraud…..Ain’t What it Used to Be?

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

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

Institutional Infrastructure Secondary Fund Formation Heating Up

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

REITs

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

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

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

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

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

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

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

For more information: CLICK HERE

BDCs

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

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

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

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

For more information: CLICK HERE and CLICK HERE

Quick Hits

Caliber Appoints Dan Hansen to Board of Directors

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

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

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

Alternative Ramblings

1031 Bridge Financing 

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

REITs

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

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

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

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

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

For more information: CLICK HERE and CLICK HERE

Impact Investing

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

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

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

For additional information: CLICK HERE

 

REITs

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

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

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

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

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

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

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

For more information: CLICK HERE

Bluerock Homes Trust, Inc. Preferred Stock Offering Declared Effective

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

For more information: CLICK HERE

 

Sponsors

CaliberCos Inc. Announces Expansions of Internal Wholesale Team

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

For more information: CLICK HERE

 

Alternative Ramblings

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

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

As ScotusBlog.com provides additional background here:

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

Scotusblog.com provides further details here:

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

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

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

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

REITs

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

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

For more information: CLICK HERE

BDCs

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

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

For more information: CLICK HERE

Alternative Ramblings

Pennsylvania REIT Board Level Turbulence….Buckle Up

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

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

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

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

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

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

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

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

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

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

Corporations are People My Friend

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

Public Painting

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

Partners at Loggerheads Blooms Into Operational Due Diligence Risks

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

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

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

REITs

Gladstone Land Corporation to List Series C Preferred Stock 

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

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

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

For more information: CLICK HERE 

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

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

For more information: CLICK HERE 

 

Alternative Ramblings 

Friday Night Lights (and Smoke!) 

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

REITs

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

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

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

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

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

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

For additional information: CLICK HERE

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

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

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

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

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

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

For more information: CLICK HERE

Bonds

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

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

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

Alternative Ramblings

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

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

Institutional Investors Pausing on Single Family Home Purchases

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

Swift Diligence Part II

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

BDCs

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

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

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

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

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

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

For more information: CLICK HERE and CLICK HERE

 

REITs

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

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

For additional information: CLICK HERE

 

Alternative Ramblings

Grave Dancer Dances No More  

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

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

RIP Grave Dancer.

REITs

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

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

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

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

For more information: CLICK HERE

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

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

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

ExchangeRight Income Trust Files Form 10 Registration with the SEC

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

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

Blackstone REIT Redemption Requests Continue to Exceed Redemptions in April 2023

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

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

Alternative Ramblings

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

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

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

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

Charlie Munger on Real Estate and Banking

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

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

REITs

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

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

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

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

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

For more information: CLICK HERE

Alternative Ramblings

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

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

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

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

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

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

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

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

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

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

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

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

REITs

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

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

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

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

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

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

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

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

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

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

For additional information: CLICK HERE and CLICK HERE 

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

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

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

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

For more information: CLICK HERE and CLICK HERE

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

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

Alternative Ramblings

Blackstone Sells Orange County Offices at Substantial Loss 

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

Redfin Reports Weaker Demand from Buyers for Vacation Homes

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

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

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

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

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

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

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

For more information: CLICK HERE

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

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

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

REITs

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

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

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

For more information: CLICK HERE

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

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

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

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

For more information: CLICK HERE and CLICK HERE

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

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

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

We previously reported on these developments here.

For more information: CLICK HERE

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

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

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

For more information: CLICK HERE and CLICK HERE 

Alternative Ramblings

EcoVest Settles Case With DOJ

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

The final judgement is available here.

SEC Scraps Vote on Private Equity and Hedge Fund Disclosures

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

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

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

Guggenheim Credit Market Update

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

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

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

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

As S&P Capital IQ further reports:

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

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

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

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

S&P reports that:

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

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

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

REITs

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

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

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

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

For more information: CLICK HERE

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

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

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

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

For more information: CLICK HERE

Living at the Mall (Rats!?)

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

REITs

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

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

For more information: CLICK HERE

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

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

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

For more information:  CLICK HERE

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

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

For more information: CLICK HERE

 

BDCs

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

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

For more information: CLICK HERE

Alternative Ramblings

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

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

LA Office Towers in Events of Default

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

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

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

REITs

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

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

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

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

For more information: CLICK HERE and CLICK HERE

KBS Growth & Income REIT Seeks Shareholder Approval of Liquidation Plan

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

For more information: CLICK HERE

REITs

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

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

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

For more information: CLICK HERE

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

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

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

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

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

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

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

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

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

For more information: CLICK HERE

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

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

 

Alternative Ramblingss

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

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

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

Sovereign Partners Continues Lease-up in Suburban Chicago Office Building

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

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

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

REITs

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

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

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

For more information: CLICK HERE

Manufactured Housing Properties, Inc. CFO Resigns

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

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

For more information: CLICK HERE

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

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

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

For more information: CLICK HERE

 

Alternative Ramblings

Secondaries Capital Formation Increasing

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

Prologis Forecasts Industrial Rent Growth of 10% in 2023

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

Cancellation of New Home Spikes in Q4 2022

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

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

Nashville Tourism Hit Record Levels in 2022

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

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

REITs

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

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

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

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

For more information: CLICK HERE

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

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

For more information: CLICK HERE

 

1940 Act Funds

AOG Institutional Diversified Funds Receive Notice of Effectiveness from the SEC

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

Stay tuned for an upcoming FactRight report on this offering

 

Alternative Ramblings

Yield!

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

REITs

University of California Allocates $4 Billion to Blackstone REIT

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

The Wall Street Journal reports:

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

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

Not a bad deal if you can get it.

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

For more information: CLICK HERE

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

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

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

For more information: CLICK HERE

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

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

For more information: CLICK HERE and CLICK HERE

REITs

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

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

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

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

For more information: CLICK HERE

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

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

For more information: CLICK HERE

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

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

For additional information: CLICK HERE and CLICK HERE

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

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

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

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

For additional information: CLICK HERE and CLICK HERE

 

Alternative Ramblings 

Publicly-Traded REITs on Sale 

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

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

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

Crypto Audit Firms Take a Step Back

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

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

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

Grayscale Bitcoin Trust (OTC: GBTC) Contemplates Redemption 

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

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

Crypto Audit Firms Take a Step Back

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

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

REITs

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

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

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

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

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

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

For additional information: CLICK HERE

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

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

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

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

For more information: CLICK HERE and CLICK HERE

Longtime AR Global REITs Director Lee Elman Passes Away

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

For additional information: CLICK HERE and CLICK HERE

 

Bonds

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

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

For additional information: CLICK HERE and CLICK HERE

Bonds

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

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

Bankruptcy Court Suspends GWG’s Board of Directors

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

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

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

For more information: CLICK HERE and CLICK HERE

 

REITs

Blackstone Real Estate Income Trust, Inc.

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

 

Alternative Ramblings

Crypto More Widely Adopted Than One Would Think Amongst Institutional Managers

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

We note this survey was conducted before the FTX debacle…

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

FTX Due Diligence Post-Mortem

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

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

1940 Act Funds

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

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

For more information: CLICK HERE

 

BDCs

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

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

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

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

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

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

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

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

 

Interval Funds

Wildermuth Fund

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

For more information: CLICK HERE

 

REITs

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

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

For more information: CLICK HERE

RREEF Property Trust, Inc.

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

For more information: CLICK HERE

 

Alternative Ramblings

REITzilla in the News

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

REITs

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

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

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

For more information: CLICK HERE

Alternative Ramblings

Residential Rental Growth Cooling

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

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

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

REITs

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

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

Key charter amendments sought include:

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

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

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

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

For additional information: CLICK HERE and CLICK HERE

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

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

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

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

For more information: CLICK HERE

Braemar Hotels & Resorts Reports Strong Preliminary Q3 RevPAR

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

For more information: CLICK HERE

 

BDCs

Priority Income Fund Announces Record Common Stock Raise in Q3

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

For more information: CLICK HERE

 

Alternative Ramblings

A New Bill of Rights

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

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

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

Blackstone Anticipates Muted Real Estate Acquisition Activity in Future Quarters

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

Recent Volatility in Public Markets Weighing on Liquidity in Illiquid Products

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

REITs

Bluerock Homes Trust (NYSE American: BHM) Begins Trading

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

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

For more information: CLICK HERE

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

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

For more information: CLICK HERE

 

1940 Act Funds

Priority Income Fund Announces Record Common Stock Raise in Q3

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

For more information: CLICK HERE

 

Alternative Ramblings

Keeping Up with the SEC

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

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

CAIS Matt Brown and the Future of Retail Alternative Investing

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

Multifamily Rent Growth Cools

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

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

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

Bonds

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

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

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

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

For more information: CLICK HERE

 

REITs

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

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

For more information: CLICK HERE

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

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

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

For more information: CLICK HERE

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

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

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

For more information: CLICK HERE

 

BDCs

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

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

For more information: CLICK HERE

BDCs

Guggenheim Credit Income Fund CFO Resigns

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

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

For additional information: CLICK HERE

 

REITs

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

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

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

We previously reported on this deal announced in May 2022.

For more information: CLICK HERE and CLICK HERE

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

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

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

For more information: CLICK HERE

 

1031 Exchanges

Capital Square Names Whitson Huffman as Co-CEO

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

REITs

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

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

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

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

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

For more information: CLICK HERE

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

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

For additional information: CLICK HERE

Sovereign Partners Goes Full Cycle on Milwaukee Office Property

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

Alternative Ramblings

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

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

Thank You to All of Our Conference Attendees

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

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

REITs

Griffin Realty Trust Announces Strategic Monetization Process and Reports

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

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

For more information: CLICK HERE

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

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

KBS REIT III Withdraws Registration Statement to Convert to NAV REIT

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

For more information: CLICK HERE

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

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

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

For more information: CLICK HERE

Third Party Tender Offers

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

Alternative Ramblings

VICE ETF….

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

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

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

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

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

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

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

REITs

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

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

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

Pacific Oak Strategic Opportunity REIT Inc.

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

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

Hartman Short Term Income Properties XX, Inc.

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

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

Inland Real Estate Income Trust Inc.

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

Third Party Tender Offers

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

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

Greenbacker Renewable Energy Company CFO Richard Butt announces retirement

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

 

Alternative Ramblings

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

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

NAREIT Reports on SEC Proposed Climate Disclosures

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

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

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

REITs

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

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

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

For additional information: CLICK HERE and CLICK HERE

Hartman Short Term Income Properties XX, Inc. Suspends Distributions

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

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

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

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

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

For more information: CLICK HERE and CLICK HERE

 

Interval Funds

Cantor Fitzgerald Sustainable Infrastructure Fund Receives Notice of Effectiveness

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

For additional information: CLICK HERE

 

Alternative Ramblings 

NASAA Proposed Revisions to REIT Guidelines

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

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

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

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

CALPERS Sells $6 Billion in Private Equity Stakes

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

Midsummer Classic

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

Bonds

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

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

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

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

For more information: CLICK HERE

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

 

REITs

Moody National REIT II, Inc. Provides Operational Update

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

For more information: CLICK HERE

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

 

Alternative Ramblings

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

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

Tech ETF Manager Cathie Wood Believes a Recession has Already Started

The ARK ETF portfolio manager cited significantly rising inventories at retailers amidst record-low levels of consumer sentiment may continue to weigh on the economy.

You Thought Your Firm Had IT Issues

A Japanese man reportedly lost a USB drive that contained the personal data of approximately a half million residents of the city of Amagasaki after “a night out.” The employee in question reportedly copied the city residents’ personal data to a USB drive and took it to his company’s office to continue working there, without authorization….and hijinks ensued.

REITs

Preferred Apartment Communities, Inc. (NYSE: APTS) Shareholders Approve Sale to Blackstone Real Estate Income Trust, Inc.

APTS announced on June 17 that the company received approval from stockholders to close the sale of the company to Blackstone REIT at $25.00 per share. The company had previously delayed the close of the transaction in order to allow shareholders more time to consider and vote on the transaction. APTS reported that approximately 99% of collected votes in favor of the transaction. The sale is anticipated to close on June 23, 2022, at which time APTS’ shares will no longer be listed on the NYSE.

For more information: CLICK HERE

 

Alternative Ramblings

Goldman Sachs Faces SEC Scrutiny Over ESG Screening Criteria in Certain Mutual Funds

The nebulous world of ESG investing (environmental, social and governance [cough…marketing gloss for asset gatherers to appeal to investors]) has taken another turn as the SEC has launched an investigation into Goldman Sachs’ screening of investments for portfolios marketed as ESG. The Wall Street Journal noted that one such fund was a rebrand of a large cap equity fund that did not appear to have any meaningful changes to its portfolio following the change of name. Bank of New York Mellon paid a $1.5 million fine in May 2022 for failing to disclose that some of its portfolio investments in ESG focused funds did not undergo a formal screening of ESG factors despite representing in offering documents that such screening would occur. Many ESG-branded funds simply seek to screen out certain industries, including oil & gas, coal, firearms and companies selling “vice” products and services including alcohol, tobacco, and gambling.

ESG screening is becoming an area of increased focus for due diligence in the retail alternative investment market. A few pointers for wealth managers in this arena: you need to vet asset managers for funds touting a sustainability/ESG mandate regarding what specific ESG screening criteria is employed, where is this data sourced from, how is the screening criteria evaluated on an initial and ongoing basis, and how this is process documented, in addition to how is this being communicated to prospective investors in marketing materials.

Mortgage Rates Approach 6%

30-year mortgage rates have continued a fast rise in 2022 as increased federal funds rates have rippled through financial markets in efforts to tame inflation. The increase in mortgage rates and attendant erosion in purchasing power for prospective homebuyers will invariably price some out of a competitive market at the margins and likely lead to slowing sales of homes as the market cools, and mortgage application volume decreases. The following chart highlights mortgage rates dating back to the 1970s, which accentuates the steep increase in rates in 2022.

We have little doubt that many institutional buyers will be waiting in the wings with lower costs of financing to scoop up single family homes in the event of a softening of market conditions, leading to some expectations of lower home ownership rates in the future. Historical ownership rates are displayed in the following chart.

Negative Leverage

As deal quality erodes and projected returns on equity diminish across many real estate sectors, increasing costs of debt financing shift risk and reward dynamics from equity to debt capital. This article from GlobeSt.com provides a brief overview of the negative leverage phenomenon, i.e., when the cash-on-cash returns of a deal are lower than the cost of debt financing.

You Don’t Have To Go Home But You Can’t Stay Here

Airport Lounge Lizards…yes, you know who you are…beware Delta may have some delays and reroute you from the Sky Lounge into the general airport population area if you show up too early.

REITs

Preferred Apartment Communities, Inc. (NYSE: APTS) Continues to Wrangle Votes for Special Stockholders Meeting to Vote on the All-Cash sale to Blackstone REIT

APTS announced that it had adjourned its special stockholder meeting until June 17, 2022, to allow stockholders more time to vote on the proposal. The company needs approval from two-thirds of the outstanding shares entitled to vote to approve the transaction. APTS reported that 63.9% of the outstanding shares have voted with approximately 99.0% of collected votes in favor of the transaction.

Institutional Shareholder Services Inc. and Glass Lewis & Co. have recommended shareholders vote for the transaction.

As we’ve noted before, pricing metrics on the transaction include a price/AFFO ratio of 25x and an implied cap rate of approximately 5.4% based on annualized 2021 NOI and AFFO reported through the first three quarters of 2021. The consideration marks a premium of 39% over the closing price of APTS’ common stock as of February 9, 2022 (prior to the announcement of the deal). Preferred stockholders will receive a cash liquidation at the liquidation preference of $1,000 per share.

APTS shareholders, what are you waiting for? Vote early and vote often!

For more information: CLICK HERE

Regulation A+

Cottonwood Multifamily Opportunity Fund, Inc. Enters into Non-Binding Merger Transaction with Cottonwood Communities, Inc.

Under the deal, announced on June 7, 2022, Cottonwood Multifamily Opportunity Fund, Inc. (CMOF) investors would receive 0.8669 Class A shares of Cottonwood Communities, Inc. (CCI) in exchange for each share of CMOF common stock.

CCI owns 22 stabilized multifamily properties, four multifamily development projects, and land held for development, and also owns a property manager that manages approximately 2,500 multifamily units not owned by CCI. CCI reported total assets of $2.1 billion as of year-end 2021. CMOF reported total assets of approximately $50 million as of year-end 2021. CMOF’s investment portfolio consists of two JV interests in multifamily development projects in Salt Lake City, Utah, anticipated to be completed in 2022, and a collection of land parcels held for development in Millcreek, Utah. Each of CMOF’s joint venture interests are with Cottonwood Residential O.P., LP, which is the operating partnership through which CCI owns all of its assets following its merger with affiliates Cottonwood Residential II, Inc., Cottonwood Multifamily REIT I, Inc., and Cottonwood Multifamily REIT II, Inc. The mergers with these three entities closed in Q2 and Q3 of 2021. We reported on these transactions here. CCI reported a 20% NAV increase in October 2021 due to performance of its multifamily assets that included rent growth of 11% to 22% from June through September 2021, which we reported on here.

For more information: CLICK HERE

Alternative Ramblings

Tricon Homes (NYSE: TCN, TSX: TCN) Announces Down Payment Assistance Program for Tenants

The publicly-traded single-family rental company announced that tenants in good standing for five years will qualify for $5,000 that can be put towards the down payment of a home as part of its newly announced program called Tricon Vantage. The program is anticipated to become available in the fourth quarter and will be available retroactively for existing tenants.

Tricon’s CEO Gary Berman had a memorable line on a recent episode of 60 Minutes, where he noted “You can rent the American Dream.” Mr. Berman noted in the interview that corporate landlords account for 2% of all rental homes in the U.S.

Tricon, which was founded in 1988, began focusing on single-family rentals in the last decade and currently owns and operates approximately 29,000 homes located primarily in the sunbelt of the U.S.

REITs

SmartStop Self Storage REIT, Inc. Completes Acquisition of Affiliate Strategic Storage Growth Trust II

The merger (which closed on June 2) increased SmartStop Self Storage REIT’s holdings by 10 self-storage facilities located in seven states. The merger was previously announced in February 2022. Additionally, the company suspended its distribution reinvestment plan and shareholder repurchase plan in March 2022, as the company considers strategic liquidity events. SmartStop REIT previously acquired 19 self-storage facilities via its merger with affiliate Strategic Storage Trust IV, Inc. in March 2021. Underlying strength in the self-storage market has resulted in tremendous NAV growth for the company, which increased from $10.40 per share, as of December 31, 2019,  to $15.08 as of June 30, 2021.

For more information: CLICK HERE and CLICK HERE

Strategic Student & Senior Housing Trust, Inc. Provides Operational Update

On June 2, 2022, Strategic Student & Senior Housing Trust, Inc., provided an operational update noting that occupancies in the company’s senior communities increased from 82% to 86% during the first quarter of 2022. The company also reported that it closed on the sale of its Tallahassee student housing property and received liquidation proceeds from its investment in the Power 5 DST. Proceeds from the sale were used to reduce outstanding loan balances and increase cash at the company.

For more information: CLICK HERE

New York City REIT, Inc. (NYSE: NYC) Announces Current Independent Director Elizabeth Tuppeny Wins Re-Election to the Board of Directors in Contested Election

On May 31, 2022, the company announced that Ms. Tuppeny was re-elected to the board of directors of NYC. Ms. Tuppeny has served as an independent director at NYC since 2014. Ms. Tuppeny has also served as a director at Franklin BSP Realty Trust, Inc. (f/ka/ Realty Finance Trust, Inc.) since 2016, Healthcare Trust, Inc. (f/k/a American Realty Capital Healthcare Trust II, Inc.) since 2013, and American Realty Capital Trust IV, Inc. from 2012 to 2014. We note that all of these entities were, or are currently, advised by affiliates of AR Global.

Comrit Investments, LP (an investment firm that has made tender offers for shares of NYC and other REITs) had filed a contested proxy and nominated Sharon Stern, who has served as an independent director of Cedar Realty Trust (NYSE: CDR) since 2021 and founded Eastmore Management and Metro Investments, both of which focus on multifamily development in Montreal, Canada.

Proxy Advisory firms Glass, Lewis & Co. and Institutional Shareholder Services Inc. (ISS) both recommended shareholders vote for Ms. Stern instead of Ms. Tuppeny. Glass Lewis stated:

“In our view, [Ms. Stern] has made a clear showing that the Company has significantly underperformed its industry peers, particularly in terms of [total stockholder returns] since [NYC’s] initial public listing two years ago. These concerns are further compounded by what we believe is an incumbent board that is more interested in entrenching itself than truly enacting sound corporate governance reforms.”

ISS provided additional color:

“As an externally-managed REIT, the company does not provide sufficient disclosure on the compensation paid to its executives by the external manager to enable shareholders to make an informed decision about the manager’s pay practices.”

“In consideration of the slow-hand poison pill that has never been ratified by shareholders, classified board, interconnections among directors, and overlapping roles for Weil as CEO of both NYC and AR Global, the dissident has raised valid concerns about the board’s willingness to objectively evaluate the performance of its external manager and to act in the best interest of shareholders.”

“Dissident nominee Stern appears to have relevant real estate and public board experience and, perhaps most importantly, she is independent of the company and its external advisor AR Global […] {H]aving at least one fully independent director on the board appears to be a good first step.”

The following chart highlights NYC’s trading price since its listing on the NYSE in August 2020.