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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.
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Impact Investing
TriLinc Global Impact Fund, LLC, Provides Portfolio Update and Status of Audit for 2022 Annual Report
On September 22, 2023, TriLinc provided updates on the status of its audit for 2022, noting that it is currently underway with KPMG LLP, which was engaged on June 27, 2023. TriLinc anticipates filing the annual report by September 29, 2023. We note that TriLinc has not filed any financial statements with the SEC since the third quarter of 2022. As we went to press TriLinc had not filed the annual report.
TriLinc reported that while the 2022 audit has not been completed, preliminary estimates of net asset value (NAV) per share was $5.968 as of December 31, 2022, and $5.687 as of June 30, 2023 were reported in the most recent current report. As of September 30, 2022, TriLinc reported a NAV per share of $6.84. However, TriLinc cautioned against undue reliance on these estimated NAV per share figures as they are subject to review by KPMG and have not been finalized.
We previously reported on the appointment of KPMG as TriLinc’s auditor in June 2023, and TriLinc’s history with other audit firms. These include RSM, which did not complete an audit of TriLinc’s financial statements, and BDO, which served as auditor from 2019 through 2021 and identified critical audit matters related to TriLinc’s valuation of portfolio investments. Additionally, in 2019, Moss Adams LLP declined to stand for reappointment as auditor for the company.
TriLinc focuses on making impact investments across the developing world through the use of various sub-advisors. Investments include term loans, trade finance participations, and equity investments. TriLinc raised approximately $361 million in equity proceeds in an offering that commenced in 2013 and closed in 2017. TriLinc reported total assets of $333.8 million as of September 30, 2022, in its most recently filed quarterly report with the SEC. TriLinc reported that as of July 31, 2023, it had approximately $398.5 million in total financing commitments with a weighted average loan size of approximately $8 million and a weighted average duration of 0.76 years.
For more information: CLICK HERE
REITs
Brookfield Real Estate Income Trust Inc. Director Resigns
Brookfield reported on September 28, 2023, that Zachary Vaughan resigned from the board of directors. No additional information related to Mr. Vaughan’s resignation from the board of directors was disclosed.
For more information: CLICK HERE
Interval Funds
Cantor Fitzgerald Sustainable Infrastructure Fund Changes Name to Cantor Fitzgerald Infrastructure Fund
On September 22, 2023, the fund filed a prospectus supplement that noted the name change. No change was made to the fund’s investment objectives or strategy, as the fund will continue to seek to maximize total return, with an emphasis on current income, while investing in issuers that are helping to address certain United Nations Sustainable Development Goals through their products and services. Additionally, the fund will continue to target investments in private institutional infrastructure funds and public infrastructure securities.
For more information: CLICK HERE
REITs
Silver Star Properties Announces Chapter 11 Bankruptcy Filing of Subsidiary
Silver Star reported that its subsidiary, Hartman SPE, LLC (the SPE), voluntarily filed for bankruptcy under Chapter 11 on September 13, 2023. Silver Star noted that the filing was made in order “to improve its ability to sell its remaining legacy assets” which consist of various office, retail, and industrial assets. Additionally, Silver Star reported that it completed the sale of its Prestonwood property, on September 8, for net proceeds of approximately $25 million. Silver Star anticipates that the filing will assist in the orderly sale of its assets to pay its creditors, refinance its maturing SASB loan with Goldman Sachs Mortgage Company, which is scheduled to mature October 9, 2023, and reposition the portfolio into self-storage assets. The bankruptcy filing constitutes an event of default under the SASB loan. Silver Star reported that the bankruptcy filing follows “failed efforts amicably to resolve intercompany ownership matters” in a process dating back to December 2022. Silver Star noted that it has “diligently pursued mediation and sought legal remedies in response to (former CEO and Chairman) Allen Hartman’s efforts to secure more favorable terms through the use of controversial legal tactics.”
Silver Star has sold eight assets in 2023 for net proceeds of approximately $108 million and reported that it is under contract on the sale of an additional $131 million in assets which are “expected to close in an amount sufficient to reach the $200 million loan balance required for refinancing from our replacement lender.” We previously reported on multiple material developments at Silver Star here.
For more information: CLICK HERE and CLICK HERE
Alternative Ramblings
Sovereign Partners Sells Connecticut Office Complex for $29.75 million
Boston Real Estate Times reports that the transaction is the largest office property sale in Connecticut in 2023. The office complex traded hands in 2019 for $19.95 million, marking approximately $10 million more than the acquisition price. Sovereign Partners invested over $3 million in building infrastructure and tenant amenities during its period of ownership. FactRight notes that given the broader office market dynamics over the last few years, and recent transactions in certain other markets, this is an impressive bit of dealmaking in a challenging market.
W.P. Carey to Exit Office Market with Spin-Off and Sale of Additional Office Properties
W.P. Carey (NYSE: WPC) announced that its board of directors approved the spin-off of 59 office properties currently held by the REIT into a newly created publicly traded REIT named Net Lease Office Properties. The spin-off is expected to be completed in November 2023. W.P. Carey further noted that it would also seek to sell 87 additional office properties that it currently holds that would not be part of the spin-off. The REIT announced that it expects to complete the sale of the 87 properties by January 2024.
W.P. Carey CEO Jason Fox noted:
“While we’ve meaningfully reduced our office exposure in recent years, the plan we’ve announced this morning vastly accelerates our exit from office — enhancing the overall quality of our portfolio, improving the quality and stability of our earnings, and incrementally benefiting our credit profile. Ultimately, with a clear path to monetizing our legacy office assets, we believe we will achieve a lower cost of capital and be better positioned for long-term value creation for our shareholders.”
For more information: CLICK HERE
What’s in a Name?
The Securities and Exchange Commission adopted amendments to the Investment Company Act “Names Rule” this past week. From the SEC’s press release:
The Names Rule currently requires registered investment companies whose names suggest a focus in a particular type of investment to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”).
The amendments to the Names Rule will enhance the rule’s protections by requiring more funds to adopt an 80 percent investment policy, including funds with names suggesting a focus in investments with particular characteristics, for example, terms such as “growth” or “value,” or certain terms that reference a thematic investment focus, such as the incorporation of one or more Environmental, Social, or Governance factors.
The amendments will also include a new requirement that a fund review its portfolio assets’ treatment under its 80 percent investment policy at least quarterly and will include specific time frames – generally 90 days – for getting back into compliance if a fund departs from its 80 percent investment policy.
Given the new rule perhaps the Sweater Cashmere Fund (actually a thing!) may need to change its name or at least materially change its portfolio holdings. The Wall Street Journal reports more on the new rule here.
Cantor Fitzgerald Appoints Danny Salinas to Serve as CFO
Mr. Salinas joins Cantor Fitzgerald after serving in various roles including as CFO at TD Securities and over a decade in various roles at TD Bank Group. Institutional Real Estate reports on the news here.
Minnesota Nice
A Minnesota kid out fishing on Lake of the Woods caught a wallet with $2,000 in cash and returned it to the Iowa farmer who lost it the previous year. In true Minnesota fashion, the fisherman’s cousin netted the wallet. That’s a pro move, always be ready on the net!
REITs
SEC Announces Settlement with Legendary Capital and Principal Corey Maple. Total Disgorgement, Interest and Penalties of Approximately $4.8 million
On August 28, 2023, the SEC announced it had settled charges against the REIT advisor, and certain affiliates (collectively Legendary), and principal Corey Maple “for their roles in directing two REITs to reimburse overhead expenses in a manner that was inconsistent with disclosures made to investors.” The SEC order finds that “from 2014 to 2020, the Respondents improperly directed Lodging Opportunity Fund Real Estate Investment Trust and Lodging Fund REIT III, Inc., (collectively the Funds) to reimburse approximately $5 million of overhead expenses.” The SEC’s order also noted that Legendary Capital entities and Mr. Maple represented that certain sponsoring entities would be responsible for the overhead expenses from managing the Funds, including payroll and office rent, and that the Funds would not be responsible for such overhead expenses.
Without admitting or denying the SEC’s findings, certain Legendary entities and Mr. Maple have agreed to a cease-and-desist order, and to pay total disgorgement of $2.7 million, interest of $0.5 million and penalties of approximately $1.5 million to harmed investors. The SEC also noted that Legendary will also retain an independent consultant to review internal policies, procedures and controls relating to the reimbursement of fees and expenses of the REITs they manage.
The SEC summary is available here and the full order is available here.
Lodging Fund REIT III, Inc. filed a current report disclosing the settlement of the SEC investigation here. As we previously reported, Mr. Maple resigned as CEO of Lodging Fund REIT III, Inc. in May 2023, while continuing on as Chairman of the REIT.
Peakstone Realty Trust, Inc. (NYSE: PKST) Terminates Administrative Services Agreement with Griffin Capital, LLC and Affiliates
PKST reported that it delivered a termination notice for human resources support services provided by affiliates of Griffin Capital, LLC effective as of October 6, 2023. PKST previously internalized its external advisor, and the administrative agreement was a last remaining vestige of its former structure as an externally advised REIT. PKST common stock listed on the NYSE in April 2023 and peaked around $40 per share before trending lower as shown in the following chart.
For more information: CLICK HERE
Ares Industrial Real Estate Income Trust Inc. Expands Board with Two Additional Directors
Ares announced that effective August 16, 2023, Mr. David Fazekas and Ms. Dawanna Williams were appointed to serve as directors on the Board. Mr. Fazekas previously served in real estate roles at RREEF Deutsche Bank and serves currently as a Partner and Head of Ares Industrial Management. Ms. Williams is the founder of Dabar Development Partners based in New York City. Ms. Williams qualifies as an independent director.
For more information: CLICK HERE
Silver Star Properties REIT, Inc. Appoints Gerald Haddock as Executive Chairman of the Board and Announces Special Dividend Preferred Share Purchase Right
Silver Star Properties REIT, Inc. (Silver Star) reported on August 18, 2023, that its board of directors authorized a special distribution to common stockholders of one preferred share purchase right for each outstanding share of common stock. The preferred share purchase right entitles each common shareholder to purchase one one-fifth of a share of Series A Junior Participating Preferred Stock at a price of $5.00 per one one-fifth of a share of preferred stock. The purchase right expires on August 17, 2024. Silver Star reports that the preferred stock preferred dividend “when, as, and if declared” will be five times the dividend declared per share of common stock, including prospective liquidating distributions. The preferred stock will also feature five votes and will vote alongside the common stock, potentially diluting the existing common stock voting base. Further information and the articles supplementary of the Series A Junior Participating Preferred Stock can be found here and here. We note that Silver Star has not paid distributions to common stockholders since the second quarter of 2022 in an effort to preserve capital. Silver Star has previously noted in its quarterly reports a going concern notice related to certain debts coming due in October 2023, and recently provided guidance on anticipated refinancing activity. We reported on this here.
Silver Star also announced details of Mr. Haddock’s compensation package which includes 400,000 restricted stock units upon the successful completion of “both an IPO or other method of listing the company’s shares on an established securities exchange and a capital infusion by selling securities”. Mr. Haddock has served as an independent director on the board of Silver Star and its predecessor Hartman Short Term Income Properties XX, Inc. since May 2020.
Following the appointment of Steve Treadwell as CEO effective August 21, 2023, this marks a wholesale change in senior leadership positions at the REIT.
We have reported on other significant developments at Silver Star here, here, here, here, here and here.
For more information: CLICK HERE
Procaccianti Hotel REIT, Inc. Announces Pro Rata Share Redemptions
On August 22, 2023, Procaccianti announced that its board of directors determined that it had reached its redemption limit under its amended and restated share repurchase plan for the quarter ending June 30, 2023. Procaccianti limits redemptions under its amended repurchase plan to 5% of the outstanding shares in the trailing 12-month period and redemptions are subject to funds available from proceeds from its distribution reinvestment plan, and any other funds authorized by its board of directors. Procaccianti announced that it would redeem, on a pro rata basis, 19.7% of share redemption requests made in the quarter ending June 30, 2023. Procaccianti reported that it would continue to honor redemption requests due to the death of a shareholder in full. Procaccianti terminated its public and private offerings in August 2021. The company reported total assets of approximately $112 million as of June 30, 2023, with outstanding mortgage debts of approximately $65 million. Procaccianti owns interests in five select-service hotels located in four states with 559 total rooms.
For more information: CLICK HERE
BDCs and 1940 Act Funds
Prospect Capital Corp. (Nasdaq: PSEC) and Priority Income Fund Announce Late Filing of Respective Annual Reports
On August 29, 2023, Priority Income Fund (Priority) and PSEC both reported that they would be unable to file their respective annual reports for the fiscal year ended June 30, 2023, in a timely fashion. Priority and PSEC noted that they and their independent public accounting firm “require additional time to complete the documentation of the audit of the company’s financial statements.” Both Priority and PSEC reported that they anticipate filing the annual report within the extension period of 15 calendar days.
BDO USA, P.C., Priority and PSEC’s independent auditors, filed a letter with the SEC agreeing with the statements in both Priority and PSEC’s announcement of the late filings.
PSEC additionally announced financial results for the period ending June 30, 2023, and confirmed its dividend to common stockholders through October 2023 and for preferred stockholders through November 2023. The earnings release is available here.
For more information: CLICK HERE, CLICK HERE, CLICK HERE, and CLICK HERE
REITs
Silver Star Properties REIT, Inc. Appoints New CEO, Provides Guidance on Refinancing Activity
Silver Star announced that Steve Treadwell will become CEO effective August 21, 2023. Mr. Treadwell is a graduate of the U.S. Air Force Academy and has approximately a decade of experience in executive roles in the self-storage industry prior to his appointment as CEO of Silver Star.
Silver Star also reported that it anticipates closing on the refinancing of its SASB Loan around September 1, 2023. Silver Star noted that upon the close of the refinancing it “expects to have a loan to value ratio of approximately 50%; and upon the Company completing its repositioning, to have around $400 million to invest in its repositioning and exchange listing process.” We note that the SASB Loan, which has $259 million in outstanding principal, had an initial maturity of October 2020, subject to three one-year extensions. The SASB loan bears interest at LIBOR plus 1.8%. An interest rate cap arrangement caps LIBOR at 3.75% through the October 2023 extended maturity date. Uncertainty as to Silver Star’s ability to refinance this loan led to a going concern notice included in Silver Star’s annual report for calendar year 2022. Silver Star reported total outstanding debt of approximately $309 million as of March 31, 2023, in its most recent quarterly report. Debt-to-total assets (inclusive of depreciation) was 68%, adding back depreciation debt-to-total assets was 48%.
Overall, we note that this recently reported news is a welcome set of positive developments for the REIT and provides a roadmap for stability in light of the impending SASB Loan maturity and shift in strategy from office, retail, and industrial assets to a self-storage focus. Recent developments at Silver Star have included management changes, with the appointment and subsequent resignation of CEO Mark Torok, and per an article from The DI Wire, a possible SEC investigation into certain matters at the REIT. Note Silver Star disputes the accuracy of The DI Wire article. We reported on these matters here, here and here.
For more information: CLICK HERE
Alternative Ramblings
Earnings season has been in full swing over the past two weeks. A couple of interesting notes from select earnings calls across the REIT landscape in the past couple weeks:
Avalon Bay (NYSE: AVB): The Class A multifamily REIT reported that year-over-year same-store operating expenses (8.2% as of the second quarter 2023) increased at a pace greater than same-store rent growth (6.2%). The REIT updated 2023 yearly guidance to 6% rent growth and 6.5% operating expense growth, in light of increased operating expenses.
Given inflationary pressures in the broader economy, the operating expense forecasts for operating properties has been a keen focus at FactRight and it appears there are signs that these inflationary pressures may be catching up, and in certain cases exceeding, the substantial rental growth that has been experienced in the multifamily space over the past couple years.
Extra Space Storage Inc. (NYSE: EXR) notes a bit of weakening in its ability to drive rent growth over the most recent reported quarter. CEO Joseph Margolis noted that “[t]he challenge is there’s not sufficient enough customers to give us pricing power.” EXR noted that new customer rates were 3% lower in March and 8% lower in April 2023, relative to the same periods in 2022. EXR lowered its same-store revenue and Core FFO guidance for 2023.
Braemar Hotels & Resorts Inc. (NYSE: BHR) reported stronger revenue growth in its urban hotel properties, with the segment reporting total revenue growth of 13% in the second quarter of 2023 over the same period in 2022. BHR reported increased occupancy and RevPAR 20% and 26%, respectively, in the urban segment in the first six months of 2023 over the same period in 2022. Same store total occupancy and RevPAR, across the entire BHR portfolio, was up 9% and 2%, respectively, in the same six-month period. The metrics were buoyed by the urban properties, but there was modest weakening in the resort segment (occupancy and RevPAR down 4% and 6%, respectively, over the same prior year period).
The Cult of Pickleball
An Arizona mall adds pickleball courts to attract traffic to the mall. Just the latest in experiential additions to once static retail big box stores. We have yet to partake in this pickleball frenzy…
Take a Load Off Robbie
Robbie Robertson passed at the age of 80. In a career spanning multiple decades, Robertson wrote this gem with The Band, in addition to work with Eric Clapton, Tom Petty, Bob Dylan, Ringo Starr, Neil Diamond and multiple soundtracks with Martin Scorsese. RIP to a legend.
REITs
Blackstone Real Estate Income Trust Sells Simply Self Storage to Public Storage in $2.2 Billion Transaction and Reports Ninth Month of Consecutive Redemption Backlog While Overall Redemption Request Volume Decreases
Public Storage (NYSE: PSA) announced the deal to acquire Simply Self Storage from BREIT in a deal that is anticipated to close in the third quarter of 2023. The sale includes 127 self storage properties, located across 18 states, comprising 9 million net rentable square feet.
BREIT additionally reported in a shareholder letter that a shareholder who began submitting redemption requests when proration began in 2022 has received over 90% of their money back. BREIT has redeemed over $8 billion in shareholder redemption requests since November 2022. BREIT reported that it had received $3.8 billion in redemption requests in June 2023, which was 29% lower than redemption requests at their peak in January 2023. BREIT reported they redeemed $628 million in shares in the June redemption offer. Based on BREIT’s NAV and 5% redemption limitation and assuming no additional shareholder redemption requests, the backlog may be cleared by the end of 2023.
All told if BREIT ends up clearing the backlog this will be approximately $12 billion in redemptions in approximately one year. Staggering numbers, we note that currently there are only 20 publicly traded REITs globally that have a market capitalization greater than $12 billion.
RREEF Property Trust Reports Third Quarter Redemptions Exceed 5% Quarterly Limit
On July 26, 2023, RREEF Property Trust reported that recent redemptions requests received prior to July 24, 2023, had been fully redeemed. Redemption requests made on or after July 24, 2023, were repurchased on a pro rata basis, with investors receiving 34.4% of their requested amount. RREEF previously reported in its first quarter report that first quarter redemptions exceeded the 5% quarterly limit and that investors redeeming after February 23, 2023, received a pro rata repurchase of 43.9% of their requested amount. Redemptions also exceeded the limit in the fourth quarter of 2022.
For more information: CLICK HERE
Bonds
GWG Holdings Reorganization Plan Approved by Bankruptcy Court
On August 1, 2023, GWG Holdings, Inc.’s bankruptcy reorganization plan was confirmed by the bankruptcy court. All creditors of GWG will now hold interests in the GWG Wind Down Trust (the WDT), through six separate classes of non-transferable interests in the WDT. Elizabeth Freeman was named trustee of the WDT. The WDT assets include GWG’s interests in FOXO Technologies, Inc. (NYSE: FOXO), Beneficient (NASDAQ: BENF), and a portfolio of life insurance policies. Additionally, the WDT is the sole beneficiary of the litigation trust that was created, which will pursue various legal claims, including claims against former GWG directors and officers. The WDT has reported that it is currently pursuing strategies to maximize the value of the assets and distributions will be made as assets are liquidated.
Further information and updates will be posted to www.gwgholdingstrust.com.
For more information: CLICK HERE
Alternative Ramblings
Barry Sternlicht Founder of Starwood Capital: Commercial Real Estate in a Class 5 Hurricane
Starwood Capital Group founder and chairman Barry Sternlicht made the meteorological analogy in a recent interview with Bloomberg. Sternlicht notes that while underlying fundamentals in the multifamily and industrial/logistics sector remained strong, and that levels of leverage in both sectors were manageable, Sternlicht had a decidedly less optimistic view of some parts of the office sector noting:
The nice buildings will stay rented and my guess is at pretty good rates. And the B and C stuff is going to be—maybe fields of grain or something. It’ll be very pretty. We’ll have all these little mid-block parks in New York City because there won’t be anything else to do with those buildings
Sternlicht cited rising interest rates from Federal Reserve policies, the prospect of an economic downturn, and bankers’ reluctance to continue to finance deals as the causes of strains specifically within the office sector. Sternlicht included an anecdote that Starwood recently approached 33 lenders to finance a certain deal and only received two offers. Additionally, Sternlicht noted the work from home trends are a uniquely American phenomenon, with white collar workers in Asia and Europe largely returning to the office in greater numbers. One expects that smaller residential square footage and denser cities with more established public transportation systems are likely contributing to the return to office dynamics in both Europe and Asia compared to many Americans foregoing traffic jams on their commutes with WFH.
Speaking of Work From Home Productivity
Forbes reports on a study from researchers at UCLA and MIT have concluded that workers randomly assigned to work from home are 18% less productive than those in the office.
CrowdStreet CEO Out Amid Reported Missing Investor Capital From Real Estate Offering
Various media outlets, including the WSJ and the Real Deal report that a couple of deals sponsored by Nightingale Properties, which raised approximately $60 million through CrowdStreet’s crowdfunding platform, have approximately $60 million in investor funds that have gone missing. The funds were raised to purchase two office properties in Atlanta and Miami Beach that reportedly never closed. CrowdStreet has raised approximately $4 billion in investor funds through its crowdfunding portal over the past decade. Anna Phillips, who was appointed by investors to serve as an independent manager in investigating the Nightingale Properties’ missing funds noted “The bottom line is that the money that was raised by both entities has been misappropriated.” Tore Steen, co-founder and (former) CEO of CrowdStreet noted in an interview with The Real Deal, that “CrowdStreet did not commit the fraud here” and that CrowdStreet does not take custody of investment funds and was not required to place funds into escrow. The WSJ reported that the Nightingale deals’ respective operating agreements included clauses that all disputes would be adjudicated by a “Rabbinical Court” and that Nightingale failed to disclose a complete prior performance track record in its offering documents, omitting two previous deals that had negative investor returns.
In the wake of this news, CrowdStreet co-founder Tore Steen has been replaced as CEO by Jack Chandler, the former chair of BlackRock’s global real estate team.
More information on this story is available here, here, here, and here.
Fraud…..Ain’t What it Used to Be?
Well, at least wire fraud. The WSJ reports multiple prosecutions for wire fraud related to various college admissions scandals, Bridgegate, a hedge fund case involving confidential government information, and a KPMG PCAOB audit exam—in which the number two auditor for KPMG sought improper access to certain information from the PCAOB concerning which KPMG audits would be inspected to allow for KPMG to better prepare for its examinations—have collapsed amidst recent rulings on appeal. The general takeaway from the cases cited, per the WSJ, is that fraud was not found where money or property was not taken. In the noted cases, college admissions, confidential government information, or traffic jams, did not constitute money or property.
Perhaps a more expansive, ad hoc (non)definition of fraud akin to Justice Potter Stewart’s famous “I know it when I see it” declaration in the Jacobellis v. Ohio obscenity case may be in order?
Institutional Infrastructure Secondary Fund Formation Heating Up
Secondaries Investor reports that fund formation in the infrastructure space was heating up with Hamilton Lane, Ares, Pantheon, Goldman Sachs, Ardian, and other institutional firms launching infrastructure funds, seeking to raise cumulatively over $10 billion in capital. These funds are targeting secondary transactions in the infrastructure space, including energy infrastructure and development projects. Interest in the space is buoyed by tax incentives in the Inflation Reduction Act that provides tax credits for certain renewable energy sources and alternative fuels development. Pricing on infrastructure funds, per a report from PTJ Partners, cited by Secondaries Investor, was at a robust 89 cents on the dollar, exceeded only by private credit trading at 90 cents on the dollar. This buoyant pricing may attract additional LPs that need liquidity to sell their interests to secondary funds. PTJ Partners anticipates secondary infrastructure activity may double to approximately $30 billion by the end of the decade.
REITs
Silver Star Properties REIT, Inc. Sends Letter Demanding the DI Wire Retract Recent Article
On July 19, 2023, Silver Star Properties, Inc. issued a letter addressed to The DI Wire following its publication of an article that stated that the SEC had initiated an investigation into certain matters at Silver Star.
Silver Star’s letter stated that The DI Wire’s article was:
“….highly misleading and misrepresents the role of the [SEC] in any inquiry to the Company. To be clear the SEC does not have an active investigation regarding the Company. Further, it is unclear how the DI Wire received this information as it was not a party to any such communications.”
Silver Star further demanded that The DI Wire retract the article and identify the source of the article and individuals who provided information that formed the basis of the article.
We have reported on recent developments at Silver Star related to board level and executive changes, including the removal of founder Allen Hartman from the board in March 2023, and the appointment and subsequent resignation of former CEO Mark Torok in less than nine months. Silver Star’s executive committee previously noted that it is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.” We previously reported on these matters here. Silver Star previously announced a shift in strategy from a focus on office, industrial, and retail properties to self-storage properties, which included the acquisition of a self-storage investment company managed by the former CEO Mr. Torok. Silver Star has disclosed in recent quarterly reports that there is “substantial doubt about the Company’s ability to continue as a going concern” related to its ability to refinance a $259 million loan maturity in October 2024.
TheDIWire.com article was live on their website as of the time of the Weekly Update going to press.
For more information: CLICK HERE
BDCs
FS Energy & Power (FSEP) Fund Terminates Distribution Reinvestment Program
On July 19, 2023, FSEP announced that its board of trustees terminated the distribution reinvestment program effective September 15, 2023. After mid-September, all distributions of FSEP will be paid in cash.
FSEP further announced that it would change its name to the FS Specialty Lending Fund on September 29, 2023. The name change coincides with the fund’s previously announced shift in strategy from investing predominantly in U.S. energy and power companies to a more diversified credit strategy of public and private credits across multiple industry sectors. We reported on this announcement here. The fund anticipates pursuing a liquidity event, which may include a listing of the common stock on an exchange, merger, or sale of substantially all of its assets by approximately September 2026.
FSEP was launched with a public offering at $10.00 per share, which was declared effective in 2011. FSEP most recently reported a NAV per share of $3.78 as of March 31, 2023. NAV per share eroded approximately $3.50 per share in 2014 and 2015 as energy sector disruptions lead to increasing default activity. Distributions per share were approximately $0.71 per year from inception through 2017, at which point distributions were reduced to $0.50 in 2018 and 2019, and further reduced to $0.17 per share in 2020, and $0.12 per share in 2021 and 2022. FSEP reported total assets of $2.2 billion and outstanding debts of approximately $0.5 billion as of March 31, 2023. FSEP suspended its share repurchase program in March 2020, and it has remained suspended.
For more information: CLICK HERE and CLICK HERE
Quick Hits
Caliber Appoints Dan Hansen to Board of Directors
On July 12, 2023, CaliberCos Inc. (NASDAQ: CWD) announced the appointment of the former chairman, president and CEO of Summit Hotel Properties Inc. (NYSE: INN) to its board of directors. Mr. Hansen had previously served in an advisory capacity to Caliber’s board of directors.
Pacific Oak Strategic Opportunity REIT Inc. Urges Shareholders to Reject Discounted Third-Party Tender Offer
On July 19, 2023, the REIT’s board recommends shareholders to reject a third-party tender offer from West 4 Capital LP priced at $5.51 per share. Pacific Oak previously reported a NAV per share of $10.50 as of September 30, 2022. The share redemption program has been significantly oversubscribed in recent years, with approximately 14.3% of total shareholders in the queue for redemptions. FactRight notes that the REIT has leverage of approximately 78% debt-to-gross properties with approximately 40% of debts maturing in 2023. Pacific Oak has been transitioning from an office sector focus and shifting into single-family rentals and apartments. The portfolio is comprised approximately 33% office, 30% single family rentals and apartments, and 32% land based on the fair value of holdings as of March 31, 2023. As of 2015, the portfolio was approximately 72% office focused and 16% land. The REIT anticipates selling approximately $400 million in assets in 2023 and 2024, including approximately $200 million in land. Pacific Oak reported total assets of $1.5 billion as of March 31, 2023. FactRight notes that based on the Pacific Oak’s reported annualized NOI in a recent investor presentation, the $5.51 per share offer price translates to a 13.2% implied cap rate (based on NOI attributable to JV investments) and 11.9% excluding the JV investments.
Alternative Ramblings
1031 Bridge Financing
Seyfarth Shaw LLP published an interesting article on bridge financing in 1031 exchange programs. This article is timely given the slowdown in 1031 equity capital raising from 2022, and with 1031 deals staying on the shelf longer, the terms of the bridge financing are coming into sharper focus for 1031 investors. The article provides a key launching point for prospective investors to understand dynamics and key considerations between sponsors, bridge lenders, and primary lenders, including areas where deal terms and structures may differ, including pledging DST interests to the bridge lender, forced sale provisions, and the use of personal guarantees on bridge financing. Seyfarth notes that if the bridge lender has the right to foreclose on the sponsor’s interests in the trust manager (and take over management of the asset), than the sponsor “would likely” need to disclose this provision to investors. One would hope sponsors would err on the side of over-disclosure on such terms. Seyfarth Shaw’s article is a must read for anyone in the 1031 space.
REITs
Ashford Hospitality Trust (NYSE: AHT) Announces Principal Paydown and Extension of Some Loans, and Anticipates Handing Keys to Certain Hotels Back to Lenders
On July 7, 2023, AHT announced that certain loan pools with maturities in June 2023 did not meet debt yield tests that were required for a one-year extension of the loan pools. These included the KEYS A through F loan pools. However, under the terms of the loan pools, AHT had the right to pay down principal to comply with the debt yield tests in order to meet certain loan extension requirements, which it did for three of the six loan pools to the tune of $129 million. AHT further reported:
[I]n the interest of protecting stockholder value and liquidity, the Company has elected not to make the required paydowns to extend its KEYS Pool A loan, KEYS Pool B loan or KEYS Pool F loan, thereby defaulting on such loans.
AHT noted that following efforts to obtain modifications to these loans that “the most likely outcome will be a consensual transfer of these hotels to the respective lenders.” The company marketed hotels in two of the loan pools and did not receive any bids above the existing loan balances. AHT noted that “it believes it’s in the best interest of its common and preferred stockholders to not make the required paydown of approximately $255 million” for the relevant loans. A total of 19 hotels are encumbered by these pool loans. The current interest rate for the non-extended loans is approximately 8.8%. AHT reported that the 12-month NOI debt yield on these hotels was 5.6% through the first quarter. The company anticipates savings of approximately $80 million in capital expenditures on these hotels through 2025. AHT reported that these hotels comprised approximately 10% of its trailing 12-month hotel EBITDA, and that with the removal of these hotels, AHT’s RevPAR is anticipated to increase by approximately 3%. AHT owned 103 hotels as of its most recent quarterly filing. AHT CEO Rob Hays stated:
Proactively choosing not to extend three of these loan pools improves our balance sheet by lowering leverage and materially improves our future cash flows. The combination of the paydowns and the removal of the debt associated with the pools we are not extending will lower our debt by approximately $700 million, or more than 18%.
For more information: CLICK HERE and CLICK HERE
Impact Investing
TriLinc Global Impact Fund, LLC Announces Appointment of KPMG as Auditor
On June 26, 2023, TriLinc Global Impact Fund, LLC (TriLinc) announced that KPMG had agreed to serve as its independent registered public accounting firm. On February 28, 2023, RSM US LLP informed TriLinc that it resigned effective immediately as its auditor. RSM had not completed an audit of any of TriLinc’s financial statements at the time of its resignation. BDO USA LLP (BDO) served as TriLinc’s auditor for its annual reports from 2019 through 2021. BDO identified the valuation of the Company’s investments as critical audit matters in both 2020 and 2021. BDO resigned as TriLinc’s auditor in May 2022. Moss Adams LLP, the previous auditor, declined to stand for reappointment in March 2019.
TriLinc has not filed its annual report for the year ending December 31, 2022, or its first quarter report for 2023Q1. TriLinc focuses on making impact investments across the developing world through the use of various sub-advisors. Investments include term loans, trade finance participations and equity investments. TriLinc raised approximately $361 million in equity proceeds in an offering that commenced in 2013 and closed in 2017. TriLinc reported total assets of $333.8 million as of September 30, 2022, in its most recently filed quarterly report with the SEC.
For additional information: CLICK HERE
REITs
Silver Star Properties REIT, Inc. Announces Employment Agreement with David Wheeler to Serve as Interim President
On June 20, 2023, Silver Star Properties REIT, Inc. (Silver Star) announced it had reached agreements for the retention of certain executives, details on the arrangements are as follows:
Mr. Wheeler will receive an annual base salary of $375,000, a monthly expense allowance of $3,400, and be eligible for certain bonus, incentive and other compensation in addition to a grant of 40,000 performance units in Silver Star.
Additionally Silver Star reported that it had reached a one-year employment agreement with Michael Racusin to serve as senior vice president, general counsel and corporate secretary. Mr. Racusin will receive an annual base salary of $275,000 and be eligible for certain bonus, incentive and other compensation in addition to a grant of 25,000 performance units in Silver Star.
As we’ve previously reported Mark Torok, who was appointed CEO in October 2022, subsequently resigning in April 2023. Silver Star also acquired the equity interests in Southern Star Self-Storage Investment Company (Southern Star), for $3 million in cash and 301,659 restricted stock units, in a transaction that was completed in May 2023. Southern Star was founded and owned by Mr. Torok. We reported on this transaction here.
Silver Star has recently been in the news multiple times with board level changes, including the removal of founder Allen Hartman from the board in March 2023. The executive committee previously noted that it is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.” We previously reported on these matters here. Silver Star also announced a shift in strategy from a focus on office, industrial and retail properties to self-storage properties. The Company further reported that it is pursuing a liquidity event through a future public listing.
Silver Star reported total assets of $451 million as of its most recent quarterly filing. Silver Star has disclosed in recent quarterly reports that there is “substantial doubt about the Company’s ability to continue as a going concern” related to its ability to refinance a $259 million loan maturity in October 2024.
For more information: CLICK HERE
Bluerock Homes Trust, Inc. Preferred Stock Offering Declared Effective
On June 29, 2023, Bluerock Homes Trust (NYSE: BHM) received a notice of effectiveness on its 6.0% Series A Redeemable Preferred Stock. The offering is for 20 million shares at a purchase price of $25.00 per share. BHM was spun out of Bluerock Residential Growth REIT following its sale to Blackstone, which was announced in December 2021 and closed in 2022. BHM focuses on single family rentals homes and reported total assets of $642 million, including 4,160 homes held through ten consolidated operating investments and seven preferred equity investments, as of June 30, 2023. BHM had a market capitalization of approximately $61 million as of June 29, 2023.
For more information: CLICK HERE
Sponsors
CaliberCos Inc. Announces Expansions of Internal Wholesale Team
On June 26, 2023, CaliberCos Inc. (Nasdaq: CWD) announced that it has expanded its wholesale team which now is comprised of seven individuals. Caliber previously announced that it engaged Skyway Capital Markets to serve as the exclusive managing broker dealer for Caliber’s funds. Caliber recently completed its initial public offering in May 2023, which was upsized to 1.2 million shares priced at $4.00 per share. Shares closed at $1.90 in trading on Thursday June 29, 2023.
For more information: CLICK HERE
Alternative Ramblings
U.S. Supreme Court to Hear Case on Taxation of Unrealized Gains
Remember when U.S. Treasury Secretary Janet Yellen was talking about taxing unrealized gains back in 2021? The U.S. Supreme Court has agreed to hear a case on this very matter in its fall docket. The case Moore v. U.S. is related to the mandatory repatriation provisions of the 2017 Tax Cuts and Jobs Act.
As ScotusBlog.com provides additional background here:
The 2017 Tax Cuts and Jobs Act, Congress enacted a one-time “mandatory repatriation tax” in an effort to obtain tax revenue from large earnings that corporations held abroad. The MRT classifies a U.S.-taxpayer-controlled foreign corporation’s (CFC) “accumulated post-1986 deferred foreign income” as part of the corporation’s taxable income during 2017. And under the MRT, U.S. shareholders owning 10% or more of such a foreign corporation could be required to pay a one-time tax due to their obligation to “include in [their 2017] gross income” their “pro rata share” of the CFC’s relevant “income for such year.” Essentially, the tax requires 10% shareholders to pay a tax on their share of the corporation’s retained earnings even though that money has not been distributed to them.
Scotusblog.com provides further details here:
Charles and Kathleen Moore own a 13% stake in an Indian corporation formed to supply affordable equipment to small farmers in poor regions of India. The corporation has earned profits every year, but in keeping with its founders’ vision, it has reinvested its earnings into expanding the business instead of distributing dividends to its shareholders. In 2018, the Moores learned that under the 2017 law, they had to pay a one-time tax for their share of the company’s lifetime earnings in the amount of $14,729. This surprised the Moores, who had never received any dividends from the company and lacked the authority to compel a dividend payment.
The Moores paid the tax and sued the government, asserting that the MRT is unconstitutional because it imposes a direct tax that is not apportioned, rather than a permissible income tax. The district court granted the government’s motion to dismiss, holding that the MRT is a “taxation of income” falling within Congress’s power under the 16th Amendment.
The Moores now seek review, saying that the 9th Circuit’s decision “shatters what had been an unbroken judicial consensus dating back to Eisner v. Macomber that the 16th Amendment’s exemption from apportionment is limited to taxes on realized gains.” The Moores note that the issue is directly relevant to the constitutionality of a wealth tax that some in Congress have been advocating in recent years.
This decision will decide on whether income is limited to realized income as opposed to unrealized or “paper gains”. The decision will have wide reaching effects on potential future tax policies and either pave the way for wealth taxes or nip such ideas in the bud.
REITs
Ares Industrial REIT (AIREIT) Increases Common Stock Distribution 60% and Reports a Decrease in NAV per Share
On June 14, 2023, AIREIT’s board of directors authorized an increase in the monthly common stock distribution to $0.05 per share beginning in the third quarter of 2023. This marks an increase of approximately 60% from the previous monthly distribution amount. AIREIT also reported a NAV per share of $14.5133 as of May 31, 2023, which is a decrease of approximately 6.9% from the NAV per share as of March 31, 2023.
For more information: CLICK HERE
BDCs
Prospect Capital Corporation (PSEC) Adopts Preferred Stock Dividend Reinvestment Plan to Issue DRIP Shares at Discount
On June 12, 2023, PSEC adopted a preferred stock dividend reinvestment plan (DRIP) to allow for preferred stockholders to opt-in to receive preferred dividends payable in additional shares of preferred stock. Preferred stock issued under the DRIP would be issued at a 5% discount from the stated value of $25.00 per share. The change to the DRIP will be effective beginning July 19, 2023.
For more information: CLICK HERE
Alternative Ramblings
Pennsylvania REIT Board Level Turbulence….Buckle Up
A corporate governance conundrum is emerging at Pennsylvania REIT, a micro-cap retail focused REIT founded in 1960 that emerged from bankruptcy in 2020. The following chart highlights common stock underperformance in recent years, due to structural challenges to the retail sector, including increasing competition from e-commerce and the impact of the COVID pandemic.
In the recent 2023 board election cycle, seven of the nine incumbent trustees on the board failed to receive a majority vote of a quorum of the common stockholders, and subsequently tendered their resignations. The REIT also has two trustees, Kenneth Hart and Christopher Swann (founder and CEO of Cygnus Capital) who are elected on behalf of the REIT’s preferred stockholders. Mr. Hart and Mr. Swann were elected with a majority vote of the outstanding preferred stock. The Weekly Update notes that incumbent directors not receiving a majority vote is a relatively rare event for REITs. When it occurs, generally the practice is the affected board member will tender their resignation to the board and then undergo some level of review by the remaining board members or a board committee, who will decide to either accept or reject the resignation of the board member. Results may vary from this inquiry.
However, in the case of Pennsylvania REIT, how does a board evaluate a resignation letter, if substantially all of the board members themselves have not received a majority vote from the quorum of shareholders? In this instance, apparently with significant acrimony. Per the REIT’s governing documents, the nominating and corporate governance committee (NCG Committee) of the board is empaneled to review any resignation letters from board members. However, given that none of the members of the NCG Committee were elected by a majority of a quorum of the outstanding shares, the board determined that it would itself, as a whole, consider each individual resignation letter instead of the NCG Committee. The board further noted that it pursued this course of action because no trustees received a majority vote from the common stockholders. The REIT reported that “[i]n each case, the applicable trustee did not participate in the deliberation or decision regarding his or her resignation offer.” One can only imagine how robust this discussion was. Unsurprisingly, the board reported that it had determined that all the trustees should remain on the board.
The saga has continued with the trustees elected by the preferred stockholders, Mr. Hart and Mr. Swann, submitting an open letter to shareholders in which they stated:
“In our view, the voting results of common shareholders at the 2023 Annual Meeting was an unequivocal message from shareholders that they are dissatisfied with the performance of the Trust and desirous of change at the Board level. We suspect common shareholders fully appreciated the consequences of their vote and that a majority of the Board would need to tender their resignations.”
This seems to be a very reasonable interpretation of the common stockholder voting results. Additionally, Messrs. Hart and Swann wrote that they believed the other seven trustees did not follow the REIT’s governing documents in supplanting the NCG Committee review of the resignations and engaging in a board level approval party, noting that, per the governing documents, such non-majority vote receiving trustees are not to participate at the NCG Committee or any other board action regarding the resignation letters. Hart and Swann noted that the proper course of action through the REIT’s governing documents was to form an independent committee of trustees who received a majority vote cast by shareholders, which would be solely Mr. Hart and Mr. Swann. They further noted that the REIT’s governing documents do not distinguish in this matter between trustees voted on by common stockholders or preferred stockholders. The two trustees also noted that Institutional Shareholder Services had recommended that shareholders vote against six of the nine trustees on the board, save for CEO and chairman Joseph Coradino.
The remainder of the board issued a rebuttal letter to Messrs. Swann and Hart which demonstrated the situation is beginning to get a bit testy. The other trustees wrote that they had obtained an opinion from external legal counsel that guided the board process in supplanting the NCG Committee. The board rebuttal letter stated:
“In fact, both of you participated in the Board discussion regarding the Guideline process that you are now challenging, but at the time failed to raise an objection. Moreover, your decision to now raise these issues in a public forum, we believe, is not the proper way for a Board member to act and causes us a concern that you have a different agenda.”
The rebuttal letter also stated concerns the board had with Messrs. Swann and Hart as directors representing the preferred stockholders, noting there were certain “diverging and conflicting interests” between the preferred stockholders and the common stockholders that the rest of the incumbent board is (or maybe isn’t) re-elected by. The rebuttal letter also raises a point that further delay in resolving the election matter would destabilize the REIT and “clearly is not in the best interests of the shareholders and other stakeholders.” This is perhaps a tenuous contention, as those same shareholders essentially submitted a vote of no confidence in substantially all members of the board.
I don’t want to minimize the practical implications of a mass board resignation and how that might disrupt the operations of a REIT. However, given the incredibly limited participation of shareholders in corporate governance, if shareholders do express their displeasure with board members, or in this case practically the whole board, and the same members of the board summarily dismiss those concerns, you have a real governance problem. Additionally, the tensions between preferred stockholders and common stockholders can be substantial, especially in situations where the issuing entity has become distressed, so the remaining board members’ concerns have some merit as well. A protracted board level conflict on this matter, wasting resources of the REIT, is also a sub-optimal trajectory too. Stay tuned for any further developments.
Corporations are People My Friend
The town of Seaford, Delaware, recently amended its charter to grant certain legal entities, including corporations, LLCs, trusts, and partnerships the right to vote in local elections. The law would go into effect upon approval by both houses of the Delaware legislature. CBS News reports that in the town of 8,000, a total of only 340 votes were cast in a recent April election. The town also reported that 234 entities that would be permitted to vote are located in the town. Interestingly, a number of other towns in Delaware have already allowed certain legal entities to vote. One property manager who controlled multiple LLCs reportedly voted 31 times in a Newark, Delaware, town referendum.
Public Painting
The Wall Street Journal reports that Artex is launching a $55 million initial public offering of an entity that owns a Francis Bacon painting. Shares will be offered at $100 and offered by a Luxembourg LLC that will list on a specially created art stock exchange in Liechtenstein. Trading is anticipated to begin in July 2023. A competitor to Artex, Masterworks, has raised approximately $700 million in various single art asset investment vehicles and features a secondary market through an alternative trading system that allows existing investors to list shares in individual art pieces for purchase by other existing investors. Artex is planning on conducting IPOs on upwards of $1 billion of artwork in the coming quarters. No word if any of Bob Ross’s masterpieces are in the queue for future offerings.
Partners at Loggerheads Blooms Into Operational Due Diligence Risks
The usually benign world of corporate governance had a little flare up as the Wall Street Journal reports that Two Sigma, a $60 billion quant-trading hedge fund complex, has experienced such levels of friction between founders John Overdeck and David Siegel that it felt necessary to recently note such disclosures in its filings with the SEC. Mr. Overdeck and Mr. Siegel are the only two members of Two Sigma’s management committee and must come to agreement on certain key matters per the firm’s operating agreement, which has reportedly become increasingly difficult.
The following is the material risk identified in Two Sigma Advisers, LP’s recent Form ADV Part 2 Brochure filed with the SEC:
Certain Risks Associated with Management and Governance Challenges. There have been a variety of management and governance challenges at the Adviser. The Management Committee of the Adviser’s general partner (the “Management Committee”) has been unable to reach agreement on a number of topics, including: (i) defining roles, authorities and responsibilities for a range of C-level officers, including for the various roles of the members of the Management Committee and Chief Investment Officers; (ii) organizational design and management structure of various teams; (iii) corporate governance and oversight matters; and (iv) succession plans. These disagreements can affect the Adviser’s ability to retain or attract employees (including very senior employees) and could continue to impact the ability of employees to fully implement key research, engineering, or corporate business initiatives. If such disagreement were to continue, the Adviser’s ability to achieve Client mandates could be impacted over time.
REITs
Gladstone Land Corporation to List Series C Preferred Stock
On May 30, 2023, Gladstone Land Corporation (Nasdaq: LAND) announced that it applied to list its Series C Preferred Stock on the Nasdaq Global Market on or about June 8, 2023, at which point it would freely trade. Pursuant to the announcement, LAND terminated its Series C Preferred Stock redemption program effective May 30, 2023. The farmland-focused REIT raised $255 million in proceeds from the Series C Preferred Stock in an offering that commenced in April 2020 and closed in December 2022. The Series C Preferred Stock has a 6.0% preferred dividend and a liquidation preference of $25.00 per share. Following the close of the Series C Preferred Stock offering, the company began offering Series E Preferred Stock with a 5.0% preferred dividend.
LAND previously listed two series of preferred stock that raised capital through the independent broker-dealer and RIA channel: the 6.0% Series B Cumulative Redeemable Preferred Stock (Nasdaq: LANDO) and the 5.0% Series D Cumulative Redeemable Preferred Stock (Nasdaq: LANDM), both of which had a $25.00 offering price per share. The following chart highlights the trading history of LAND’s common stock and its two publicly traded preferred stocks. The two series are currently trading at discounts to their liquidation preference of approximately 6% to 13%, respectively.
We note that increases in the interest rate environment over the past year have generally led to preferred stocks of various REIT and BDC issuers to trade at discounts to their stated values, as these securities tend to trade like bonds.
For more information: CLICK HERE
Michael Weill Informs Board of Healthcare Trust, Inc. of Intention to Resign as CEO Contingent Upon Closing of Internalization Transaction and Merger of Affiliated REITs
On May 30, 2023, Healthcare Trust, Inc. announced that Michael Weill notified the board of his intention to resign from his role as CEO contingent upon the completion of the merger and internalization that was announced by Global Net Lease, Inc. (NYSE: GNL) and the Necessity Retail REIT, Inc. (Nasdaq: RTL). We previously reported on the recently announced internalization and merger transactions here. GNL, RTL and the company are currently externally advised by affiliates of AR Global Investments, LLC. Mr. Weill has indicated that he intends to stay on as a director on the board of Healthcare Trust, and that if the merger and internalization transactions are not completed, he intends to continue on as CEO of the company. The company reported that AR Global has recommended that the board consider Michael Anderson, AR Global’s general counsel, to succeed Mr. Weill as CEO and president of the company in the event of his resignation.
For more information: CLICK HERE
Alternative Ramblings
Friday Night Lights (and Smoke!)
Recently added to the Weekly Update’s bucket list……Texas has a high-school barbecue competition.
REITs
Global Net Lease (NYSE: GNL) Announces Internalization Transaction of Advisory Functions from AR Global affiliates for approximately $375 Million and Announces Merger with the Necessity Retail REIT (NYSE: RTL)
On May 23, 2023, Global Net Lease (GNL, fka American Realty Capital Global Trust, Inc.) announced that it had reached an agreement to internalize the asset and property management functions provided by affiliates of AR Global, LLC for a package of consideration including $325 million in GNL common stock and $50 million in cash. The respective REITs also announced a stock-for-stock merger in which RTL stockholders will receive 0.67 shares of GNL for each share of RTL, which represents a 35% premium to the 30-day volume weighted average price of RTL. Following the close of the merger, RTL stockholders are anticipated to own 39% of GNL, GNL stockholders will own 45% and GNL’s external advisor and affiliates will own approximately 17%. The combined entity would own over 1,300 properties with an aggregate real estate value of approximately $9.6 billion. The owners of the former external manager will be prohibited from selling their shares for a period of six months. GNL also amended its bylaws to remove requirements that two directors on its board be managing directors related to affiliates of AR Global, the amended and restated bylaws require one managing director of affiliates of AR Global serve on the board.
GNL has also granted a waiver to its share ownership limitations to the owners of the former external manager, to allow for them to exceed the 8.9% limitation. GNL has reported that the internalization is anticipated to generate $54 million in annual cost savings related to the combined entity. The obligation of GNL and AR Global affiliates to complete the internalization transaction is predicated on the completion of the proposed merger, receipt of GNL stockholder approval, the absence of injunctions or legal orders restraining the transaction and receipt of requisite consents from certain credit agreements including commercial mortgage-backed securities financing GNL and RTL respectively. GNL and RTL have been subject to a 20-year external advisory contract with affiliates of AR Global.
The merger represents a shift in investment thesis for GNL and RTL investors. GNL’s portfolio is comprised predominantly of industrial, office, and distribution facilities, whereas RTL’s portfolio is comprised of largely retail assets. The combined entity portfolio is anticipated to consist 27% of multi-tenant retail, 31% single tenant industrial and distribution, 20% single tenant office and 22% single-tenant retail. The preceding figures are based on annualized straight-line rents related to the properties.
Following the close of the merger, GNL will be headed by Co-CEOs Michael Weill (current RTL CEO) and James Nelson (current GNL CEO). Per GNL’s SEC filings, it is anticipated that Mr. Nelson will retire in 2024, at which point Mr. Weill will become sole-CEO. A 2022 profile on Mr. Weill can be found here in Cigar Aficionado. The merger is subject to a 30-day go-shop period in which RTL, through its special committee of directors of the board, may evaluate other potential proposals. Termination fees, payable by RTL to completed,he event the merger is not completed range from $16 million to $40 million, depending on the reasons for not completing the merger. The merger is also subject to shareholder approval by GNL and RTL shareholders. Each company is expected to file joint proxy statements in the future, with further information related to the proposed transactions.
Additional coverage of this internalization and merger, and further information commentary on recent events at GNL from activist investor and shareholder Blackwells Capital LLC’s website dedicated to its activism on AR Global: StopARGlobal.com. In April 2023, Blackwells nominated two directors to GNL’s board, which are currently awaiting shareholder vote results, GNL postponed its annual meeting from May 18, 2023, until July 21, 2023. Further coverage from CoStar is available here, GlobeSt here, and the DiWire here.
For additional information: CLICK HERE
Lodging Fund REIT III, Inc. CEO Corey Maple Resigns as CEO, will Continue as Chairman
On May 25, 2023, the REIT reported that Mr. Maple had resigned as CEO effective May 19, 2023. Norman Leslie was appointed by the Board to serve as CEO. Mr. Leslie has served as president of the REIT since August 2019. Mr. Leslie also founded, owns, and manages NHS, LLC, a hospitality management company that provides hospitality management services for certain properties in the REIT’s portfolio.
The company is late on multiple periodic filings with the SEC including its third quarter 2022 report, annual report for 2022, and first quarter 2023 report. The REIT reported that it was unable to finalize its financial statement preparation and review process due to the uncertainty related to the SEC matter disclosed in September 2022. The SEC matter pertains to an SEC investigation related to the company’s reimbursement of and financial accounting for certain expenses incurred by Legendary REIT III, LLC (the REIT’s external advisor), as well as the adequacy of disclosures related to those policies and practices. On September 12, 2022, SEC staff issued a “Wells notice” advising that they had made a preliminary determination to recommend to the SEC that it bring an enforcement action against the external advisor for possible violations of the securities laws. Mr. Maple also received a Wells notice as part of the same investigation. Mr. Maple and the external advisor maintain that their actions were appropriate and have retained counsel to defend them in this process.
In February 2023 Brian Hagen retired from the board of directors. The REIT reported that Mr. Hagen’s resignation was not a result of a disagreement with the company on any matter relating to its operations, policies or practices. The REIT announced in March 2023 that affiliates of NHS had provided a $600,000 loan to the REIT’s operating partnership which bears interest at 7.0% and matures in July 2023.
The company reported a revised net asset value per share of $10.57 effective January 6, 2023. Shares in the REIT were sold in a private offering at $10.00 dating back to 2018.
The company reported ownership of 14 hotels in its most recent quarterly report filed as of June 30, 2022, and has subsequently closed on additional hotels located across (an expansive and expanding definition of) the heartland of the United States. A map of the REIT’s properties is below.
For more information: CLICK HERE
Bonds
Court Appointed GWG Holdings Inc. CEO Jeffrey Stein Urges L Bondholders to Approve the Plan of Reorganization
On May 25, 2023, GWG Holdings Inc. filed a link to a video message from Mr. Stein in which he urges L Bondholders to approve the company’s plan of reorganization. Mr. Stein noted that the plan, which is supported by GWG, the L Bondholder Committee, and an ad hoc group of broker dealers, is designed to maximize the value of GWG’s assets through an orderly monetization of its assets through the creation of two liquidating trusts as opposed to a quicker liquidation of assets in a Chapter 7 liquidation proceeding. The liquidation under the plan of reorganization is anticipated to take multiple years. Mr. Stein noted a Chapter 7 liquidation was likely if bondholders do not approve the plan of reorganization. The first is a wind-down trust which will hold GWG’s interests in the life insurance policies, the Beneficient interests, and the FOXO Technologies interests. The second is a litigation trust that will hold, and prosecute, certain litigation claims including claims against certain former GWG directors and officers and D&O insurance policies. Under the reorganization plan the L Bondholders will receive the most senior interests in the respective trusts. Bondholder votes on the plan of reorganization are due by May 31, 2023. A summary of the treatment of L Bondholders under the proposed plan of reorganization is available here. The following chart, from the Summary of the Treatment of L Bondholders Document, highlights the reorganization plan valuation range compared to a potential Chapter 7 liquidation scenario:
Additional information related to the plan of reorganization can be found here and here.
Alternative Ramblings
Caliver Cos Inc. Completes Upsized IPO and Begins Trading on the Nasdaq
The company, which manages various real estate-related investment vehicles, closed an initial public offering of 1.2 million shares at a public offering price of $4.00 per share on May 17, 2023. The shares trade on the Nasdaq under the ticker symbol “CWD”. The company has reported that proceeds from the IPO will be used to increase its capitalization and financial flexibility and facilitate future access to the capital markets and for other general corporate purposes. Shares in the based alternative asset manager initially traded up before declining to slightly lower than the IPO price on significantly lower volumes as the chart below indicates. The company’s market capitalization is approximately $50 million based on the latest stock trades with approximately 55% of the stock held by insiders.
Institutional Investors Pausing on Single Family Home Purchases
Fortune reports that institutional firms in the housing market are significantly reducing acquisitions in light of higher interest rates and rent growth deceleration combining for lower projected returns on new acquisitions. John Burns Research and Consulting reported that institutional buyers purchased 90% fewer homes in the first two months of 2023 compared to 2022. Invitation Homes (NYSEL INVH) and American Homes 4 Rent (AMH) became net sellers of homes in the first quarter of 2023.
Swift Diligence Part II
Taylor Swift, who previously balked at endorsing FTX after she reportedly conducted due diligence and asked FTX executives “Can you tell me that these are not unregistered securities?”, is apparently a fan of investing in closed-end funds trading at discounts to their respective NAVs.
BDCs
FS Energy & Power Fund Changes Name to FS Specialty Lending Fund, Announces Shift in Strategy, Anticipates Distribution Increases, and Expects to Seek a Liquidity Event Within 3 Years
On May 17, 2023, FS Energy and Power Fund (FSEP) reported that its board of trustees approved the name change and a shift in the investment strategy from its previous focus on investing in U.S. energy and power companies to a diversified strategy across public and private credits in a broader set of industries. Shareholder approval of the shift in strategy is not required as it is a non-fundamental policy of the fund.
FSEP reported that FS/EIG Advisor, LLC, will continue to manage the fund, noting that Andrew Beckman, Head of Liquid Credit & Special Situations at FS Investments, will assist FSEP’s advisor in the transition and management of the portfolio as it focuses on a more diversified credit portfolio.
FSEP further noted that they anticipate seeking a liquidity event, which may include a merger, sale of the portfolio, listing of the common stock on a national securities exchange or other transaction within the next three years. Any liquidity event is dependent on the pace of FSEP’s transition to its new investment strategy and rotation of its existing portfolio.
FSEP also noted that the fund’s goal in transitioning the portfolio composition to a broader credit strategy was designed to create a sustainable distribution rate of approximately 9.0%, compared to the 3.0% distribution rate FSEP achieved in 2022. FSEP guided this would include increasing income-accruing securities to approximately 90% of the portfolio, compared to the current portfolio’s 77%. FSEP guided that energy exposures would be approximately 20% or less of its portfolio holdings following the strategy shift. FSEP further noted a “targeted enhanced distribution schedule” which contemplates a distribution rate of between 7.5% to 15.0% over the coming three years. Management indicated that a portion of these distributions would represent a return of capital, in efforts to help “accelerate liquidity for shareholders in the near-term.” The fund further anticipates suspending its distribution reinvestment plan in light of the enhanced distribution schedule.
FSEP was launched with a public offering at $10.00 per share, which was declared effective in 2011. FSEP most recently reported a NAV per share of $3.78 as of March 31, 2023. NAV per share eroded approximately $3.50 per share in 2014 and 2015 as energy sector disruptions lead to increasing default activity. Distributions per share were approximately $0.71 per year from inception through 2017, at which point distributions were reduced to $0.50 in 2018 and 2019, and further reduced to $0.17 per share in 2020, and $0.12 per share in 2021 and 2022. FSEP reported total assets of $2.2 billion and outstanding debts of approximately $0.5 billion as of March 31, 2023. FSEP suspended its share repurchase program in March 2020, and it has remained suspended.
For more information: CLICK HERE and CLICK HERE
REITs
Starwood Real Estate Income Trust, Inc. Announces Sean Harris As New CEO; Chief Investment Officer Christopher Graham Leaves Board of Directors and Role as Chief Investment Officer
On May 9, 2023, Starwood REIT announced that Mr. Harris, who has served as president of the REIT since January 2021, will serve as CEO and become a director on the board of directors effective immediately. John McCarthy, Jr. previously served as CEO since the REIT’s inception in 2017. Mr. McCarthy will remain as a director on the board and was appointed to serve as vice chairman. Additionally, Christopher Graham, who served as the REIT’s chief investment officer and as a member of the board, will no longer serve in either of those capacities.
For additional information: CLICK HERE
Alternative Ramblings
Grave Dancer Dances No More
The Weekly Update commemorates the recent passing of legendary REIT investor and pioneer Sam Zell. Mr. Zell was the founder and chairman of Equity Residential (NYSE: EQR) and numerous other REITs in a career dating back to the late 1960s. Sam Zell’s grave dancer reputation is attributable to this interesting paper he penned in the 1970s.
Mr. Zell was always good for a colorful comment in the press, and did not fail to deliver this past month when he noted work from home is “a bunch of bulls$&t!”
RIP Grave Dancer.
REITs
Silver Star Properties CEO Mark Torok Resigns 7 Months Following Appointment as CEO and One Month After Silver Star Closes on the Acquisition of Mr. Torok’s Former Firm, Southern Star Self-Storage
Silver Star Properties (Silver Star) reported Mr. Torok’s resignation was not the result of any disagreements with the policies, practices, or operations of the REIT. Silver Star previously announced, in April 2023, that it had acquired Southern Star Self-Storage Investment Company, for $3 million in cash and 301,659 restricted stock units. As part of the transaction Mr. Torok signed a three-year employment agreement, which included a base salary of $550,000 per year and approximately $1.3 million performance units per year. We reported on this here.
The Executive Committee appointed David Wheeler to serve as Silver Star’s interim President and announced that they had engaged an executive search firm to find a permanent CEO “with substantial experience in a public market.” Mr. Wheeler previously served as executive vice president and chief investment officer of the REIT. Mr. Torok’s resignation comes approximately 7 months after he returned to Silver Star as CEO in October 2022. Mr. Torok previously served as Silver Star’s chief operating officer, general counsel, and corporate secretary from 2015 to 2021, prior to submitting his resignation on April 9, 2021. Mr. Torok’s departure is the latest significant shift from the REIT, including the recent shift in strategy, and other significant leadership changes at the REIT, including the departure of Allan Hartman from the chief executive officer role in October 2022, and as chairman of the Board in March 2023, and announcing that it is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.” We have reported on these developments here, here, here, here and here.
Silver Star owns a portfolio of 44 office, retail and industrial properties located primarily in the Houston and San Antonio MSAs. Silver Star recently reported a NAV per share of $6.25 as of 2022Q4, based on a weighted average capitalization rate used for valuation purposes of approximately 7.6%. Silver Star reported that “the process has already begun to list the Company’s common stock for trading on an established securities exchange” would continue in the wake of Mr. Torok’s resignation.
For more information: CLICK HERE
KBS Real Estate Investment Trust II, Inc. Announces Final Liquidating Distribution
KBS Real Estate Investment Trust II, Inc. (KBS REIT II) announced that the final liquidating distribution of $0.73 was paid to stockholders on April 25, 2023. The distribution was made following the close of the Union Bank Plaza office building in downtown Los Angeles, which was previously reported here. The final sale price of the asset was $104 million. KBS REIT II originally acquired the asset for $208 million in 2010 and completed a $20 million renovation during its ownership period.
KBS REIT II stockholders previously approved a plan of liquidation in March 2020, and the REIT subsequently made five liquidating distributions totaling $2.10 per share from March 2020 through December 2021. The Union Bank Plaza sale was the final asset in the REIT’s portfolio. KBS REIT II’s board approved an estimated liquidation value of $0.93 per share in August 2022, following the aforementioned distribution. On April 4, 2023, the board approved a liquidating distribution of $0.73 per share following the sale of the Union Bank Plaza. Cumulative liquidating distributions totaled $2.83 per share (although KBS REIT II also made a special distribution of $4.50 per share in 2014, and $0.45 in 2019). Total non-operating distributions have been $7.78. KBS REIT II originally had a 6.5% distribution rate, to common stockholders, beginning in the fourth quarter of 2009 and made cumulative non-special and non-liquidating distributions of $5.85 through 2020 and prior to the announcement of the plan of liquidation. Total operating, special and liquidating distributions totaled $13.63 since inception of the REIT and through its liquidation. KBS REIT II raised approximately $1.8 billion in common stock proceeds in an offering that was initially declared effective in 2008 and priced at $10.00 per share.
ExchangeRight Income Trust Files Form 10 Registration with the SEC
The REIT’s Registration Statement notes that it does not seek to offer shares to the public through a public offering, yet the REIT will be subject to the Exchange Act and file an annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The company has previously offered shares through private offerings to accredited investors. ExchangeRight Income Trust was formed in 2019 and owns 336 properties across 35 states that were 99.8% leased as of year-end 2022.
ExchangeRight Income Trust has also facilitated 721 UPREIT transactions for investors in certain DST programs sponsored by ExchangeRight, who collectively own approximately 33% of the operating partnership units of the REIT’s operating partnership through which it holds its real estate assets. The REIT reported total assets of $1.1 billion as of year-end 2022 and reported leverage of approximately 56% on a debt-gross properties basis.
Blackstone REIT Redemption Requests Continue to Exceed Redemptions in April 2023
Blackstone REIT (BREIT) continues to have oversubscribed redemption requests from shareholders in April 2023. In accordance with its share repurchase plan, BREIT repurchased 2% of outstanding shares in April 2023, which was approximately 29% of the $4.5 billion in redemption requests it received during the month. This equates to approximately 6.5% of outstanding shareholders seeking an exit from the $142 billion REIT. BREIT noted the volume of redemption requests was consistent with the previous month and 15% lower than the redemption requests received in January 2023. BREIT reported that it has redeemed $6.2 billion worth of shares since redemption requests have been oversubscribed in the latter half of 2022. Lost in the redemption request headlines is solid performance within BREIT’s portfolio, with 2023Q1 same-property NOI growth estimated at 9%, year-over-year.
We humbly ask……where is the third-party tender offer for this oversubscribed redemption program?
Alternative Ramblings
The Federal Reserve Announced Another Increase and Appears to Soften Language on Further Rate Increases
The Federal Funds Rate target is now 5.00-5.25%, marking the first time it has exceeded 5.00% since 2007. This has materially increased the costs of capital across the global economy. One market with some interesting pricing dynamics related to this shift is the leveraged loan market. The following chart highlights reductions in leveraged loan pricing and consequently increased yields on these credits, layered with the federal funds target rate increases over the past year. This increase in interest rates has not resulted in material increases in the default rates of leveraged loans which remain below their historical averages of approximately 2-2.5%. Fitch Ratings has recently forecast a default rate of between 2-3% in 2023, and 3-4% in 2024.
First Republic Bank Second Largest Bank Failure in the Last Quarter Century
The following table highlights the largest bank failures since 2008, with positions two through four all within 2023, as depositors became concerned about bank solvencies as interest rates have risen and certain fixed income holdings of banks correspondingly decreased in value. JPMorgan chase acquired First Republic in a deal that will wipe out the First Republic common stockholders and result in an estimated $13 billion hit to the FDIC deposit insurance fund, which is exceeded by the $20 billion hit from the Silicon Valley Bank failure, which are the two largest historical payouts from the FDIC deposit insurance fund.
Charlie Munger on Real Estate and Banking
Mr. Munger, he of 99-years of experience, noted “a lot of real estate isn’t so good any more” and that “we have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.” Mr. Munger’s comments also highlighted that he believes many commercial real estate loans will ultimately turn bad given higher refinancing costs and banks becoming more reluctant to lend over the past six months. Munger noted “It’s not that damned easy to run a bank intelligently, there are a lot of temptations to do the wrong thing.”
Further thoughts from Charlie Munger and his long-time business partner Warren Buffet will be available at the Berkshire Hathaway annual stockholders meeting tomorrow May 6, 2023. Remarks and Q&A begin at 8:45 am CT.
REITs
Peakstone Realty Trust (fka Griffin Realty Trust) Begins Trading on the NYSE
Peakstone (NYSE: PKST) recently conducted a webcast on April 20, 2023, which is available on replay here, to discuss its recent listing on the NYSE and its volatile trading since listing (with trades ranging from approximately $8 to $47 per share). We previously reported on the PKST listing and recent developments at the company, including the reverse stock split, board turnover, and dividend cuts here.
Silver Star Properties (fka Hartman Short Term Income Properties XX, Inc.) Announces NAV per Share of $6.25 as of the Fourth Quarter 2022
Silver Star owns a portfolio of 44 office, retail and industrial properties located primarily in the Houston and San Antonio MSAs. The weighted average capitalization rate used for valuation purposes was approximately 7.6%. Public filings noted that the REIT retained LaPorte CPAs and Business Advisors as its valuation expert to establish the NAV per share. The valuation comes amidst a name change, shift in strategy, and significant leadership changes at the REIT, which was originally known as Hartman Short Term Income Properties XX, Inc. We have reported on these developments here, here, here and here.
Silver Star is currently late on filing its 2022 annual report, which was not available as we went to press here.
For more information: CLICK HERE
Alternative Ramblings
Swift Diligence: It’s a (Crypto) Story….and She Said No
Ms. Taylor Swift, currently in the midst of a world tour, reportedly turned down overtures from FTX to feature in a $100 million marketing sponsorship deal. Ms. Swift reportedly asked FTX, “Can you tell me that these are not unregistered securities?” per attorney Adam Moskowitz.
We are still amazed at the FTX Larry David Super Bowl ad, in which Mr. David mocks FTX, saying “I don’t think so” when prompted that FTX is a safe way to get into crypto.
If you’re going to San Francisco…you may not be able to catch a bid on your (formerly) trophy office tower
The Wall Street Journal reports that 350 California Street, a 22-story office tower in the financial district of San Francisco, may go for 80% less than the $300 million broker estimates from 2019. The Journal reports that the tower is currently 75% vacant following its primary tenant Union Bank leaving its space. This level of vacancy will likely preclude any debt financing from traditional lenders, and may force an all-cash offer. The Journal reports that some local brokers say it’s possible that no deal will done for want of bidders.
Trepp reports that approximately $80 billion of office backed loans are coming due this year, which will need to be refinanced at higher interest rates given the increasing interest rate environment of the past year. Adding further stress is greater vacancies and lower utilization of office space in general. The Wall Steet Journal reports that Wells Fargo reported that its total office building loan non-accruals increased from $186 million in the fourth quarter of 2022 to $725 million in the first quarter of 2023.
San Francisco has seen office vacancies rise significantly since the onset of the COVID-19 pandemic in 2020, as the chart below highlights.
Shadow Banks Seek to Fill Void from Commercial Banks and CMBS Issuance is Down 82% Year-Over-Year
Bloomberg reports that private lenders are seeking to gain inroads as traditional sources of real estate lending, including commercial banks and the CMBS bond markets, falter in early 2023. Banking liquidity issues at regional banks, as highlighted by the collapse of Silicon Valley Bank and Signature Bank, and an uncertain outlook on certain real estate sectors, including office and retail, have made certain regional banks skittish on continuing to make loans on commercial real estate. Bloomberg notes that regional banks issue approximately 70% of total commercial real estate loans made by US banks. CMBS issuance has declined approximately 82% year-over-year according to Bloomberg, opening the door for private lenders, including Carlyle, Castlelake, King Steet, HighVista, Palladius, and others to fill the gap.
Vornado Suspends Dividend Until the End of 2023 and Authorizes $200 Million Stock Buyback
Vornado Realty Trust (NYSE: VNO) announced on April 26 that it will postpone dividends on its common shares until the end of 2023, at which point the dividend may be payable in a combination of cash and securities, in the board of trustees’ discretion. Vornado’s board also announced that it had authorized a $200 million stock buyback plan, which is a significant portion of the overall $2.8 billion market capitalization. The board noted cash retained from the suspended dividend or prospective asset sales would be the source of funds for the stock buyback plan.
Vornado owns a portfolio of assets that is concentrated in New York City offices. Vornado previously announced that a joint venture it controlled had defaulted on a $450 million loan related to a group of Fifth Avenue retail properties.
REITs
Peakstone Realty Trust (fka Griffin Realty Trust) Begins Trading on the NYSE
Peakstone Realty Trust’s first day of trading on the NYSE (ticker symbol: PKST) on Thursday ended with trades clearing within a wide range from $8.00 per share to $21.99, with total volume of approximately 1 million shares against total outstanding shares of approximately 36 million. Shares closed at $11.65 at the end of a volatile first trading day, after opening at $8.00. S&P Capital IQ reports that the public float is 82.9%. Price to FFO was 31.4x in wide ranging trades, although we note the FFO multiple may trend higher based on certain investments in an office joint venture that is not consolidated into PKST’s operating data. The market capitalization of PRT, based on trades as we went to press was approximately $2.8 billion.
PKST was formed from the merger of Griffin Capital Essential Asset REITS I and II (GCEAR I and GCEAR II) in 2018. The external advisor, a subsidiary of Griffin Capital Company, LLC, was internalized in 2018 for consideration of 20.4 million operating partnership units in the predecessor of PKST and certain additional units as part of an earnout. Based on the then-current NAV per share of $9.66, total consideration for the internalization, inclusive of earnout units, was approximately $235 million. PKST acquired Cole Office and Industrial REIT (CCIT II) in a stock-for-stock merger that was closed on March 1, 2021. The CCIT II transaction was valued at approximately $1.3 billion. Each CCIT II shareholder received 1.392 shares of newly issued Class E common stock. We previously reported on that transaction here.
PKST previously reported in March 2023, that it was engaging in a “board refreshment process” in which Kevin Shields (founder of Griffin Capital Company) and four other directors resigned. The board subsequently approved two additional directors. We reported on this matter here.
On March 10, 2023, PKST completed a one-for-nine reverse stock split. The adjusted NAV per share based on the reverse stock split was reported at $66.78, which is based on the most recent estimated NAV per share of $7.42 as of June 30, 2022. PKST shares were originally offered as GCEAR I and GCEAR II at $10.00 per share ($90.00 adjusted for the reverse stock split), in offerings declared effective in 2009 and 2014, respectively.
In October 2021, the board of directors suspended its share redemption program (SRP) as the board pursued strategic options. The SRP was reopened on a limited basis, for shareholder hardship, in August 2022. PKST repurchased approximately 75,000 shares at $66.78 per share (adjusted for the reverse stock split) during the third and fourth quarters of 2022.
In August 2022, PKST announced the sale of 46 office properties for $1.3 billion, while retaining a 49% stake in the venture following a capital contribution of $184.2 million. We reported on this transaction here. The REIT recognized a loss of approximately $106 million related to this transaction. Prior to listing, on April 10, 2023, PKST announced that it had redeemed all 5 million shares of Series A Cumulative Perpetual Convertible Preferred Stock for $125 million.
PKST declared an annualized distribution of $0.90 per share after the board determined to reduce distributions in February 2023. This equates to a distribution yield of 1.3% based on the most recently reported NAV per share, yet a substantially higher yield based on the recent trading range of PKST shares. PKST guided that it will cease calculating and determining record holders for its distribution rate daily, and instead will pay distributions to holders of common shares in a specific amount and on a specific record date, which is consistent with publicly traded REITs. Subsequently, the board declared a monthly distribution on March 24, 2023, of $0.075 per share ($0.90 annualized) payable in May 2023. Prior to the February 2023 reduction, the annualized distribution rate was $3.15 per share (adjusted for the reverse stock split). Adjusted for the reverse stock split, PKST originally made distributions of $4.95 per share dating back to 2016. Distributions were increased to $5.40 in 2019, prior to a reduction to $3.60 in 2020, and a further reduction to $3.15 per share in 2021, respectively per share.
PKST holds a portfolio of 78 wholly-owned properties: 19 industrial, 38 office, and 21 non-core office and industrial properties. the company reports that 59% and 67% of its industrial and office assets are leased to investment grade tenants, with total occupancy of approximately 95%. PKST notes that its non-core assets are 77% leased. PKST has guided that it is focusing on acquiring warehouse and distribution assts going forward, with select Class A office exposures.
S&P Capital IQ reports debt-to-equity of 0.82x and debt-to-gross properties of 43.4%, both as of year-end 2022. PKST reports 87% of outstanding debts are fixed rate (inclusive of hedging activity) with approximately 64% of debts maturing in by the end of 2025, with a weighted average maturity date of 3.1 years. The reported weighted average interest rate was approximately 4.1%.
For additional information: CLICK HERE and CLICK HERE
Silver Star Properties REIT, Inc. (fka Hartman Short Term Income Properties XX, Inc.) Announces Completion of Pivot to Self-Storage Focus, Acquisition of Southern Star Self-Storage Investment Company, and Potential Public Listing of the Company
On April 6, 2023, Silver Star announced that its executive committee approved the repositioning of the REIT to focus on self-storage assets, marking a previous departure from its targeted focus on office, industrial, and retail centers. Silver Star announced the acquisition of Southern Star Self Storage Investment Company (Southern Star). Recently appointed Silver Star CEO Mark Torok previously served as CEO of Southern Star. We reported on this here. The consideration tendered for the acquisition includes $3 million in cash and 301,659 restricted stock units. Silver Star most recently reported an estimated net asset value per share of $12.08 as of December 31, 2021. The cash is payable when the executive committee determines that Silver Star is in a “reasonable position” to make such payment. However, the equity interest purchase agreement anticipates $1.5 million in cash payable by year-end 2023, and the remaining $1.5 million in cash payable by June 30, 2024. Mr. Torok also signed a three-year employment agreement in which he will receive a base salary of $550,000 and approximately 1.3 million performance units per year.
In a company press release, Mr. Torok also referred to a potential liquidity event for Silver Star, noting that: “I am thrilled to take the company to new heights and deliver value to shareholders through a public listing.”
Silver Star has recently been in the news multiple times recently over board level changes, including the removal of founder Allen Hartman from the board in March 2023. The executive committee previously noted that it is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.” We previously reported on these matters here.
For more information: CLICK HERE and CLICK HERE
Hartman vREIT XXI, Inc. Announces the Appointment of Allen Hartman as Interim CFO
This follows the resignation of Louis Fox, the longtime CFO of multiple Hartman REITs in March 2023. The REIT reported that Mr. Fox’s resignation was not due to any disagreements with the company regarding its operations, policies, practices or otherwise. Mr. Hartman serves as the CEO and chairman of the board of the REIT as well, and was recently removed from the board of directors of Silver Star, as noted above.
Alternative Ramblings
Blackstone Sells Orange County Offices at Substantial Loss
Blackstone acquired the Santa Ana Griffin Towers for approximately $129 million in 2014 and reportedly has sold the properties for $82 million. A joint venture of Barker Pacific Group and Kingsbarn Realty Capital acquired the property. This marks the latest in high profile office related distress, with Southern California featuring prominently through the KBS REIT II Union Bank Plaza sale and the Brookfield defaults on two skyscrapers in downtown L.A. reported in February 2023. We reported on those matters here and here.
Redfin Reports Weaker Demand from Buyers for Vacation Homes
The report available here cites data on mortgage rate locks on second home transactions declining 50% over the previous year. The report highlights many would-be-second home purchasers are put off by persistent high prices and increasing interest rates raising costs, leading to weaker demand from prospective acquirers. This may create more favorable acquisition opportunities for funds entering the market. However, Redfin reported weaker demand for vacation rentals as well, noting “owners of short-term rentals are reporting a steep decline in business.” The report cited concerns with oversupply and local government regulations, including stricter taxing and permitting.
Multifamily Construction Permit Applications Decline 80% in St. Paul, Minnesota, in the Year Following the Implementation of One of the Nation’s Strictest Rent Control Regimes
Sharon Wilson Geno, president of the National Multifamily Housing Council, recently told NAREIT that she believes rent control is not a solution to persistent housing shortages across the country. This reminded the Weekly Update of the St. Paul Rent Control Saga from 2021, in which city voters approved an annual rent growth cap of 3% per year. The provision is notable in that many jurisdictions have inflation-linked rent control caps, as opposed to hard caps. However, the real onerous provision in St. Paul was that the measure originally precluded the landlord from raising the rent up to market rate upon a vacancy of the unit. The policy received substantial pushback, which subsequently resulted in some modifications by St. Paul’s city council, including allowing for landlord “self-certification increase exceptions” of between 3% to8% annually (whatever that means). The rent control ordinance is outlined in 16 mind-numbing and borderline incomprehensible pages here.
Meanwhile across the Mississippi in Minneapolis, which did not pass a restrictive rent control measure, multifamily building permits more than tripled over the same period. Capital will go where it is best treated, don’cha know!
KBS Real Estate Investment Trust II, Inc., Sells Union Bank Plaza Office Building in Downtown L.A. at a Significant Loss
The REIT previously announced the sale of Union Bank Plaza in July 2022, at an initial price of $155 million, to an affiliate of Waterbridge Capital (unaffiliated with KBS REIT II). The purchase and sale agreement was amended multiple times, with the parties agreeing to a final sale price of $104 million in March 2023. KBS REIT II had originally acquired the office building in 2010 for $208 million, and completed a $20 million renovation on the property during its ownership. The Commercial Observer and the DI Wire each reported on these matters. The Commercial Observer noted that RC Acquisitions backed out of a $280 million deal for the property in 2019. The 40-Story office tower was originally built in 1967 and features 701,888 leasable square feet. In 2019. Union Bank reduced its leased space from approximately 300,000 square feet to 162,000 square feet.
KBS REIT II stockholders previously approved a plan of liquidation in March 2020, and the REIT subsequently made five liquidating distributions totaling $2.10 per share from March 2020 through December 2021. The Union Bank Plaza sale was the final asset in the REIT’s portfolio. KBS REIT II’s board approved an estimated liquidation value of $0.93 per share in August 2022, following the aforementioned distribution. On April 4, 2023, the board approved a liquidating distribution of $0.73 per share following the sale of the Union Bank Plaza. Cumulative liquidating distributions totaled $2.83 per share (although KBS REIT II also made a special distribution of $4.50 per share in 2014). Total non-operating distributions have been $7.83. KBS REIT II originally had a 6.5% distribution rate, to common stockholders, beginning in the fourth quarter of 2009 and made cumulative non-special and non-liquidating distributions of $5.85 through 2020 and prior to the announcement of the plan of liquidation. Total operating, special and liquidating distributions totaled $13.68 since inception of the REIT and through its liquidation. KBS REIT II raised approximately $1.8 billion in common stock proceeds in an offering that was initially declared effective in 2008 and priced at $10.00 per share.
For more information: CLICK HERE
This continues a trend of weaker pricing on office assets in general and specifically in the downtown L.A. market, as evidenced by Brookfield DTLA Office Fund Trust Inc.’s recently reported defaults on mortgages related to two office properties in the CBD. We reported on this here.
Capital Square Apartment REIT, Inc., Closes First UPREIT Transaction with Affiliated DST Program
Capital Square announced that the Saltmeadow Bay Apartments, a 229-unit Class A property in Virginia Beach, was the first property contributed to Capital Square Apartment REIT in a Section 721 UPREIT transaction. The property was originally acquired by an affiliated DST program for $48.6 million in 2019, and the UPREIT transaction was priced at $72 million. Capital Square reported that DST investors received a total return of 161%. A fairness opinion was obtained by investment banking firm Robert A. Stanger & Company to support the transaction. Capital Square reported that 85% of the DST investors (by value) exchanged their DST interests for operating partnership units in the REIT, exchangeable into common stock at a future date, which would constitute a taxable event.
REITs
Peakstone Realty Trust (fka Griffin Realty Trust) Announces Resignation of Kevin Shields and Four other Directors on the Board
Peakstone noted that the resignations were “part of a Board refreshment process being implemented in connection with [the anticipated listing].” Peakstone reported that none of the resignations were due to any disagreement with company, its operations, policies or practices. The board subsequently approved the appointment of Casey Wold and Carrie DeWees as directors.
In February 2023, Peakstone announced a name change in, its intention to seek a listing on the NYSE, a reduction in its common stock distribution, and a reverse stock split. We reported on this here.
For more information: CLICK HERE
Vinebrook Homes Trust Announces Internalization Transaction of Manager Priced at $20.3 Million
On March 13, 2023, Vinebrook Homes Trust reported that it was exercising its rights to purchase Vinebrook Homes, LLC (the Manager), under its call rights notice. The Manager provides certain renovation, leasing, and operating services to Vinebrook Homes Trust under various management agreements. Vinebrook is externally managed by NexPoint Real Estate Advisors V, L.P. The current report noted that the Manager and certain affiliates may terminate the internalization agreement If the closing of the internalization is not completed by March 23, 2023. No additional update was filed with the SEC as we went to press.
Vinebrook Homes was formed in 2018 and reported total assets of approximately $3.7 billion as of September 30, 2022. Vinebrook owns a portfolio of 24,153 single family rental homes with an average rent of approximately $1,142 per month.
Additionally, Vinebrook Homes Trust announced in late February 2023 that interim president Brian Mitts was appointed president of the company by the board of directors.
For more information: CLICK HERE and CLICK HERE
Silver Star Properties REIT (fka Hartman Short Term Income Properties XX, Inc.) Board Removes Allen Hartman as Executive Chairman of the Company and Announces Investigation of Violations of Fiduciary Duties by Mr. Hartman
On March 15, 2023, Silver Star announced that the executive committee of the board of directors (which has decision-making authority of the entire board) removed Mr. Hartman from his role as executive chairman. Mr. Hartman will remain a director on the board of directors. Additionally, the executive committee is “investigating issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman.”
Silver Star REIT previously announced that it was seeking to shift its focus into self-storage assets. Additionally, Silver Star reported in early March 2023 that it was in discussions with former CEO Mr.Hartman and Hartman vREIT XXI, Inc. (Hartman XXI) regarding the complete separation of Silver Star from Hartman XXI. Hartman XXI owns approximately 1.2 million shares in Silver Star and has provided loans to Silver Star in previous years, including a loan with a principal balance of $17.2 million that was scheduled to mature on October 31, 2022, and is currently in default. Hartman XXI and Silver Star are also investors in a joint venture that owns 39 properties, and previously announced intentions of combining in a merger.
We previously reported on these developments here.
For more information: CLICK HERE
CNL Healthcare Inc.’s Board Recommends Shareholders Reject Comrit’s Tender Offer Priced at 63% of Estimated NAV Per Share
On March 20, 2023, CNL Healthcare Inc.’s board recommended shareholders reject a third-party tender offer from entities affiliated with Comrit to purchase up to 5.1% of the outstanding shares of the REIT at $4.36 per share. The third-party tender offer was filed on March 13, 2023. This marks the fifth tender offer from Comrit entities, following tender offers in 2020, 2021, and 2022 for up to 5.1% of outstanding shares. Comrit reported that as of March 8, 2023, it owned approximately 0.9% of CNL Healthcare’s outstanding common stock. CNL Healthcare suspended its redemption program in July 2018. CNL reported that between 2020 and 2022, more than 2 million shares were transferred between investors at average annual per share sales prices between $4.13 and $4.77.
CNL Healthcare further reported that its estimated NAV per share as of December 31, 2022, was $6.92 per share, which was 6.1% lower than the previous estimated NAV per share. The estimated NAV per share does not factor in estimated transaction costs to liquidate the portfolio, per IPA guidelines. The chart below highlights the public offering price and estimated NAV per share of CNL Healthcare dating back to the REIT’s inception. Note that the special distribution in 2019 was $2.00 per share, which was generated from the distribution of a portion of the proceeds of the sale of 70 properties, part of a strategic review of liquidity options that began in 2018. CNL Healthcare reported that it currently has 70 properties, comprised of 69 senior housing properties and one parcel of raw land. The REIT reported total assets of $1.4 billion with a debt/equity ratio of approximately 42% of total assets. The REIT continues to focus on exploring shareholder liquidity options. 
For more information: CLICK HERE and CLICK HERE
Alternative Ramblings
EcoVest Settles Case With DOJ
EcoVest has reached a settlement agreement with the Department of Justice that enjoins the company indefinitely from offering any investment programs with a conservation easement option in the future. As part of the settlement, EcoVest does not admit to any of the allegations contained in the DOJ’s amended complaint. No monetary amounts are noted in the settlement agreement. The Sun News (of Myrtle Beach) reports on the matter here, including quoting from a statement from Sean Akins, counsel for EcoVest, who noted that “the company is pleased the DOJ accepted their offer to resolve the case.” He went on to say that “[t]he Department of Justice’s case was premised on false allegations and a failure to understand EcoVest’s business… While EcoVest was confident it would have prevailed at trial, its primary goal is to avoid further costly litigation and focus its resources on behalf of the best interests of its existing investors.” EcoVest has subsequently shifted to focusing on other real estate investments, including affordable housing.
The final judgement is available here.
SEC Scraps Vote on Private Equity and Hedge Fund Disclosures
The Wall Street Journal reports that the SEC has scrapped a vote, set for earlier this week, on certain enhanced disclosure requirements for private equity and hedge funds. The WSJ noted that the enhanced disclosures would have required large hedge funds to file reports within one business day of incidents including “extraordinary investment losses, defaults by major counterparties or spikes in margin requirements.”
Shopoff Dream Hotel Development in Las Vegas Has Lien Put on It and Ceases Construction Activity
The Las Vegas Review Journal reports that activity at the Dream Hotel Development “has fully stopped” after funding activity on the project stalled. The news outlet notes that stalled financing plans left Shopoff owing “tens of millions of dollars for the hotel-casino project.” Mr. Shopoff told the Las Vegas Review Journal that he owes “approximately $25 to $30 million for work on the resort and that construction will restart once the terms of the financing are finalized.” Mr. Shopoff indicated that terms with its lender are anticipated to be finalized potentially in the next couple of weeks. The total cost of the project is estimated to be between $550 million and $575 million. A lien was recorded on the property on March 10 by McCarthy Building Companies, a contractor on the development, indicating that $40.2 million was “currently due for work performed” per the Las Vegas Review Journal. Mr. Shopoff told the press “they will be paid, and the project will get built.”
Guggenheim Credit Market Update
Guggenheim’s head of structured finance anticipates that as the credit cycle continues to deteriorate that subordinated interests in collateralized loan obligations (CLOs) may experience payment disruptions. Guggenheim remains bullish on investment grade rated tranches of CLOs. Further info can be found on the Guggenheim podcast here.
Credit Suisse, Banana Republics, Viability Clause and the Need for Due Diligence
Credit Suisse’s 166-year run is over as Swiss regulators announced a shotgun marriage with UBS this past weekend. We note that no Credit Suisse or UBS shareholders voted on the transaction, which priced Credit Suisse at approximately $3 billion, while it traded with an $8 billion market capitalization. The combination followed the Swiss National Bank providing approximately $50 billion in support of the ailing financial firm, and additionally backstopping $9 billion in anticipated losses related to the UBS combination with Credit Suisse. One notable aspect of the transaction was that approximately $17 billion worth of Credit Suisse AT1 Bonds were wiped out. These bonds, commonly referred to as contingent convertible bonds, or “CoCos,” are senior to common stock in the capital stack, like any other bond. However, there are some interesting provisions and flexibility incumbent to these securities, which comprise over a quarter trillion dollars’ worth of financing for European Banks. As Reorg Research and S&P Capital IQ note, the AT1 Bonds contained a viability clause in their offering documents that included multiple tortured definitions of a “viability event” including:
“Customary measures to improve CSG’s capital adequacy being at the time inadequate or unfeasible, CSG has received an irrevocable commitment of extraordinary support from the public sector (beyond customary transactions and arrangements in the ordinary course) that has, or imminently will have, the effect of improving CSG’s capital adequacy and without which, in the determination of the regulator, CSG would have become insolvent, bankrupt, unable to pay a material part of its debts as they fall due, or unable to carry on its business.”
As S&P Capital IQ further reports:
An automatic and permanent write-down of the AT1 principal to zero was triggered when the regulator for Credit Suisse Group (CSG) determined that a viability event had occurred.
While market participants may not all agree with the Swiss banking regulator that such an event had taken place, the regulator decided that it had. This led automatically to a viability event notice and, therefore, a write-down event.
Credit Suisse’s AT1 instruments all contain language that makes it clear that such an event would mean a complete, permanent write-down to zero, and that no partial or temporary write-downs were possible. By contrast, AT1 instruments at some other banks include partial or temporary write-down features. In addition, although Credit Suisse’s instruments did not have any conversion features, some banks do issue AT1 instruments that can be converted into common equity in a stress situation.
Undoubtedly the wipeout of subordinated securities while common equity holders retain value is a fundamental shift in any traditional understanding of the capital hierarchy of a firm. However, as S&P and Reorg both note, this exact premise is specifically contemplated in the offering documents of AT1 bonds issued by Swiss Banks. U.K. and Eurozone regulators were quick to point out that AT1 bonds in their jurisdictions did not include these provisions.
S&P reports that:
Both the EU and U.K. authorities made statements about expected hierarchies on March 20:
- The EU authorities reminded investors that they expect common equity instruments to be the first to absorb losses; only after these have been depleted would the EU require AT1 instruments to be written down.
- The Bank of England confirmed that AT1 instruments rank ahead of common equity Tier 1 and behind Tier 2 in the hierarchy, and that holders of such instruments should expect to be exposed to losses in resolution or insolvency, based on their positions in this hierarchy.
The devil is in the details indeed, and this will be litigated far into the future. Undoubtedly the cost of financing banks in Europe will increase given this debacle and initial data on pricing for CoCos highlighted an approximate 20% selloff following the news of the Credit Suisse AT1 wipeout. Perhaps some of the institutional investors claiming that Switzerland is behaving like a banana republic should review their internal due diligence processes related to offering document review and maybe consider hiring FactRight to sift through these document sets on their behalf.
REITs
Griffin Realty Trust Announces Plans to Pursue Listing of Common Stock on the NYSE, Change its Name to Peakstone Realty Trust, A Reduction in Common Stock Distributions and a Reverse Stock Split
On February 21, 2022, Griffin Realty Trust announced that its board of directors has determined to pursue a listing event of the company’s common stock on the NYSE. No timeline for the listing event was provided in the press release. The listing announcement marks the culmination of a strategic liquidity plan the company announced in 2019.
The company’s website also indicates that the REIT is now known as “Peakstone Realty Trust” and that a reverse stock split will be announced on March 10, 2023. Further details were not available as we went to press. The board also announced that in order to preserve liquidity, it was reducing the distribution per common share to $0.10 on an annualized basis beginning in February 2023. The company previously had declared distributions of $0.35 per common share on an annualized basis.
Griffin Realty Trust previously reported that it had sold a 51% stake in a portfolio of office properties in a transaction valued at $1.1 billion in September 2022. We reported on this here. As of September 30, 2022, the most recent financial statements available, the REIT reported total assets of $3.9 billion and outstanding debts of $1.5 billion.
For more information: CLICK HERE
Silver Star Properties REIT, Inc. (fka Hartman Short Term Income Properties XX, Inc.) Seeking to Expand Into Self-Storage Assets
On March 7, 2023, Silver Star Properties REIT reported that its plans to shift its investment focus into self-storage assets is ongoing “but has been temporarily suspended for strategic reasons.” Silver Star further reported that CEO Mark Torok and the executive committee are currently negotiating an employment agreement for a three-year term, noting that the committee was looking to ensure that Mr. Torok is “all in and restrict his outside involvement.” Additionally, Silver Star is currently in discussions with former CEO Allen Hartman and Hartman vREIT XXI, Inc. (Hartman XXI) regarding the complete separation of Silver Star from Hartman XXI. Hartman XXI owns approximately 1.2 million shares in Silver Star and has provided loans to Silver Star in previous years, including a loan with a principal balance of $17.2 million that was scheduled to mature on October 31, 2022, and is currently in default. Hartman XXI and Silver Star are also investors in a joint venture that owns 39 properties, and previously announced intentions of combining in a merger.
Silver Star also reported that Horst Schulze tendered his resignation as a director effective July 1, 2023.
We previously reported on the plans of Mr. Torok and the executive committee to chart a new course for Silver Star Properties here.
For more information: CLICK HERE
Living at the Mall (Rats!?)
Redevelopment of anchor tenants and excess parking lots at suburban shopping malls appear to be picking up steam. Bill Shopoff, of Shopoff Realty, noted in a recent interview with the L.A. Times that Shopoff planned on redeveloping the Macy’s and former Sears stores at the Westminster Mall in Orange County to include townhomes, apartments, a hotel, and shops. Shopoff Realty has been active in this space with a recent announcement that it was partnering with Praelium Commercial Real Estate and Singerman Real Estate to redevelop the former Nordstrom department store building in the Pleasanton Stoneridge Shopping Center in the East Bay area. In an interview with the East Bay Times, Mr. Shopoff noted “[t]his asset represents an opportunity to acquire a significant piece of property in a highly desirable market in Northern California.” This marks the fourth acquisition of a regional mall site by Shopoff Realty in the past few years.
REITs
Silver Star Properties REIT, Inc. (fka Hartman Short Term Income Properties XX, Inc.) Seeking to Expand Into Self-Storage Assets
On February 13, 2023, the REIT announced that its management team was meeting this week “to finalize the Company’s plans to reposition its assets into the self-storage asset class to maximize shareholder value”. CEO Mark Torok previously announced in December 2022 that the Company was formulating a plan to expand into different real estate asset classes, including self-storage, and was considering dispositions of its existing assets, which are primarily office properties. 2022 was an eventful year for the REIT. In July, the REIT’s board of directors approved the suspension of distributions to its stockholders. This was followed by the REIT reporting, in its third quarter report, that there was substantial doubt about its ability to continue as a going concern due to certain loan maturities that were pending. In October, the Company appointed Mark Torok, who previously served in an executive capacity at the Company, to serve as CEO, succeeding Allen Hartman. Silver Star reported total assets of $500 million as of September 30, 2022.
For more information: CLICK HERE
Ares Industrial Real Estate Income Trust (AIREIT) Announces New Co-President and Resignation of a Board Member
On February 10, 2023, Rajat Dhanda informed the board of directors that he will step down as co-president of AIREIT and continue to serve as a director on the board. The board subsequently appointed David Fazekas to serve as co-president of the Company. Mr. Fazekas is a partner and chief investment officer of industrial at Ares Real Estate. Mr. Fazekas has served in various roles at other real estate entities previously sponsored by Black Creek Group and Ares, including Industrial Property Trust, and Industrial Income Trust.
Additionally, AIREIT reported that Evan Zucker was leaving Ares Management Corporation and resigning from the board, on which he served as chair, to pursue other opportunities. AIREIT’s board subsequently appointed William Benjamin to serve on the board. Mr. Benjamin serves on the Ares Real Estate Group Global investment committee and Ares Real Estate Debt investment committee. Mr. Benjamin and current board member William Merriman III will serve as co-chairs of AIREIT’s board.
For more information: CLICK HERE
KBS Growth and Income REIT, Inc., Reports Default on $47 Million Mortgage on Commonwealth Building in Portland
On February 13, 2023, KBS Growth and Income REIT, Inc., reported that it failed to pay the outstanding mortgage amount that was due to the lender on February 1, 2023. We have previously reported on KBS G&I disclosing reduced occupancy and distress at the property and that default was a likely outcome. KBS G&I reported an estimated net asset value per share of $1.16 as of September 30, 2022. The REIT has previously noted that the Commonwealth Building default is not expected to have an impact on the net asset value per share, as the Company’s valuation of the property net of the mortgage is effectively zero. KBS G&I has also sought shareholder approval of a plan of liquidation.
For more information: CLICK HERE
BDCs
Prospect Floating Rate & Alternative Income Fund, Inc. (PFLOAT) Reports Substantial Doubt About Its Ability to Continue as a Going Concern Due to Pending Maturity on Credit Facility
On February 13, 2023, PFLOAT (fka TP Flexible Income Fund, Inc., and fka Triton Pacific Investment Corporation, Inc.) reported in its third quarter report that the Company extended a ramp period on its credit facility from August 2022 to August 2023. The Company noted that without a further extension of the ramp period on the credit facility or a refinancing of the credit facility, the Company may fail to comply with a covenant, which may result in an event of default.
For more information: CLICK HERE
Alternative Ramblings
Vornado Says Friday is Dead Forever……and They Might Give it Away on Fifth Avenue
Vornado (NYSE: VNO) CEO Steven Roth noted that Fridays were dead and that Mondays were touch and go on their fourth quarter earnings call this past week. Mr. Roth also guided that office utilization rates of approximately 70% may be viewed as normalized in the post-pandemic world. Vornado, which sports a market capitalization of approximately $4.3 billion, also reported that it defaulted on a mortgage for certain retail space in the St. Regis on Fifth Avenue in New York City held through a JV and recognized a non-cash impairment of approximately $480 million on the JV. Mr. Roth stated that it was working to restructure the loan with the lender, and that the REIT was willing to toss the keys back to the lender if restructuring efforts were unsuccessful. Negotiation via earnings call—a favorite of the Weekly Update!
LA Office Towers in Events of Default
Brookfield DTLA Fund Office Trust Investor Inc. reported that the Gas Company Tower in downtown LA is currently in an event of default after the Company failed to pay $415 million in combined principal on mortgage and mezzanine loans that matured on February 9, 2023. Brookfield DTLA also reported that another property, the 777 Tower in L.A., was also presently in an event of default due to the Company not obtaining an interest rate protection agreement on a $268.6 million mortgage secured to the property. Brookfield DTLA’s Series A 7.625% Preferred Stock (NYSE: DTLA-P) have trended lower in recent years, and presently trades at less than ten cents on the dollar of its $25 per share liquidation value.
Proposed Rule Would Require Additional Disclosure on Ownership and Managerial Data for Medicare and Medicaid Recipient Skilled Nursing Senior Housing Facilities
A summary of the proposal form the Centers for Medicare & Medicaid Services (CMS) is available here, and in the Federal Register here. The Wall Street Journal reported on this here. The CMS noted that the proposed rule would require the disclosure of certain ownership, managerial, and other information regarding these facilities. This would include the structure and description of relationships of any entities providing certain administrative, operational, managerial, or consulting services amongst others to these facilities. The executive summary of the proposed rule notes, “we have recently received information regarding particular categories of nursing facility owners (including, but not limited to, private equity companies and real estate investment trusts) that has generated concerns about the standard of care that nursing facility residents receive.”
REITs
Hartman vREIT XXI, Inc. Provides Guidance that it does not anticipate Common Stock Distributions for the Foreseeable Future and Appoints New Independent Director to Chair its Audit Committee
Harman vREIT XXI, Inc. (Hartman XXI) reported that increased interest expenses have eroded its ability to continue to make shareholder distributions. Hartman XXI noted that its weighted average interest rate is approximately 7.3%, which is more than double the same rate from January 2022. The REIT further guided that it does not anticipate a material decline in interest rates in 2023.
Hartman XXI previously reported in December 2022 that it would not make a distribution to common stockholders for the last month of 2022, due to the aforementioned interest expense increases. Hartman XXI announced the suspension of its share redemption program in November 2022 due to liquidity concerns.
Additionally, the board of directors appointed J. Allen Quine to serve as an independent director, and as chair of the audit committee.
For more information: CLICK HERE and CLICK HERE
KBS Growth & Income REIT Seeks Shareholder Approval of Liquidation Plan
The REIT (KBS G&I) filed a preliminary proxy detailing multiple shareholder proposals, including a plan of liquidation, director elections and approval of the auditor. The REIT’s board of directors recommends shareholders approve the plan of liquidation as outlined in the proxy. The REIT has been evaluating strategic options since the fourth quarter of 2018. KBS G&I defaulted on a mortgage secured by a portfolio office building located in Portland in December 2022. We previously reported on this matter here. KBS G&I reported an estimated net asset value per share of $1.16 as of September 30, 2022. Management further noted that the effect of the Commonwealth Building default is not expected to have an impact on the net asset value per share as the company’s valuation of the assets effectively net to zero. KBS G&I reported total assets of $120 million as of September 30, 2022. KBS G&I raised approximately $94 million in common stock proceeds in an offering period from 2015 through 2019.
For more information: CLICK HERE
REITs
InPoint Commercial Real Estate Income Trust Suspends Public Offering, Share Repurchase Plan and DRIP, and Begins Evaluating Strategic Options
InPoint reported that the decision to suspend the share repurchase plan was due to the current pace of fundraising on its public offering, which had dipped below monthly redemption requests as of January 2023. InPoint also reported that its board of directors agreed to terminate the repurchase program for its 6.75% Series A Cumulative Redeemable Preferred Stock (NYSE: ICR PR A). We note that the Series A Preferreds have recently traded at discounts of approximately 20% to their liquidation preference of $25.00, in thin trading volume, over the previous six months.
InPoint, which invests in commercial mortgages, reported total assets of $0.9 billion, with approximately $0.5 billion in leverage in the form of repurchase agreements.
For more information: CLICK HERE
Blackstone REIT (BREIT) Redeems 25% of Shareholders Outstanding Redemption Requests in January 2023 and Reports Preliminary Same-Property NOI Growth of 13% Year-Over-Year
BREIT reported, in a February 1 shareholder letter, that it repurchased $1.3 billion of shares in January 2023, which accounted for 2% of its outstanding NAV. BREIT reported that it redeemed 25% of aggregate redemption requests in January 2023, which accounted for approximately 8% of BREIT’s total outstanding shares. This marks the second quarter of shareholder redemption requests exceeding BREIT’s share repurchases. We previously reported on the 2022 oversubscribed repurchase offer here.
We also would point readers to the Blackstone, Inc. (NYSE: BX; BREIT’s sponsor) fourth-quarter conference call for a primer on semi-liquid product structures. In response to questions about liquidity within certain semi-liquid investment products, specifically BREIT, Blackstone president John Gray noted:
“I think what’s fascinating is when we talk to our clients, their experience versus the media narrative. So, what we’ve heard from our clients is they’re quite pleased. They’re quite pleased that they invested in a product that has produced 3x the rate of return (of) the public REIT market. So they look at what’s happened here is positive. Our clients and financial advisers understand that this was a semi-liquid product, that the basic trade-off was to trade some liquidity here for higher returns. And that there was always from day 1, 6 plus years ago, limitations on liquidity. Now there may be a small subset who’ve expressed some unhappiness. But frankly, the vast, vast majority of our customers are quite happy.”
Those investors may be getting happier in the future as well…
We note, lost in the flurry of shareholder liquidity headlines at BREIT (and other large NAV REITs recently), the company reported, based on preliminary estimated financial results, same property NOI increases of approximately 13% year-over-year as of December 31, 2022. While this data has not been finalized, such an NOI increase, almost double the highest CPI prints over the past year, would be a very strong marker of portfolio performance in our estimation.
BREIT also reported an additional $500 million equity investment from the University of California system. This is in addition to UC’s previous $4 billion investment in BREIT through a strategic venture announced earlier in January 2023. We reported on that here.
Strategic Student & Senior Housing Trust, Inc. (SS&SHT) Reports Updated NAV Per share of $6.24 as of the Third Quarter 2022
The recently updated NAV represents a 3% increase year-over-year from the previous estimated NAV per share of $6.08 as of September 30, 2021. The past few years have undoubtedly been challenging for the senior housing industry. Four of SS&SHT’s five properties in its current portfolio are senior housing assets. SS&SHT’s original public offering was declared effective in 2022 with initial offering prices per share of between $9.40 and $10.33. SS&SHT suspended its offering and share redemption plan in March 2020 at the onset of the pandemic. Shareholder distributions were also suspended in March 2020 and have not been reinstated to date.
For more information: CLICK HERE
KKR Real Estate Select Trust Inc. Reports Oversubscribed Repurchase Offer in January 2023
KKR reported that investors sought to redeem approximately 8.1% of outstanding shares in the fourth quarter, which exceeded its 5% quarterly redemption limitation. Redemptions were processed pro rata and each redeeming shareholder had 62% of their request redeemed. KKR reported total investments of approximately $1.5 billion as of the end of the third quarter.
Alternative Ramblingss
Office Utilization Crests 50% in Kastle’s 10-City Return to Office Barometer
Kastle’s data, based on entry-card swipes into offices, shows 50% office utilization for the first time% since the beginning of the pandemic. Kastle data suggests the Bay Area markets of San Francisco and San Jose continue to lag other major cities surveyed (see the table below). Similarly, Washington D.C. has also been soft, with the mayor of the District pleading with the executive branch to demand a return to the office for federal government employees currently “WFH.” The data also shows a wide range of dispersion on individual days, with Friday utilization approximately half of the highest utilization day (Tuesday) of the week.
For context on utilization rates, SL Green Realty Corp. (NYSE: SLG), the Manhattan office landlord, noted in their recent Q4 earnings call that they would deem office utilization rates in the 70% to 80% range as full utilization, at which levels they would not expect tenants to downsize their office spaces.
Sovereign Partners Continues Lease-up in Suburban Chicago Office Building
In other office sector news, Sovereign Partners reported a 56,000 square-foot lease at a 28-story 490,0000 square-foot Class A office building located in suburban Chicago. AIT Worldwide Logistics is the new tenant and will move its world headquarters to the building. CommercialSearch reported that this marks 120,000 square feet of leasing activity at the building in the past year.
Caliber Companies Obtains Bridge Loan on Hospitality Assets and Seeks to Complete IPO
Caliber Co. LLC, a private investment program sponsor, has announced that it has agreed to a $55 million bridge loan for three Phoenix airport hotels. Loan terms were not disclosed publicly. Caliber Co. acquired the various three hotels between 2012 and 2016. The Commercial Observer previously reported that as of December 2016, Caliber owned 51% of the full-service hotel rooms in the Phoenix Sky Harbor submarket. Given the Super Bowl and the Waste Management Open are in Phoenix next weekend, occupancy and hotel rates are anticipated to be robust! We note that Caliber recently filed a registration statement for an initial public offering seeking to raise approximately $8 million in the sponsor and subsequently list the common stock on the NASDAQ.
REITs
KBS Real Estate Investment Trust III, Inc. Suspends Ordinary Redemptions and Reduces Investor Distributions by Approximately 23%
On January 17, KBS Real Estate Investment Trust III, Inc. (KBS REIT III) announced that its board of directors had suspended its share redemption program beginning January 2023. The board noted that the suspension “is a direct result of the ongoing challenges affecting the commercial real estate industry, especially as it pertains to commercial office buildings.” The Company particularly emphasized slowdowns in the San Francisco Bay Area office market as materially impacting the Company’s performance. KBS REIT III further noted it was critical to preserve capital given the current state of markets. Share redemptions remain available for hardship, including death, disability, and determination of incompetence. KBS REIT III also announced a reduction in distributions. KBS REIT III announced January 2023 distributions would be $0.038333 per share, and projects that February and March distributions would the same amount. KBS REIT III previously distributed $0.049833 in monthly distributions per share. KBS REIT III noted that the reduction in distributions per share was attributable to “the continued impact of the economic slowdown on the Company’s cash flows, which is primarily the result of increasing interest rates and tenant lease expirations.”
KBS REIT III reported total assets of $2.3 billion and held 16 office properties and on mixed-use retail/office property comprising 7.3 million rentable square feet as of September 30, 2022. FactRight notes that three properties are located in the Bay Area comprising approximately 19% of KBS REIT’s total portfolio based on cost.
For more information: CLICK HERE
Manufactured Housing Properties, Inc. CFO Resigns
On January 13, 2023, Chelsea Gee resigned from her position as chief financial officer of Manufactured Housing Properties. Ms. Gee’s resignation was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices. Ms. Gee had served as vice president of finance since 2021 and as CFO since the second quarter of 2022. Ms. Gee is married to Richard M. Gee, a director of MHP and the son of Raymond Gee, who is the managing member of Gvest Real Estate Capital LLC, which holds a majority of MHP’s outstanding voting securities.
The Board appointed Vira Turchinyak to the CFO position. Ms. Turchinyak previously served as Controller at Cantor Fitzgerald’s Real Estate Investment Management group from June 2020 to October 2021 and has served as controller at MHP since August 2022. The Company reported that Ms. Turchinyak was appointed to serve in the CFO role until her successor is duly elected and qualified. Mr. Turchinyak has no familial relationships with the Company’s existing directors and officers.
For more information: CLICK HERE
Griffin Realty Trust Remains Neutral on Unsolicited Third-Party Tender Offer from CMG Partners
The offer price from CMG Partners, and certain affiliates, was $3.40 per share, Griffin Realty Trust (GRT) most recently reported a NAV per share of $7.37 as of June 30, 2022. This equates to a 54% discount to the most recently reported NAV per share. CMG’s offer would also include the right to receive any shares that are to be distributed in a potential spin-off of certain portions of Griffin Realty Trust’s portfolio.
We note that GRT’s board has remained neutral on multiple third-party tender offers in the past few years citing uncertainties related to liquidity of GRT’s shares given the suspension of the share redemption program in October 2021, outside of investors experiencing certain hardships. Griffin has previously announced in August 2022, its intention to spin-off its industrial assets and seek a listing of the spin-off entity on a national securities exchange and liquidate the remaining assets in GRT. We previously reported on GRT’s announced plan here.
For more information: CLICK HERE
Alternative Ramblings
Secondaries Capital Formation Increasing
The secondaries market has expanded significantly in the past decade from $25 billion in annual trades, per secondariesinvestor.com, to a reported $103 billion in 2022, per data from Evercore, as highlighted in the chart below. Blackstone alone is looking to raise $25 billion in capital raising itself in 2023. One has to wonder, with all of this capital raising activity seeking secondary activity, whether this should provide more competitive bids on secondary transactions. As we’ve seen in the retail channel, discounts on secondary offers can be quite significant. Also, note the significant GP-led transaction volume highlighted in the chart below. This provides some runway to the notion that this significant uptick in secondary fund capital formation may present opportunities for some retail-oriented fund managers that have experienced shareholder redemption challenges to effectively partner with secondary funds to clear out a backlogged redemption queue or enhance existing shareholder liquidity features in the future. Given the continued rise in popularity of “semi-liquid” alternative investment vehicles, including interval funds and tender offer funds, this may be an innovative area within the retail alternatives universe for years to come.
Prologis Forecasts Industrial Rent Growth of 10% in 2023
On its Q4 2022 earnings call this past week Prologis (NYSE: PLD) executives forecasted rent growth of 10% across its industrial portfolio in 2023. This rent growth projection is inclusive of “a moderate recession” in Prologis’ macro outlook.
Cancellation of New Home Spikes in Q4 2022
KB Homes reported that the cancellation rate on fourth quarter homes under contract reached 68% due to increasing mortgage costs eroding housing affordability. As the chart below highlights, this is a significant expansion of cancellations from previous years’ reporting periods. Lennar previously reported that its cancellation rate hit 26% in the fourth quarter, up from 12% in the same period in the prior year. Toll Brothers reported a 20% cancellation rate, up from 5% in Q4 2021.
KB Homes also announced that it was entering the “metaverse” to provide prospective buyers with virtual walkthroughs of KB Homes. No word if this metaverse expansion includes the prospective sale of virtual KB Homes or real estate, which is apparently a thing that we’ve reported on before.
Nashville Tourism Hit Record Levels in 2022
Nashville tourism had a record-setting year in 2022. Nashville Business Journal reports approximately 9.5 million room nights booked in the past year, and tourism contributing approximately $9 billion to the Music City’s economy. The Nashville Convention and Visitors Corporation is expecting 2023 to break records and noted that 15 more hotels with approximately 2,500 rooms are currently under construction, and 43 additional hotel projects are in the planning stages.
FactRight is glad to have modestly contributed to this record year with our fall conference in 2022, which included a little detour to the Country Music Hall of Fame. We will be returning for an encore to ride up and down Broadway for our 2024 fall conference as well!
REITs
Lodging Fund REIT III, Inc. Establish Revised its Net Asset Value and Updated the Offering Price to $10.57 per Share
On January 12, 2023, Lodging Fund REIT III’s Board of Directors (the Board) approved a revised net asset value (NAV) of $10.57 per share as of December 31, 2022. The revised NAV per share has resulted in an increase in the offering price from $10.00 to $10.57 per share effective January 6, 2023. The company reported that the revised NAV per share was based on the Board “taking into account appraisals of the company’s real estate properties and other factors deemed relevant by the Board.” Key assumptions related to the valuation have not been disclosed. The company also amended its operating partnership to change the distribution from 6% of capital contributions to $0.60 per share, which trims the distribution rate from 6.00% to 5.68%.
The company has not filed its third quarter 2022 report as of January 13, 2023, noting that it was unable to finalize its financial statement preparation and review process “due to uncertainty related to the SEC matter”. Lodging Fund REIT III has reported outside of its pending third quarter report that Occupancy and RevPAR have increased in the first three quarters of 2022, 74% and $88.57 respectively, compared to 72% and $76.59 in same period in 2021.
Lodging Fund REIT III reported in September 2022 that the company received a Wells notice from the SEC staff, indicating that the SEC has made a preliminary determination to bring an enforcement action against Lodging Fund REIT III’s advisor for possible violations of securities laws. Corey Maple, the CEO of the REIT, has also received a Wells notice as part of this same investigation. Management has noted that they believe all actions of the advisor and Mr. Maple have been appropriate and that they have retained counsel to defend themselves. We reported on this here.
For more information: CLICK HERE
New York City REIT, Inc. (NYSE: NYC) Announces Name Change and Completes 1-for-8 Reverse Stock Split
On January 9, 2023, New York City REIT, Inc. announced that it will change its name to American Strategic Investment Co. effective January 19, 2023. Trading will continue under the ticker symbol “NYC” following the name change. The company also completed a reverse 1-for-8 stock split on January 11, 2023, reducing the number of outstanding shares of common stock from approximately 15.4 million to 1.9 million.
For more information: CLICK HERE
1940 Act Funds
AOG Institutional Diversified Funds Receive Notice of Effectiveness from the SEC
The AOG Institutional Diversified Funds are comprised of a master fund (the AOF Institutional Diversified Master Fund) and two feeder funds (the AOG Institutional Diversified Tender Fund and the AOG Institutional Diversified Fund). The Master Fund reported total assets of approximately $50 million as of September 30, 2022, in a portfolio comprised of various REITs, BDCs, private equity interests and other investments.
Stay tuned for an upcoming FactRight report on this offering
Alternative Ramblings
Yield!
After over a decade of accommodative interest rate policies by major central banks around the globe, aggressive efforts to raise rates, in light of inflationary pressures, may finally end the (absurd) phenomenon of negative yielding debts. We note this is absent any real return analysis taking into account the effects of inflation. The Wall Street Journal reports that total negative-yielding debt was approximately $254 billion down from $18.4 trillion a mere two years ago, as reflected in the chart below. This may signal the end of a perplexing period in financial market history, wherein investors made investments in fixed income securities with the expectation of getting paid back less than their original invested amount.
REITs
University of California Allocates $4 Billion to Blackstone REIT
Blackstone Real Estate Income Trust, Inc. (BREIT) rang in the New Year with an announcement that the Regents of the University of California (UC Investments) agreed to purchase $4 billion in BREIT Class I Shares. The investment will include the creation of joint venture entity in which UC Investments shares, and certain shares owned by Blackstone, will be contributed.
The Wall Street Journal reports:
“As part of the agreement, UC Investments will put its BREIT shares into a strategic venture to which Blackstone will contribute $1 billion of BREIT shares that it already owns. The venture will have an 11.25% hurdle rate, meaning that if BREIT’s net annualized return exceeds that rate, Blackstone will get an extra 5% incentive fee. If the vehicle’s performance falls short of the 11.25% rate, Blackstone will make up the difference up to its $1 billion commitment.”
Blackstone is essentially guaranteeing an 11.25% return for up to 25% of UC Investments’ original invested amount. BREIT reported that its Class I Shares have achieved a 12.7% annualized return since inception six years ago. It further reported that it expects to achieve incremental profits provided that the Class I Shares achieve an 8.7% annualized return, due to the effect of management and incentive fees on UC Investments’ $4 billion share acquisition. The shares are subject to a repurchase provision over two years, beginning in 2028.
Not a bad deal if you can get it.
Additionally, in other UC news, the Regents of the University of California have approved the migration of UCLA to the Big Ten conference. This sets up a future date for FactRight’s favorite college football team, the Minnesota Golden Gophers, to return to the Rose Bowl for the first time in more than 60 years! Unfortunately, such a return is not for the Tournament of Roses Bowl Game, but merely a future regularly scheduled Big Ten game. Regardless, the Gophers are heading back to the Rose Bowl.
For more information: CLICK HERE
CIM Real Estate Finance Trust (CIM REFT) Announces Agreement to Sell 185 Properties for $894 Million to Realty Income Corporation (NYSE:O)
CIM REFT reported that the 185-property portfolio consists of non-core retail and industrial properties totaling 4.6 million square feet with a 9.3-year weighted average remaining lease term. Portfolio cap rate data was not disclosed. The all-cash transaction was announced on December 30, 2022, and is expected to close in the first quarter 2023.
Following the transaction, CIM REFT’s net lease portfolio will consist of 199 retail, office and industrial properties comprising 6.4 million square feet. CIM REFT also had investments in a senior loan portfolio of $4.6 billion as of September 30, 2022.
For more information: CLICK HERE
JLL Income Property Trust, Inc., Ares Real Estate Income Trust, Inc., Ares Industrial Real Estate Income Trust, Inc., and JLL Income Property Trust, Inc. Meet All Fourth Quarter 2022 Redemption Requests
In light of much-publicized liquidity backlogs at certain NAV REITs, Ares reported that both of its perpetual life NAV REITs have met fourth-quarter redemptions. Similarly, JLL Income Property Trust reported that it had redeemed all redemption requests in the fourth quarter, which totaled approximately 3.1% of outstanding shares.
For more information: CLICK HERE and CLICK HERE
REITs
KBS Growth & Income REIT, Inc. Seeks Shareholder Approval of a Plan of Liquidation and Reports Default on Outstanding Mortgage
On December 15, 2022, KBS Growth & Income REIT, Inc. (KBS G&I) reported that its board of directors had approved a plan of liquidation and dissolution for the REIT. KBS G&I subsequently filed a preliminary proxy to shareholders seeking their approval of the liquidation plan.
KBS G&I raised approximately $94 million in common stock proceeds in an offering period from 2015 through 2019 and had been exploring strategic alternatives for shareholder liquidity since 2018. Management cited significant challenges related to one portfolio property in particular, the Commonwealth Building located in downtown Portland, noting that decreased occupancy at the building had led to operating income from the building no longer supporting debt service payments on its mortgage, and a lack of anticipated near-term recovery for the asset. Management also reported that the Commonwealth Building is valued at less than its outstanding debt, which is scheduled to mature in February 2023. KBS G&I has estimated liquidation proceeds may range from $0.59 to $1.16 per share.
Subsequently, on December 20, 2022, KBS G&I reported that it had defaulted on the mortgage secured by the Commonwealth Building. KBS G&I reported an estimated net asst value per share of $1.16 as of September 30, 2022. Management further noted that the effect of the Commonwealth Building default is not expected to have an impact on the net asset value per share as the Company’s valuation of the assets effectively net to zero. KBS reported total assets of $120 million as of September 30, 2022.
For more information: CLICK HERE
RREEF Property Trust, Inc. Reports Share Redemptions in the Fourth Quarter Exceeded 5% Limitation
Shareholder liquidity at NAV REITs has been in the news in recent weeks following the oversubscribed repurchase offers at Starwood REIT and Blackstone REIT, additional information here and here. RREEF Property Trust, Inc. (RREEF) recently announced that it had received shareholder redemption requests as of December 16, 2022, which exceeded its 5% quarterly limitation. RREEF noted that all redemption requests received before December 16, 2022, were honored on a first come, first served basis and that requests received on December 16, 2022, were redeemed on a pro-rata basis. RREEF will not facilitate additional share repurchase requests until January 1, 2023.
For more information: CLICK HERE
Lightstone Value Plus REIT II, and Lightstone Value Plus REIT III Seek Additional Time for Shareholders to Vote on Charter Amendments
On December 14, 2022, both Lightstone REIT II and Lightstone REIT III, adjourned their respective shareholders meetings until January 17, 2023, to allow shareholders additional time to consider certain proposed charter amendments. We have previously reported on the proposed charter amendments which would eliminate certain investor protections.
For additional information: CLICK HERE and CLICK HERE
American Healthcare REIT (fka Griffin-American Healthcare REIT III and Griffin-American Healthcare REIT IV) Make No Recommendation to Shareholders Regarding Deeply Discounted Third Party Tender Offers
On December 21, 2022, American Healthcare REIT (AHR) issued a shareholder letter regarding the outstanding third party mini-tender offers from various CMG Partners, LLC and MacKenzie controlled entities. The respective tender offers seek to purchase AHR shares at prices of $5.00 and $4.95 per share, respectively. AHR recently completed a 4-1 reverse stock split on November 15, 2022. Adjusted for the 4-1 reverse-stock split the CMG Partners and MacKenzie offers ($20.00 and $19.80, respectively) are 46% and 47% lower than the most recently estimated NAV per share of $37.16, as of December 31, 2021.
On September 16, 2022, AHR filed a S-11 to seek to offer additional common stock in a public offering and list its common stock on the NYSE under the ticker symbol “AHR”. Bank of America Securities, Citigroup, and KeyBanc Capital Markets are listed as joint-book runners on the offering. Given market conditions, the timing of such a listing of the common stock is uncertain at this time. AHR suspended its share repurchase plan, and distribution reinvestment plan on November 14, 2022. AHR reported that these decisions were made in pursuit of the proposed listing of the common stock on the NYSE.
AHR’s Board of Directors has determined to make no recommendation to any shareholder on whether they should accept the CMG Partners or MacKenzie tender offers. The Board cited the suspension of AHR’s share repurchase plan, differing individual shareholder liquidity needs and a lack of certainty regarding the timing of a potential AHR public offering or other liquidity event, as factors in its lack of recommendation.
For additional information: CLICK HERE and CLICK HERE
Alternative Ramblings
Publicly-Traded REITs on Sale
Recent sector-based data from S&P Capital IQ continues to highlight persistent discounts to NAVs on publicly-traded REITs. Most notable is the increasing discount for residential REITs hitting approximately 20% as of the end of November.
Similarly, recent NAREIT data, as of 2022Q3, highlights that Price-to-FFO multiples are beginning to moderate back to historical norms in the third quarter of 2022.
GlobeSt. provides additional color on the lag between traded and non-traded real estate pricing as well as some historical context noting that “since the late 1990s, REITs have seen a 15% or greater discount to net asset values seven times. Six of those times, they eventually showed extraordinarily strong returns.
Crypto Audit Firms Take a Step Back
Turbulence in the cryptocurrency space in 2022, and acutely after the FTX collapse, has led accounting firm Mazars to announce it would no longer provide audit related work for Binance and other crypto company clients including Crypto.com and KuCoin. BDO, which has recently produced attestation reports for the Stablecoin Tether Holding Ltd, has also announced that it is reconsidering its reserve reports in the cryptocurrency space.
The WSJ recently reported that the SEC is diving deeper into the audit and assurance practices of auditors in the crypto space. Specific areas of inquiry include how the crypto companies themselves are portraying the scope of work performed in various reports, including “proof-of-reserves: reports, furnished by auditors (Which generally fall well short of an audit, and are more akin to an attestation). Many of these “proof-of-reserves” reports do not include any opinion by the audit firm regarding the voracity of the reported numbers, if any relevant numbers are in fact reported in the reports. Paul Munter, the SEC’s acting chief accountant, noted “Investors should not place too much confidence in the mere fact a company says it’s got a proof of reserves from an audit firm.” Such a report “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities.”
One finds the situation of cryptocurrency exchanges collapsing in the face of downward pricing pressure on cryptocurrencies, and expanding customer withdrawals, throughout 2022 somewhat amusing…the premise of cryptocurrencies, at least Bitcoin, seemingly was to create a store of value that did not require trusted intermediaries to transmit the asset. The whole idea of centralized cryptocurrency exchanges is anathema to this core, a foundational concept of digital ducats, at least in our estimation.
Grayscale Bitcoin Trust (OTC: GBTC) Contemplates Redemption
Grayscale Bitcoin Trust (GBTC), the reported largest public holder of Bitcoin, seeks shareholder and SEC approval to allow for tender offer of up to 20% of its own shares, which are trading at a substantial discount to NAV. See the Ycharts data in the chart below for the steep, persistent discounts to NAV that GBTC has experienced since early 2021. GBTC has noted had a redemption provision for its shares since it was suspended in 2014 per violation of Regulation M of the Exchange Act of 1934, since then GBTC has only been able to create additional shares. Digital Currency Group (DGC), the sponsor of GBTC, has reportedly purchased $193.5 million in GBTC shares in 2021. DGC also has made numerous announcements of its intention to continue to repurchase additional shares of GBTC, up to $750 million in the past year, in efforts to help close the traded discount to NAV per share. GBTC’s market capitalization was $5.6 billion as of December 22, 2022.
GlobeSt. provides additional color on the lag between traded and non-traded real estate pricing as well as some historical context noting that “since the late 1990s, REITs have seen a 15% or greater discount to net asset values seven times. Six of those times, they eventually showed extraordinarily strong returns.
Crypto Audit Firms Take a Step Back
Turbulence in the cryptocurrency space in 2022, and acutely after the FTX collapse, has led accounting firm Mazars to announce it would no longer provide audit related work for Binance and other crypto company clients including Crypto.com and KuCoin. BDO, which has recently produced attestation reports for the Stablecoin Tether Holding Ltd, has also announced that it is reconsidering its reserve reports in the cryptocurrency space.
GBTC has sought to convert from its current closed-end fund structure to an ETF structure that should provide incentives for authorized participants to close the gap between GBTC’s price and its net asset value. However, the SEC has declined to approve any spot Bitcoin ETFs at present. Further developments are likely in the coming months on this matter as final written briefs on GBTC’s lawsuit with the SEC regarding its proposed ETF conversion are due in February 2023.
REITs
Starwood REIT and Blackstone REIT Limit Redemptions as October Repurchase Requests Exceed 2% Monthly Limitations
The Wall Street Journal provides a summary of the redemption request increases here. The following chart, courtesy of Robert A. Stanger, highlights the increased pace of withdrawals within the non-traded REIT universe in recent quarters. The increase in redemptions has resulted in Blackstone REIT having net outflows of equity capital, with redemptions exceeding new share issuances in the most recent month.
We previously reported that BREIT had met all redemption requests through the first three quarters of 2022 and through the initial stages of the COVID pandemic. FT Alphaville reports that increased shareholder redemptions in recent months for BREIT were due to Asian investors seeking liquidity to meet margin calls
Meanwhile, Ares Real Estate Income Trust Inc. and Ares Industrial Real Estate Income Trust report that they had each met all outstanding repurchase requests in October 2022.
Braemar Hotels & Resorts (NYSE: BHR) Increases Common Stock Dividend and Announces $25 Million Stock Repurchase Program
BHR announced that the quarterly dividend would increase to $0.05 per share (from $0.01) beginning in January 2023. The company also reported that its board of directors had approved a dividend policy for the calendar year 2023 in which it anticipates continuing quarterly distributions of $0.05 per share. BHR further noted that its board of directors had authorized a share repurchase program of up to $25 million. Repurchases may happen through open market transactions, privately negotiated transactions, or other means. Any such repurchases will be subject to the discretion of the company.
For additional information: CLICK HERE
Hartman vREIT XXI Suspends Share Redemption Program and Announces the Resignation of a Director
On November 28, 2022, Hartman vREIT XXI reported that its board of directors approved the suspension of the share redemption program effective immediately. The company reported that the suspension was made in order to “combat the impact of rising interest costs, inflation, [and] recession uncertainty on free cash flow.”
On November 17, 2022, Jack Tompkins resigned from the board of directors. Mr. Tompkins’s resignation was not the result of any disagreements with the company its operations, policies, or practices, according to a public filing.
Hartman vREIT XXI reported in its most recent Form 10-Q that management concluded there is substantial doubt about the company’s ability to continue as a going concern due to uncertainty regarding loan maturities of approximately $57 million that are due in March 2023. Hartman vREIT XXI has reported that management believes that the company will be able to extend the maturity date or renew the loans for one year or longer.
For more information: CLICK HERE and CLICK HERE
Longtime AR Global REITs Director Lee Elman Passes Away
Mr. Elman had served as a director at Healthcare Trust, Inc. (NASDAQ: HTIA) and New York City REIT, Inc. (NYSE: NYC) at the time of his passing. NYC reported that following the passing of Mr. Elman its audit committee was comprised of only two independent directors and, therefore, out of compliance with certain provisions of the New York Stock Exchange Listed Company Manual. NYC reported that the company has corresponded with the NYSE regarding its intention to appoint an additional director to the audit committee as soon as practicable.
For additional information: CLICK HERE and CLICK HERE
Bonds
GWG Holdings Inc. Announces Resignation of Former CEO Murray Holland from its Board of Directors
On November 25, 2022, Murray Holland gave his notice of resignation to the board of directors. This follows Mr. Holland’s resignation as CEO effective November 14, 2022. Mr. Holland also submitted a letter to the board as part of his resignation, which is available here, in which he notes that he disagrees with the statements the company included in its current report filed on November 14, 2022, specifically regarding his knowledge of certain disagreements that former independent directors had with the company. Mr. Holland notes that, at the advice of counsel, it was reasonable to conclude that any such disagreements were not required to be disclosed. We previously reported on the unreported disagreements that previous independent directors had with the company’s operations, policies, and procedures, and the Bankruptcy Court suspending the company’s board of directors, which included, at the time, Mr. Holland and former CFO Timothy Evans.
For additional information: CLICK HERE and CLICK HERE
Bonds
GWG Holdings Inc. Announces Resignation of CEO Murray Holland and CFO Timothy Evans
GWG Reports Three Director Resignations that Occurred in March 2021 Were Due to Unreported Disagreements with the Company, its Policies, and Practices
Bankruptcy Court Suspends GWG’s Board of Directors
GWG reported that CEO Murray Holland and CFO Timothy Evans each announced their resignation, effective immediately, on November 14, 2022. Both Mr. Holland and Mr. Evans retain their positions as directors on GWG’s board of directors. Jeffrey Stein, who previously was appointed GWG’s chief restructuring officer in June 2022, was subsequently appointed to serve as GWG’s chief executive officer.
Additionally, on November 14, 2022, the United States Bankruptcy Court for the Southern District of Texas, the venue for GWG’s Chapter 11 bankruptcy proceedings, issued an order “suspending the Company’s board of directors pending the outcome of a hearing scheduled for December 1, 2022.” The order requires that except for certain ordinary course transactions, the prior written approval of newly appointed CEO Jeffrey Stein must be obtained related to any monetary or non-monetary transfer by the company.
Additionally, GWG reported on November 14, 2022, that the March 6, 2021, current report that GWG filed with the SEC regarding the resignations from the board of directors of Mr. Roy Bailey, Daniel Fine, and Jeffrey MacDowell (the resigning directors) “incorrectly stated that the resignations were not due to any disagreement with the Company.” GWG now reports that the disagreements stemmed from the resigning directors’ participation on a special committee of the board of directors to approve or reject potential transactions between GWG and the Beneficient Company Group, L.P. and its subsidiaries and affiliates. GWG reports that the investigations committee of the current board, comprised of Mr. Stein and Mr. Anthony Horton, informed the other current board members that the resigning directors had disagreements with the company and that these disagreements were known to the then-CEO and then-CFO of (Mr. Holland and Mr. Evans), via written and oral communications on March 3, 2021. Then- chairman of the board Brad Heppner called a special meeting of the board on March 4, 2021, “to consider certain urgent matters concerning (GWG’s) funding of (Beneficient)”. The board subsequently approved certain transactions between GWG and Beneficient while dissolving the special committee of the resigning directors, who had objected to these transactions, and who resigned two days later.
For more information: CLICK HERE and CLICK HERE
REITs
Blackstone Real Estate Income Trust, Inc.
Per BREIT’s 3rd quarter report, BREIT’s 3rd quarter report the REIT repurchased 203.5 million shares of stock totaling $3.1 billion in the third quarter. Total shares redeemed in the third quarter comprised 4.6% of the total outstanding shares as of September 30, 2022. The second quarter repurchase total was 4.5% of the outstanding shares. All stockholder requests for redemption in 2022 have been honored, and every other reporting period since BREIT’s inception. The company’s repurchase program is limited to 5% of NAV per quarter. BREIT’s external advisor has not submitted any of its Class I shares for repurchase in 2022. BREIT’s external advisor has historically elected to receive its management fee, and performance fee allocation, in Class I shares. BREIT raised $3.7 billion in offering proceeds from its common stock during the third quarter. Net of third quarter redemptions, this is approximately $0.6 billion in proceeds. Doubtlessly, this is the smallest net quarterly capital inflow to BREIT in many years, yet a run rate that most alternative managers would salivate over.
Alternative Ramblings
Crypto More Widely Adopted Than One Would Think Amongst Institutional Managers
The 2022 CFA Institute Investor Trust Study notes that approximately two-thirds of institutional investors have exposures to cryptocurrencies in their portfolios. The survey included 976 institutional investors across 15 major markets. As noted below, this includes 94% of state/government pension plan survey respondents.
We note this survey was conducted before the FTX debacle…
Speaking of FTX, (one) of its spokespersons seemed to have it right here. Speaking of FTX….(one) of its spokespersons seemed to have it right here.
FTX Due Diligence Post-Mortem
Castle Hall (A Due Diligence Company) has an excellent webinar available on replay chronicling key diligence red flags that were apparent on FTX that many institutional investors seemingly missed.
According to Pensions & Investments, the following notable investment firms, pensions and investors, had either direct investment or indirect exposure via venture capital funds to FTX:The following notable investment firms, pensions and investors, had either direct investment or indirect exposure via venture capital funds to FTX, Sequoia Capital, Tiger Global Management, BlackRock, Paul Tudor Jones, Lightspeed Venture Partners, Alaska Permanent Fund Corp., Ontario Teachers’ Pension Plan, Washington State Investment Board, and many others. But we must note that, of course, Softbank, is on the list. We would love to hear Sam Bankman-Fried’s pitch to Softbank’s Masayoshi Son. Tales of Mr. Son’s investment process with Adam Neumann’s WeWork are legendary, and further details may be found in Sebastian Mallaby’s 2022 book The Power Law: Venture Capital and the Art of Disruption, on the history of venture capital. Further details may be found in Sebastian Mallaby’s 2022 book on the history of venture capital.
1940 Act Funds
Priority Income Fund, Inc. Modifies Liquidity Strategy and Extends Offering Period
On November 2, 2022, Priority Income Fund filed a prospectus supplement to its Prospectus dated October 28, 2022, which amends certain language regarding the fund’s anticipated liquidity strategy. The fund’s prospectus previously noted “we intend to pursue a liquidity event for our stockholders, such as a public listing of our shares, following the completion of this offering.” However, the supplement changes this language to “we may, but are not obligated to, pursue a liquidity event for our stockholders following the completion of this offering.” As is customary, such pursuit of a liquidity event is in the sole discretion of the board of directors. The prospectus supplement further details that Priority Income Fund may continue to extend the offering, including on a continuous basis. The supplement further details that the offering will terminate upon the sale of 150 million shares of common stock, unless terminated earlier by the board of directors. The prospectus previously noted a termination date of the earlier of December 31, 2022, or the sale of 150 million common shares. As of October 27, 2022, the fund had sold an aggregate of 45.9 million common shares. We recently noted that Priority has had record capital raises in the past couple of quarters.
For more information: CLICK HERE
BDCs
StHealth Capital Investment Corp (fka Freedom Capital Corporation, and fka First Capital Investment Corp) Board of Directors Approves Liquidation of the Company
The company’s board of directors approved a liquidation plan on October 26, 2022, for which it will seek stockholder approval via a future proxy proposal. This marks perhaps the end of a company that has had a long, winding, and perplexing path, which we will try to provide a brief summary of the saga….
The company was originally formed as Freedom Capital Corp, which elected to qualify as a BDC. The initial public offering was declared effective in 2015. Freedom Capital Corp’s stated investment thesis (per one of its 10-Q filings) was to invest according to “Patriotic Responsible Investing principles” and “[u]sing subjective analysis, we will determine if a potential investment sufficiently meets the threshold to be an investment according to Patriotic Responsible Investment principles.” The Company noted that the framework of these principles “typically provide the U.S. and its allies one or more of the following benefits:
(i) independence from foreign political and economic coercion, (ii) freedom to pursue constitutionally protected activities, (iii) protection from foreign state sponsored and private acts of terror, (iv) ability to obtain data and intelligence to defeat acts of war, terror or aggression, (v) defense against acts of war and aggression, and (vi) facilitation of a democratic economy where capital is allocated without undue social or bureaucratic intervention.
One was left with the impression that this involved prospective investment in defense companies, firearms manufacturers, and maybe even Skynet? The company did not enjoy significant capital raising success under this thesis, and advisory of the company migrated to entities controlled by Suneet Singal, in March 2017. The company subsequently rebranded as First Capital Investment Corp (FCIC) and undertook a broader investment thesis. (Mr. Singal was later barred from the securities industry in July 2021 for his role in two public company frauds, including FCIC.) One board member resigned from his director role in March 2018 with a very colorful resignation letter, which FactRight commented on here. This resignation was predicated on numerous issues detailed in his letter, including a shift to a new investment thesis. In March 2018, entities affiliated with StHealth Capital Partners began managing the company and rebranded it as a healthcare investment vehicle. Capital raising traction remained elusive. We count there have been at least 24 senior executive and board member changes since 2016, 3 different external advisors, and 3 different audit firms. Personnel changes have continued into 2022, with significant turnover in legal and compliance roles. The most recent change was the October 31, 2022, appointment of Dr. Glenn Metts to serve as chief executive officer.
The company failed to file its 2021 annual report and has not filed any subsequent quarterly reports in 2022, which incredibly is not a record for lapsed filings during the company’s ignominious history. The company previously failed to file its 2016 annual report and did not subsequently file financial statements with the SEC until August 2019. As of September 30, 2021, per the last form 10-Q filed by the company, total assets were reported at $2.6 million, and were comprised approximately 50% of cash and approximately 50% in certain investments in biotech companies.
The company also recently noted that in the second quarter of 2022 it had engaged a third-party consulting firm “to perform a comprehensive review of expense reimbursements made to affiliated entities of StHealth Capital Advisors, LLC (the Adviser) for periods beginning in March 2018. The review has determined that adjustments, in favor of the Company, are necessary for the fiscal years 2019, 2020, and 2021. The Adviser collaborated with the review and has repaid all amounts determined to date to be due to the Company.”
However, it appears that the company, with the recent announcement of a board-approved liquidation, may finally be drawing to a close. Further details on the history of StHealth and an avenue for liquidity for shareholders that don’t want to wait on liquidity any longer is available here.
Interval Funds
Wildermuth Fund
On November 2, 2022, the company reported that on or around October 15, 2022, that it no longer qualifies as a regulated investment company (RIC) for the 2022 taxable year. This means that the Wildermuth Fund’s income will be subject to corporate tax rates without any deduction for distributions to shareholders. Shareholders who have held their shares for over 60 days would generally be eligible to treat such distributions as qualified dividend income.
For more information: CLICK HERE
REITs
FS Credit Real Estate Income Trust, Inc. Announces Potential Distribution Rate Increase for Common Stock
The company announced that its external adviser recommended a distribution increase to its board of directors beginning in December 2022. The anticipated change would increase the annualized distribution rate, based on NAV per share, to a range of between 6.00% to 7.00% across its multiple share classes. The annualized distribution rate was 5.64% to 6.64%, as of September 30, 2022, across its platform of share classes. The distribution increase is anticipated to begin in December 2022, subject to approval by the board of directors. The company reported that the increase in distribution rate is due “to the continued strong performance of the portfolio and the positive impact of rising rates, among other considerations.” The debt REIT features a $7.1 billion portfolio of commercial real estate loans and mortgages, some held through CLOs, predominantly secured by multifamily properties. This marks a steady trend of distribution increases for the company with 2019, 2020, and 2021 distributions on Class I shares of $1.56, $1.67, and $1.71 respectively. The company’s distribution sustainability has trended well, in part due to the economic dislocation in credit markets from the COVID pandemic. We calculate FFO payout ratios of 100.07% in the six months ending June 30, 2022, and 96.3% in 2021.
For more information: CLICK HERE
RREEF Property Trust, Inc.
On October 27, 2022, Peter Steil, Jr. notified the board of REEFF Property Trust, Inc., of his resignation as a member of the board effective November 9, 2022. According to public filings, Mr. Steil’s resignation was not due to any disagreement with the company, its advisor, or any of their affiliates. The board subsequently elected Gregg Gonsalves as a director effective as of October 29, 2022. Mr. Gonsalves previously served as a managing director at Goldman Sachs & Co. in real estate mergers and acquisitions.
For more information: CLICK HERE
Alternative Ramblings
REITzilla in the News
Bloomberg features an article on Blackstone REIT (BREIT) highlighting a slowing pace of capital raising and increasing shareholder redemptions. BREIT limits redemptions to 2% monthly and 5% per quarter, which is pretty standard fare within the perpetual NAV REIT space. (In fact, this is a liquidity feature that BREIT largely pioneered, which has become widely adopted by other similar REITs.) FactRight notes that during the annus horribilis 2020, BREIT monthly redemptions exceeded the 2% threshold in only March 2020. (Remember those days?) BREIT accommodated all these repurchase requests, even though such requests exceeded the monthly limit. We note that BREIT’s advisor regularly submits redemptions of Class I shares that it receives for payment of management fees for redemptions, although no such advisor redemptions were sought in the first quarter of 2020. Given inflationary concerns and a rapidly rising interest rate environment, Nadeem Meghji, head of Blackstone Real Estate Americas, noted BREIT “is exactly what you want to own in an environment like we are in today.”, citing the portfolios holdings of in-demand industrial and warehouse properties. Additionally, Blackstone executives and employees have significant skin in the game, having invested over $1 billion into BREIT. Bloomberg reports that BREIT “was Blackstone’s biggest driver of earnings in the last quarter of 2021.” BREIT is looking at more debt investments in the future, per Bloomberg. BREIT’s over $90 billion dollar portfolio, as of June 30, 2022, is comprised of over 3,000 properties encompassing 313 million square feet of industrial and warehouse space, 237 thousand multifamily units, 66 hotels, 181 self-storage properties, 32 retail shopping centers, and various other holdings.
REITs
Hartman Short Term Income Properties XX, Inc. (Hartman XX) Appoints Independent Committee of Directors to Evaluate Strategic Options
Hartman XX announced that it formed a new executive committee comprised of independent directors Gerald Haddock, Jack Tompkins, and Jim Still. The executive committee is charged “to continue a review of strategic alternatives, including the evaluation and approval of orderly asset sales at acceptable prices with the objective of maximizing shareholder value.” The company further reported that back in July 2022, the independent directors of the board engaged Raymond James and began “a strategic review process” to identify alternatives to maximize shareholder value.
Hartman XX appointed Mark Torok to serve as CEO earlier in October 2022. Mr. Torok previously served as Hartman XX’s chief operating officer, general counsel, and corporate secretary from 2015 to 2021, prior to submitting his resignation on April 9, 2021. We previously covered these developments here.
For more information: CLICK HERE
Alternative Ramblings
Residential Rental Growth Cooling
The party may be over regarding explosive rent growth in the residential sector, according to a recent Bloomberg article. Bloomberg notes that moderating rental rates are most prevalent in some of the hottest markets over the past few years, including Phoenix, Las Vegas, and Atlanta. Bloomberg reports that data from Apartment List highlights that rents have declined month-over-month in September in 69 of the top 100 U.S. cities. However, rent growth continued in some major markets, including New York, San Diego, Miami, and Orlando. Overall, rent has declined nationally on a month-over-month basis, highlighted in the chart below.
The significant rent growth of the past two years has strained renters, as noted in the following chart that highlights the hours per month needed, for the average American worker, to afford “the typical US rent” per data from Zillow.
We are eagerly monitoring expense growth across a number of REITs, as expense growth has so far lagged the historically outsized rental growth over the past two years, which has generally been accretive to NOI. However, to the extent that persistent inflationary pressures continue, NOI growth may compress in the face of moderating rent growth. This coupled, with increasing costs of debt financing throughout 2022, has made the outlook in the sector much more clouded than before.
REITs
Lightstone REITs Seek Shareholder Approval of Proxies which will Strip Shareholders of Meaningful Rights
Multiple Lightstone REITs (Lightstone Value Plus REIT I, Inc., Lightstone Value Plus REIT II, Inc., Lightstone Value Plus REIT III, Inc. (Lightstone I, II, III, and collectively the Lightstone REITs)) each seek amendment of their respective charters to remove multiple NASAA shareholder protections through various proxy proposals. The Lightstone REITs reported cumulative total assets of approximately $900 million as of June 30, 2022. Debt-to-total assets ranged from 41% to 49% of each of the Lightstone REITs as of that date. The Lightstone REITs were declared effective beginning in 2006 (Lightstone I), 2009 (Lightstone II), and 2014 (Lightstone III).
Key charter amendments sought include:
- Eliminating durational provisions that require the Lightstone REITs seek a listing on a national stock exchange by their respective 8th or 10th (in the case of Lightstone II) anniversaries of the termination of their respective public offerings, or otherwise seek liquidation. The Lightstone REITs’ respective boards of directors have noted that elimination of the deadline to liquidate and dissolve the programs is advisable to allow flexibility in pursuing various ways to provide liquidity to stockholders.
- Eliminating fiduciary duties that the boards owe to the Lightstone REITs and shareholders and the directors’ fiduciary duties to supervise the relationships of the Lightstone REITs and their external advisors. The board believes reducing its obligations “will improve our ability to retain and recruit board candidates.”
- Elimination of certain protections in the event of a roll-up transaction, including appraisal rights for shareholders, and the ability to retain securities in their previous entity or receive cash in lieu of securities in another entity. We note that regardless of the approval of this prospective charter amendment, any prospective roll-up transaction involving Lightstone REITs would still require the approval of the respective shareholders of the REIT seeking to merge into another REIT.
- Eliminating quorum requirements of at least 50% of all votes entitled to be cast at a stockholder meeting. Quorum provisions may subsequently be reduced to as little as 33% of votes entitled to be cast upon the addition of a third independent director to the respective Lightstone REIT boards.
Other charter amendments are sought in the proxy proposals as well.
Management has noted that it seeks these charter amendments as it does not anticipate raising capital in a public offering in the future and that the NASAA-mandated limitations “impose an administrative burden on the [Lightstone REITs] and could put us at a competitive disadvantage relative to our competitors whose charters do not contain these restrictions.” We note that elimination of these charter provisions will generally reduce shareholder participation in the governance of the respective REITs, enhance the power of the respective boards of directors, and eliminate protections for shareholders, including provisions that seek to guide the Lightstone REITs toward liquidity events for shareholders, which are long overdue in our opinion.
We have previously reviewed similar proxy proposals from various AR Global REITs in the 2010s. As we noted then, we note now—why would you as a shareholder forego valuable rights in the absence of a clearly articulated plan that details why such rights need to be extinguished to accomplish said plan? This does not seem to be a particularly high bar to meet. Put forth a definitive plan, convince shareholders this plan is worth pursuing, and explain why shareholders need to forego certain rights and contained in the organizing documents to accomplish the plan. In the absence of such a plan, one begins to assume other motivations for the proxy proposals, perhaps turning the REIT complex into Hotel California.
For additional information: CLICK HERE and CLICK HERE
Hartman Short Term Income Properties XX, Inc. and Hartman vREIT XXI, Inc. Appoints Mark Torok as CEO
The respective companies announced Mr. Torok’s appointment on October 14, 2022. Mr. Torok succeeds Mr. Allen Hartman as CEO. Mr. Hartman will fill the role of Executive Chairman of the Board and receive $36,000 per month. Mr. Hartman previously received $15,997 in total compensation in 2021 as CEO and chairman of Hartman XX. Certain other compensation arrangements were disclosed, including Mr. Torok receiving $40,000 per month as CEO, as well as a to be determined performance and stock incentive plan.
Mr. Torok previously served as Hartman XX’s chief operating officer, general counsel, and corporate secretary from 2015 to 2021, prior to submitting his resignation on April 9, 2021.
Hartman XX suspended distributions and its share redemption program, earlier in 2022, in light of liquidity challenges related to rapidly increasing interest rates on its floating rate debts. Management has indicated in August 2022 that it was considering liquidating certain buildings in its portfolio to maximize shareholder value. Hartman XX, which is the surviving entity of a 2020 combination with affiliates Hartman Income REIT, Inc., and Hartman Short Term Income Properties XIX, Inc., reported total assets of approximately $500 million and a loan-to-value of 43% as of June 30, 2022.
For more information: CLICK HERE
Braemar Hotels & Resorts Reports Strong Preliminary Q3 RevPAR
The hospitality REIT reported third quarter RevPAR of approximately $288, a 19% increase from the third quarter in both 2021, and the pre-pandemic third quarter of 2019. Additionally, average daily rates increased approximately 36% compared to the same quarter in 2019. CEO Richard Stockton noted there is room for continued optimism “while recent performance primarily has been a result of strong average daily rates, there is plenty of room for occupancy to continue to climb, keeping us looking forward to continued steady growth.”
For more information: CLICK HERE
BDCs
Priority Income Fund Announces Record Common Stock Raise in Q3
Priority Income Fund reported that it raised $52.4 million in common stock in the third quarter, pushing its cumulative capital raise over $1 billion. Priority Income Fund was initially declared effective in 2013.
For more information: CLICK HERE
Alternative Ramblings
A New Bill of Rights
Tricon Residential Inc. (NYSE: TCN, TSX:TCN), the $3 billion market capitalization Canadian single family rental (SFR) home company, has announced its “Tricon Resident Bill of Rights for Residents.” These rights include:
- Right to Shelter
- Right to Renewal
- Right to Fair Advance Notice
- Right to Moderated Rent Increase
- Right to Participate in Financial Health and Credit Builder Programs
- Right to Buy Your Home if We Decide to Sell
- Right to Our Support If You Buy Another Home
- Right to Respect
As CPI prints continue to be elevated in the high single digits, I’m sure “moderated rent increase” may be an expansive term. Interestingly, very little in the marketing gloss of the “bill of rights” focuses on tenants’ duties to Tricon, like paying rent. An innovative social contract indeed. So, is this right to shelter free of that (or any) duties or obligations of the tenant? Are Tricon’s shareholders aware of this? Tricon CEO, Mr. Gary Berman, previously noted in an interview with 60 Minutes that his company was helping Americans “rent the American dream.” We previously reported on this here. A bit of a faux pas, though through this Bill of Rights marketing piece, Mr. Berman has re-asserted his claim as a founding father in the SFR market.
Blackstone Anticipates Muted Real Estate Acquisition Activity in Future Quarters
Continued equity market volatility, inflation uncertainty, and increased interest rates all lead Blackstone Inc. president Johnathan Gray to conclude that deployment activity into real estate will “be muted for a bit of time.” Mr. Gray further noted that “until people become more confident about inflation starting to head down that rates have hit their peak levels, I think you’ll see a slower level of transaction activity.” Blackstone and its affiliates (including Blackstone REIT) have deployed approximately $64 billion over the last 12 months into various real estate investments. We note that while market conditions may dictate patience in acquisitions, how does that line up with the blistering capital raising activities at Blackstone REIT and prospective cash drag as deployments slow down?
Recent Volatility in Public Markets Weighing on Liquidity in Illiquid Products
Continued volatility in equities markets throughout 2022 and rapidly increasing interest rates are likely to lead to increased redemption requests across the universe of illiquid alternative investment programs. We are eagerly awaiting Q3 share repurchase data as it becomes available in the coming weeks. Stay tuned.
REITs
Bluerock Homes Trust (NYSE American: BHM) Begins Trading
BHM began trading October 6, 2022, on the NYSE American Exchange, following its spin-off transaction with Bluerock Residential Growth REIT, Inc (BRG). The spin-off was predicated on BRG’s sale of substantially all of its portfolio to Blackstone Real Estate entities for $3.6 billion. BHM is an externally managed REIT with a portfolio that includes 2,300 homes that it operates, and preferred equity and mezzanine loan investments secured by 1,600 homes.
BMH shares traded up 19% on their debut, reflecting Wall Street’s insatiable appetite for SFR.
For more information: CLICK HERE
HGR Liquidating Trust (fka Hines Global REIT, Inc.) Announces Final Liquidating Distribution
On October 4, 2022, HGR announced that it would make the final special distribution from the liquidating trust on October 20, 2021. Upon the final distribution, HGR is expected to complete the dissolution and winding down of the trust. HGR has made total aggregate distributions to investors of $15.14 per share since the inception. This has included $5.64 in operating distributions through June 2018, and $9.50 in special distributions from 2018 through 2022. HGR announced it was beginning to liquidate in 2018. Shares were originally offered at $10.00 in an offering declared effective in 2009.
For more information: CLICK HERE
1940 Act Funds
Priority Income Fund Announces Record Common Stock Raise in Q3
Priority Income Fund reported that it raised $52.4 million in common stock in the third quarter, pushing its cumulative capital raise over $1 billion. Priority Income Fund was initially declared effective in 2013.
For more information: CLICK HERE
Alternative Ramblings
Keeping Up with the SEC
Kim Kardashian recently entered into a $1.26 million settlement with the SEC for failing to disclose certain promotional activities related to the cryptocurrency EthereumMax. More interestingly, Ms. Kardashian reportedly received $250,000 in exchange for certain social media promotional activity of the cryptocurrency.
Ms. Kardashian recently announced the launch of a private equity firm, Skky Partners, with a former Carlyle executive. Ms. Kardashian is targeting a $1 billion raise on the first funds from the private equity group that is anticipated to focus on control and minority investments in the hospitality, luxury, and e-commerce sectors. However, the recent SEC settlement may hinder Ms. Kardashian’s capital raising efforts through the private equity firm.
CAIS Matt Brown and the Future of Retail Alternative Investing
The CAIS CEO joined Ted Seides on his Capital Allocators podcast to discuss the evolution of retail capital flows into alternative investments and the growth of CAIS over the last few years. It constitutes an intriguing listen for perspective on the continued changes in the retail alternative landscape, especially with the increasing allocations from RIAs.
Multifamily Rent Growth Cools
Following record multifamily rent growth over the past 18 months, rent growth has tempered in recent months according to numerous reports across the top 100 MSAs. We note that average rent rates remain near record highs and broadly 20% higher than in August 2020. GlobeSt reports that rent growth over the past year has been inverse to unit size, with single bedroom units up more on a percentage basis than two-and three-bedroom units. Rent-to-income ratios will continue to be a matter of focus, especially in some of the largest MSAs, as a barometer for assessing the sustainability of such rent increases.
Developer Two Roads to Break Ground on Luxury Tower in Tampa in Fall of 2022
A local Tampa news site reports that the development includes a 220-room luxury hotel and condominium tower anticipated to open in 2025. The development will also include 207 residences on floors 15 through 38. No word if Tampa Bay Buccaneers star Tom Brady may be seeking accommodations…
Bonds
The Beneficient Company Group, L.P. (Ben) Announces SPAC Merger with Avalon Acquisition Inc. (NASDAQ: AVAC)
The combination of Ben and AVAC has an implied enterprise value of $3.5 billion, inclusive of $200 million in cash held at AVAC, based on recent SEC filings. The prospective SPAC merger is anticipated to close in the first half of 2023 pending AVAC shareholder approval and SEC review. Ben will file a registration statement on Form S-4 that will disclose additional information about the pro-forma company, including Ben’s financial statements at a future date. Existing Ben owners are anticipated to own 88% of the pro-forma company, per AVAC filings available here. Following the close of the announced transaction, AVAC will change its name to “Beneficient.” The composition of the board of directors post-SPAC merger has not been disclosed at this time. However, Ben has noted that its board of directors will remain intact. AVAC held a conference call related to the transaction, a transcript is available here.
Ben has reported that it has delivered liquidity on approximately $1.1 billion in net asset value of alternative investment holdings since 2017 as part of its core business of providing secondary liquidity for a variety of alts. Ben further noted that this includes $383 million in liquidity provided in the fourth quarter of 2021 and first quarter of 2022 alone. Ben noted that in these quarters, it had raised an additional $385 million in assets, stating, “[t]his successful capital raise is another important proof point of investors’ interest in Ben’s business model and desire to participate in our future growth.”
Ben previously completed a reverse merger with GWG Holdings, Inc. in 2018 and subsequently announced a de-consolidation of Ben from GWG in August 2021 which was approved by the GWG board of directors in November 2021. GWG missed coupon payments on its $1.5 billion in outstanding L Bonds in January 2022. GWG then filed for Chapter 11 Bankruptcy reorganization in April 2022. GWG in its first day motions related to its Chapter 11 bankruptcy noted that “the unrealized value that GWG holds in the interests of Ben…should yield substantial recoveries for debtors…”.
For more information: CLICK HERE
REITs
Bluerock Residential Growth REIT (NYSE: BRG) Declares Distribution of Shares of Bluerock Homes Trust, Inc. as Part of Spin-Off of Single-Family Rental Portfolio
BRG announced that its board of directors approved the distribution of Class A and Class C common stock of Bluerock Homes Trust, Inc. (BHM) to its common stockholders. Each BRG shareholder will receive one share of BHM Class A or Class C common stock for every eight shares of BRG Class A or Class C common stock held as of September 29, 2022. The distribution of the BHM common stock is anticipated to occur prior to the closing of BRG’s transaction with Blackstone REIT. BRG anticipates that the transaction will close on October 6, 2022. BHM common stock is expected to be listed on the NYSE American Exchange under the ticker symbol “BHM” and begin trading on October 5, 2022.
For more information: CLICK HERE
Lodging Fund REIT III, Inc. (LF REIT III) Reports Its External Advisor and Chairman and CEO Corey Maple Received Wells Notice from the SEC
LF REIT III previously reported that in December 2020, it had received notice that the SEC is conducting an inquiry into the company’s reimbursement of certain expenses to its external advisor, and LF REIT III’s disclosure of its reimbursement policies and procedures. Management represented that it is cooperating with the SEC and has provided requested information.
On September 12, 2022, the company received a Wells notice from the SEC staff, indicating that the SEC has made a preliminary determination to bring an enforcement action against LF REIT III’s advisor for possible violations of securities laws. Corey Maple, the CEO of the REIT, has also received a Wells notice as part of this same investigation. Management has noted that they believe all actions of the advisor and Mr. Maple have been appropriate and that they have retained counsel to defend themselves. Any prospective enforcement action and the costs of defending such actions are unknown at this time.
For more information: CLICK HERE
Hines Global Income Trust Launches Hines Real Estate Exchange (HREX) a DST Platform
HREX is designed to provide investors seeking a 1031 exchange with opportunities sourced from the portfolio of Hines Global Income Trust (HGIT). HGIT retains an option to acquire the properties in the DSTs at a future date, which would allow for investors to diversify their real estate holdings through the REIT at that time.
HGIT has raised approximately $2.3 billion in offering proceeds from its equity offerings dating back to 2014. The REIT reported total assets of $3.2 billion in a portfolio comprised of 35 properties, of which approximately 65% is located in the U.S., with the remaining 35% located predominantly in Western Europe. HGIT reported leverage of 33% on a loan-to-value basis as of the second quarter.
For more information: CLICK HERE
BDCs
FS Energy & Power Fund Dismisses RSM US LLP as Independent Certified Accountant and Appoints Ernst & Young LLP for 2022 Annual Report
FS Energy & Power Fund reported that the audit committee of its board of trustees approved the dismissal of RSM. RSM completed audits of the FS Energy & Power Fund for 2020 and 2021. These audits did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified in scope. RSM noted that it had no disagreements with FS Energy & Power Fund’s current report noting its dismissal. The fund announced that Ernst & Young would conduct the audit for its 2022 annual report.
For more information: CLICK HERE
BDCs
Guggenheim Credit Income Fund CFO Resigns
On September 7, 2022, the BDC formerly known as Carey Credit Income Fund, announced that Michael Guss resigned as CFO and treasurer of the company, and that the board of trustees subsequently appointed James Howley to serve as CFO and treasurer, effective the same day. The company, which serves as the master fund of a master feeder structure with two feeder funds (Guggenheim Credit Income Fund 2016 and Guggenheim Credit Income Fund 2019).Mr. Guss also resigned from the same positions with each of the feeder funds and Mr. Howley assumed the same roles at the respective feeder funds as well.
The company, consistent with its offering documents, is in the process of completing a shareholder approved liquidation and has made cumulative liquidating distributions of over $210 million across the master and feeder funds. Approximately $220 million in remaining net assets are reported across the master and feeder funds.
For additional information: CLICK HERE
REITs
Watermark Lodging Trust Announces Stockholder Approval of Sale to Private Funds Managed by Brookfield
On September 12, 2022, Watermark shareholders overwhelmingly approved the sale of the company to certain private funds management by Brookfield. Watermark shareholders will receive $6.768 per Class A share and $6.699 per Class T share. The transaction is anticipated to close on October 21, 2022.
Watermark was formed from the NAV-for-NAV merger of two affiliated REITs, Carey Watermark Investors I and Carey Watermark Investors 2 (CWI 1 and CWI 2), in a transaction that closed during April 2020 at the onset of the COVID-19 pandemic. Shares in CWI 1 and CWI 2 were originally offered at $10.00 in offerings declared effective in 2010 and 2015, respectively. The hotel REIT previously suspended distributions and redemptions in 2020 due to COVID-19 related disruptions. Prior to the suspension of distributions, Watermark had made cumulative distributions to common shareholders of $2.87 dating back to its inception.
We previously reported on this deal announced in May 2022.
For more information: CLICK HERE and CLICK HERE
Bluerock Residential Growth REIT, Inc. to Suspend Redemptions on Series B Preferred Stock and Series T Preferred Stock and Warrant Exercises Pending Completion of Merger
The Series B and T preferred stockholders will be redeemed out in cash at the close of the pending merger with Blackstone Real Estate Income Trust, which is anticipated to occur on October 6, 2022. Two weeks without liquidity…. you will survive.
However, warrants related to the Series T Preferred Stock must be exercised by the close of trading on September 23, 2022, in order to receive shares in the single-family rental portfolio spinoff, which will trade on the NYSE American exchange under the ticker symbol BHM post-merger. Otherwise, such warrant holders will receive a cash payment following the close of pending merger of $24.25 less the exercise price. Get off the couch and exercise!
For more information: CLICK HERE
1031 Exchanges
Capital Square Names Whitson Huffman as Co-CEO
Mr. Huffman, who has been with Capital Square since 2018, will serve as co-CEO alongside Capital Square founder Louis Rogers. Mr. Huffman, 33, was promoted from chief strategy and investment officer. In an interview with Virginia Business, Mr. Rogers stated “It’s important to have a smooth transition in an orderly way over time for the younger executives to begin their transition to the day when they are senior executives.” Mr. Huffman previously was an associate at JBG Smith Properties (NYSE: JBGS)
REITs
Griffin Realty Trust (GRT) Announces $1.1 Billion Office Portfolio Sale
GRT announced that it had sold a 51% stake in a portfolio of office properties and would retain a 49% minority stake in the portfolio. The transaction was valued at $1.1 billion. The Wall Street Journal reported that Singapore’s GIC Pte. Ltd. and Workspace Property Trust (a private real estate firm based in Florida) were purchasing stakes in the portfolio, and that “many of the newly acquired buildings are clustered around Atlanta, Dallas, and the San Francisco Bay Area.” GRT reported that the office portfolio would be managed by an affiliate of Workspace Property Trust. GRT will receive an 8% preferred return on its 49% stake in the portfolio and an 80/20 split until GRT has achieved a 25% return, and thereafter a 70/30 split.
GRT noted in a follow-up press release that the portfolio properties included shorter weighted average remaining lease terms and higher estimated future capital expenses in relation to the balance of GRT’s portfolio. GRT noted that proceeds from the sale of the majority stake were used to pay down approximately $841 million in outstanding debts. GRT’s net debt-to-gross assets was approximately 49% prior to the sale and 40% following the sale. Globe St. and The DI Wire cover this story here and here. This portfolio sale is part of GRT’s broader strategic monetization process announced last month, which we reported on here.
Hines Global Income Trust Acquires 14-Story Miami Multifamily Property for $429 Million
The multifamily property is part of a design concept by Life Time, Inc. (NYSE: LTH, the gym company based in Minnesota) that includes an 80,000 square foot luxury athletic resort and a 25,000 square foot Life Time Work coworking space. The multifamily portion includes 495 Life Time Living™ residences. HGIT reported that the property included 597,000 square feet of rentable area and is currently 95% leased. Cap rate information was not reported publicly.
For more information: CLICK HERE
Bluerock Residential Growth REIT (NYSE: BRG) Announces Estimated October 6 Close of Transaction with Blackstone Real Estate
The transaction was originally announced in December 2021 and featured cash consideration of $24.25 per BRG common share as well as the spin-off of the single family rental portfolio to BRG shareholders. We originally reported on this transaction here. BRG noted that the close of the transaction remains subject to the consummation of the spin-off transaction of BRG’s single family rental portfolio.
For additional information: CLICK HERE
Sovereign Partners Goes Full Cycle on Milwaukee Office Property
Speaking of suburban office property sales, the Milwaukee Business Journal reports that Sovereign Partners LLC, a private CRE firm specializing in value-add office projects, recently closed a sale of two office buildings and approximately 8 acres of developable land in Milwaukee’s Park Place office campus for $26.25 million. Sovereign acquired the buildings in two separate deals in 2020 for a combined $7.4 million.
Alternative Ramblings
iCapital Acquires UBS’ Fund Advisor and Alternative Investment Feeder Fund Platform
The deal was announced in late August 2022, and the platform known as “Alphakeys” which includes $7 billion in client assets, is included in the transaction. UBS previously invested in iCapital in 2017, joining iCapital lead investor BlackRock (NYSE: BLK), which placed capital in the firm in 2016. iCapital was formed in 2013. iCapital CEO Lawrence Calcano noted that the UBS acquisition was iCapital’s eighth acquisition of another firm’s alternative investments business, after recently acquiring Stifel Financial Corp.’s alternative investment feeder fund in March 2022. Traders Magazine and the InvestmentNews report on the transaction here and here.
Thank You to All of Our Conference Attendees
Thanks to all 370 or so of you who joined us in Nashville last week for our 8th annual due diligence conference. We hope the conference was an edifying and value-add experience that you will make a fixture of your alternative investment research routine. Please let me know any way we can continue to improve on the experience for you.
We look forward to seeing you all in March 2023 in Scottsdale.
REITs
Griffin Realty Trust Announces Strategic Monetization Process and Reports
Griffin Realty Trust, formerly known as Griffin Essential Asset REIT II, announced that it would spin off a part of its portfolio, comprised predominantly of industrial and “certain office assets,” and subsequently list the spin off entity’s shares on a stock exchange. In a marketing slide deck, this spin off entity is reported as “IndustrialCo.” The REIT’s remaining portfolio of primarily office assets would be sold off over time, with distributions of net proceeds from such distributions made to investors. This would result in a liquidation and cessation of the company’s operations, with the spin off entity surviving as a publicly-traded REIT. The spin off of IndustrialCo is anticipated to occur in 2022. Management believes that this spin off of the industrial assets and certain office properties will allow IndustrialCo to have favorable trading dynamics related to its prospective listing, whereas the remaining office assets in the company will be disposed of on a longer timeline, which management believes will allow for stockholder value maximization. Management has reported that lingering concerns related to COVID-19, rising interest rates, and economic uncertainty may weigh on liquidation timelines and values for the assets that will remain in the company’s portfolio. The company further announced that in anticipation of the spin off transaction, that it will seek shareholder approval to convert from a Maryland corporation to a Maryland real estate investment trust.
Griffin Realty Trust also reported that estimated NAV per share declined 18.5% in the past year from $9.10 as of June 30, 2021, to $7.42 as of June 30, 2022. Management reported that such declines were driven by changes in the fair value of office assets. The company is an internally managed REIT with a portfolio of 121 properties valued at approximately $5.1 billion. The portfolio is comprised of 23 industrial properties, with the remaining balance office properties.
For more information: CLICK HERE
The most recent S&P Capital IQ NAV Monitor highlights the lack of bullish sentiment among publicly-traded REITs focused on office properties, and some deterioration in industrial sentiment as well.
Despite this generally unfavorable pricing dynamic of office REITs amongst public markets, we note there are certain private real estate managers executing on value-add projects in the office sector that are achieving robust returns in the current market.
KBS REIT III Withdraws Registration Statement to Convert to NAV REIT
The REIT reported that the change in plans was due to changing market conditions. The company noted that it would continue to evaluate various alternatives. KBS REIT III raised $1.7 billion through the sale of approximately 169 million shares in an IPO that was declared effective in 2010. The company has subsequently redeemed approximately 65 million shares for approximately $687.9 million, which included $272 million in redemptions from a self-tender offer in 2021 at a purchase price of $10.34 per share. The company’s most recently reported an estimated NAV per share of $10.78 as of September 30, 2021. KBS REIT III’s share redemption program is limited to shareholders holding shares for more than one year, and is limited to proceeds from the distribution reinvestment program. The company reported that 3.6 million shares (2.4% of total outstanding shares) were available for redemption in 2022. KBS REIT III owns 16 office properties, a mixed use office/retail property, and an 18% stake in SREIT (a Singapore listed REIT) that was reported on the balance sheet at $162 million as of the first quarter of 2022.
For more information: CLICK HERE
Blackstone Real Estate Income Trust, Inc. Closes Acquisition of American Campus Properties (NYSE: ACC)
BREIT completed the $13.3 billion deal on August 9, following shareholder approval of the transaction. This marks BREIT’s third major REIT buyout in 2022:
The Weekly Update notes that soon the table will include the $3.2 billion acquisition of Bluerock Residential Growth REIT’s multifamily assets, which is still pending.
For more information: CLICK HERE
Third Party Tender Offers
Alternative Liquidity Capital is a new firm offering secondary liquidity to legacy non-traded products distributed in the BD/RIA channel. ALC recently announced a tender offer for FS Energy & Power Fund (OTC: FSEN) shares to purchase up to 1 million FSEP shares for $2.50 per share. FSEN’s most recently reported a net asset value per share of $3.99 as of 2022Q2, unchanged from 2022Q1. FSEN suspended its share repurchase program in March 2020. Trading on the OTC Markets has been thin, with average 30-day volume of approximately 6,000 shares and a wide range of prices for cleared trades. FSEN has reduced distributions per share from approximately $0.60 to $0.70 per year in the early to mid-2010s to most recently $0.12 per year, due to disruptions in the energy industry.
Alternative Ramblings
VICE ETF….
Plenty of ink has been spilled on ESG-related efforts in the investment world. This broader investment motif has left many companies in certain industries including oil and gas, alcohol, tobacco, and firearms with more limited access to capital as former financing partners have shied away. Enter The Bad Investment Company. The marketing pitch:
“In an era of alternative facts and “to the moon” narratives, we strive to introduce fresh and fundamentally sound ways to invest. We embrace the needs of today’s investor because we are today’s investor. We hear you. We see you. We are you.
It’s our belief we don’t think like a typical suit and we sure as hell don’t dress like one. But we do deploy the acumen of Wall Street to identify and create unique, thematic ETFs that allow retail and institutional investors to express a targeted view on the best (and sometimes worst) things in life.
It’s time to do what’s right, using BAD as a force for GOOD. One investment at a time.”
The B.A.D. ETF currently has a market capitalization of approximately $8.5 million and invests approximately one-third of its portfolio into companies in the Alcohol, Betting, Cannabis and Drugs (Pharmaceuticals) industries. Portfolio holdings include The Duckhorn Portfolio, Inc. (NYSE: NAPA, the Weekly Update salutes their grapes!), the Boston Beer Company, (NYSE: SAM), DraftKings (NASDAQ: DKNG), cannabis firm Tilray Brands (NASDAQ: TLRY), and others. As the chart below highlights, returns have been….well…..slightly less than the S&P 500 (and the Russell 2000).
Anthony “The Mooch” Scaramucci Price Targets Bitcoin to $300,000
In an entertaining and informative podcast discussion with Kingswood’s Douglas Blake, on Mr. Blake’s Wall and Main Podcast, the Skybridge chief executive (and former White House Press Secretary) Anthony “the Mooch” Scaramucci boldly predicts the cryptocurrency will reach new highs in the future.
REITs
Corporate Property Associates 18 Global Inc. (CPA 18) Shareholders Approve Merger with W.P. Carey Inc. (NYSE: WPC)
On July 27, 2022, the CPA 18 shareholders overwhelmingly approved the merger agreement with the mothership W.P. Carey Inc. Shareholders received $3.00 in cash consideration and 0.0978 shares of WPC common stock. The consideration package was valued at $10.45 at the time of the announcement, and given the increase in WPC’s common stock price since then, the deal terms have drifted above $11.25 per share.
We previously reported on the announced deal and terms for CPA 18 shareholders here.
Pacific Oak Strategic Opportunity REIT Inc.
The REIT announced an additional $2.5 million in funds available for redemptions in connection with stockholder hardship, including death, disability, or “determination of incompetence” (could this be temporary incompetence? I feel that way on Tuesdays, Wednesdays, some Saturdays…).
In 2021 we previously reported on Pacific Oak shareholder liquidity matters here. Despite the shareholder liquidity backlog, in September 2021 the company redeemed approximately $5.7 million worth of restricted stock issued to KBS Holdings LLC related to the internalization of the company’s external advisor.
Hartman Short Term Income Properties XX, Inc.
On July 28, 2022, Hartman XX provided an operational update from CEO Allen Hartman. Mr. Hartman noted that given increasing cap rates on properties and the increasing interest rate environment it is possible that the REIT’s estimated NAV per share of $12.08, as of December 31, 2021, may decrease 10% to 15%. Mr. Hartman further noted that the company anticipate occupancy to reach 88% on the portfolio by year end, and that the REIT was seeking additional expense reductions at the property and corporate level. The company suspended stockholder distributions earlier in July 2022. We reported on that here.
On July 20, the company reported that Angel Gonzalez resigned, effective immediately, as chief operating officer to pursues other interests.
Inland Real Estate Income Trust Inc.
On July 22, 2022, the REIT’s board of directors amended the bylaws to classify the board into three classes of directors. Each class is comprised of two directors. The classification of a board is a customary anti-takeover tactic for a company.
Third Party Tender Offers
Comrit offered $12.03 per share for Smartstop Self Storage REIT, Inc., which is approximately 20% below the most recently estimated NAV per share of $15.08 as of June 30, 2021. Smartstop’s board of directors recommends shareholders reject the unsolicited tender offer. Smartstop’s share repurchase program was suspended in March 2022 as the board evaluates liquidity alternatives.
MacKenzie Capital offered $7.25 per common share and $700 per preferred share of Mobile Infrastructure Corp (fka The Parking REIT, also fka MVP REIT). The common stock offer is a 38% discount to the most recently estimated NAV per share of $11.75 as of January 8, 2021, and a 30% discount to the stated value of the preferred stock. The company’s board of directors recommends shareholders reject the unsolicited tender offer. The company is in the process of merging into a shell company that is seeking to list on the New York Stock Exchange. We reported on these developments here.
Greenbacker Renewable Energy Company CFO Richard Butt announces retirement
On July 21, 2022, Greenbacker announced that CFO Richard Butt would be retiring effective July 31, 2022. The company appointed Spencer Mash to serve as CFO following Mr. Butt’s planned retirement. Greenbacker previously announced and approved an internalization transaction valued at over $300 million…. that’s a lot of (lobster) shells! We reported on this here.
Alternative Ramblings
Your ADR and RevPAR look great…but what’s the going daily rate for a Pool Chair?
The rebound of resort properties since the early days of the pandemic has been notable, evidenced by strong performance of REITs targeting the higher end of the hospitality market, including Braemar Hotels and Resorts (which recently reported 2022Q2 RevPAR increase of 28% compared to 2019Q2) and Xenia Hotels & Resorts. So RevPAR is up, but have we entered peak pool chair pricing? The Wall Street Journal reports that pool chairs are clocking in at $200/day at the Bellagio for the upcoming Labor Day weekend. Cabana and unlimited beverages not included….and you won’t be able to see the Strip and the 2023 Formula One race from the pool chair So that’s a hard pass at $200 (other chairs are available for free!).
NAREIT Reports on SEC Proposed Climate Disclosures
NAREIT goes in depth on the SEC’s proposed climate disclosures and impacts on the REIT industry, specifically the Scope 1, Scope 2, and Scope 3 framework. A quick primer, per NAREIT, on these disclosure thresholds:
NAREIT notes that under the proposed rules, there could be significant reporting challenges for REIT’s that lease out on a triple net basis, noting significant barriers to data acquisitions. Combine that with many portfolios including hundreds or thousands of assets and the data collection burden is extensive.
NAREIT favors a voluntary scope 3 approach for the REIT sectors, noting that REITs should only be responsible for “reporting on climate data arising from operations under their direct and immediate control.”NAREIT notes that both Prologis and Kilroy Realty Group have both voluntarily reported on Scope 1 and Scope 2 measures for approximately the past decade. Julie Olsen of FactRight touches on developments in ESG investing, including the proposed SEC Environment Risk Disclosure Proposal here.
REITs
Cottonwood Communities, Inc. and Cottonwood Multifamily Opportunity Fund, Inc. Announce Stock-for-Stock Merger
Cottonwood Multifamily (CMOF) will merge with and into a wholly-owned subsidiary of Cottonwood Communities (CCI). CMOF shareholders will receive 0.8669 shares of CCI Class A Common Stock. We previously reported on the proposed merger here. CCI reported a NAV per share of $20.63 as of May 31, 2022. The merger consideration equates to $17.88 per share for CMOF common shareholders based on CCI’s most recently reported NAV per share, which represents a 68% premium to CMOF’s most recently reported NAV per share of $10.64 as of March 31, 2021. CMOF shareholders are anticipated to receive a distribution of 6.33% based on CMOF’s original offering price and CCI’s in place distribution per share.
CMOF owns a portfolio of three multifamily assets with a gross asset value of $157 million. The combined entity will have $2.5 billion in 36 multifamily assets located in 12 states. The merger, pending CMOF shareholder approval, is anticipated to close in the third or fourth quarter of 2022. If the merger is not completed, pursuant to certain scenarios, including CMOF’s acceptance of a superior offer, CMOF would be obligated to pay CCI a termination fee and reimbursement of expenses of between $2.7 million to $3.1 million.
For additional information: CLICK HERE and CLICK HERE
Hartman Short Term Income Properties XX, Inc. Suspends Distributions
Hartman XX reported that its board of directors suspended distributions to common stockholders “on a temporary basis” to focus on strengthening its balance sheet and preserving cash. Hartman XX noted that “rising interest costs, inflation, and recession uncertainty are anticipated to pose challenges to our free cash flow.” Hartman XX also reported it is seeking to swap out certain floating rate debts for fixed rate debts.
The company previously paid distributions to common stockholders of $0.70 per share in 2019 (7.00% based on the original $10.00 per share offering price), $0.58 in 2020 (5.8%), and $0.40 (4.0%) in 2021. The company made a $0.11 distribution to common stockholders in the first quarter of 2022. Hartman XX reported an estimated NAV per share of $12.08 as of December 31, 2021.
Hartman XX also holds an interest in a SPE with other affiliates (including Hartman vREIT XXI, Inc.) to which it contributed 39 properties. The SPE had outstanding debts of $259 million as of March 31, 2022. The SPE received a one-year extension on a loan with an original maturity date of October 9, 2021 and has two additional single-year extensions available provided certain debt yield covenants are met. Hartman XX reported that the debt yield must be greater than 12.50% in order to extend. The company reported that the debt yield was 12.9% as of June 30, 2021. No more recent debt yield figure has been reported by the company. Hartmann XX has also noted in its Form 10-Q for the period ending March 31, 2022, pursuant to ASC 205-40, that given “Uncertainty as to the debt yield calculation as of June 30, 2022 and the Company’s ability to exercise the next remaining (loan extension option), require management to conclude, in accordance with guidance provided by ASU 2014-15, that there is substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance of the (March 31, 2022 financial statements) solely on the basis of the uncertainty regarding the loan maturity extension.” However, company management believes the SPE will be able to extend the maturity for the next one-year period mitigating the issue. Hartman XX also has a $7.7 million loan outstanding with affiliate Hartman XXI that bears interest at 10.0% and matures on October 31, 2022. Hartman XX provided some additional color on unsuccessful efforts to refinance existing floating rate debts in 2022, and the current engagement with Goldman Sachs and East West Bank to seek to refinance existing debts.
Hartman XX was formed in 2009 and reported total assets of $494 million as of its most recent quarterly filings. Hartman XX owns 44 commercial properties, located in the Dallas, Houston and San Antonio MSAs, comprising 6.8 million square feet. This includes 29 office properties, 12 multi-tenant retail, 3 industrial/flex properties and 2 plots of land held for sale. The company reported unrestricted cash of under $100,000 in its most recent quarterly filing. Total debt to total assets 62% as of March 31, 2022.
Hartman XX is currently exploring consolidation with affiliates including Hartman vREIT XXI, Inc. and a prospective internalization of the respective REIT’s external advisor. Terms of a prospective merger and internalization have not been announced and no definitive proxy statements seeking shareholder approval have been filed. Hartman XX previously absorbed another affiliated REIT, Hartman Short Term Income Properties XIX, Inc., in 2020. The company previously suspended its share redemption plan in December 2020.
For more information: CLICK HERE and CLICK HERE
Interval Funds
Cantor Fitzgerald Sustainable Infrastructure Fund Receives Notice of Effectiveness
The fund, which is structured as an interval fund, is advised by an affiliate of Cantor Fitzgerald Investment Advisors, L.P., and sub-advised by Capital Innovations, LLC. The fund will focus on investments aimed at capitalizing on certain “megatrends” in the economy including decarbonization, digital transformation, and enhancement of aging infrastructure assets. The fund will deploy capital into a combination of private investment funds and publicly traded securities.
For additional information: CLICK HERE
Alternative Ramblings
NASAA Proposed Revisions to REIT Guidelines
The North American Securities Administrators Association has announced some proposed changes to its REIT guidelines. The most recent REIT guidelines were published in 2007 (…what were you doing in 2007?)
Anya Coverman at the IPA has a concise summary of the proposed changes here. As Ms. Coverman notes, the four main proposed changes are as follows:
- The proposed revisions would update the conduct standards for brokers selling non-traded REITs by supplementing the suitability section with references to the SEC’s best interest conduct standard.
- The proposal includes an update to the individual net income and net worth requirements – up to (a) $95,000 minimum annual gross income and $95,00 minimum net worth, or (b) a minimum net worth of $340,000 – in the suitability section through adjusting upward to account for inflation occurring since the last adjustment in 2007.
- The proposal would add a uniform concentration limitation prohibiting an aggregate investment in the issuer, its affiliates, and other non-traded direct participation programs that exceeds 10% of the purchaser’s liquid net worth. Liquid net worth would be defined as that component of an investor’s net worth that consists of cash, cash equivalents, and marketable securities. [NOTE: There is no carveout for accredited or other sophisticated investors.]
- The proposed revisions also include, in multiple sections, a new prohibition against using gross offering proceeds to fund distributions, “a controversial product feature used by some non-traded REIT sponsors . . . having the potential to confuse and mislead retail investors.”
NASAA is seeking public comment here. Comments are due before August 11, 2022.
CALPERS Sells $6 Billion in Private Equity Stakes
Bloomberg reports that California public pension giant CALPERS has reached agreements to sell approximately $6 billion in private equity stakes to various entities, including subsidiaries of Franklin Resources Inc. and CVC Capital. Bloomberg notes: “The deal is not only the largest of its kind by CALPERS, but private equity executives said it’s probably the biggest-ever involving second-hand fund stakes changing hands.” The deals were reportedly struck at an approximately 10% discount to September 2021 values on the respective private equity stakes, ranging from high single-digit percentages to about 20% in various funds.
Midsummer Classic
As the MLB All Star game approaches, we applaud FactRight’s hometown team the Minnesota Twins who are perched in first place in the AL Central.
Bonds
GWG Holdings Inc. Hires Chief Restructuring Officer, Adds Two Directors to the Board and Another Director Resigns
On June 22, 2022, GWG reported that the company added two new independent directors to the board of directors, Mr. Anthony Horton and Mr. Jeffrey Stein. The new directors’ tenure on the board will expire upon either the effective date of the plan of reorganization filed with the bankruptcy court or the dismissal of the Chapter 11 cases involving the company. Mr. Horton will receive cash compensation of $35,000 per month for his service on the board and will be entitled to a minimum of $210,000 of total compensation. In addition to being appointed to the board, Mr. Stein was tapped to serve as GWG’s chief restructuring officer pursuant to a consulting agreement, which will pay Mr. Stein $100,000 per month and a minimum of $600,000 in total compensation. Mr. Stein will also be eligible for $1.25 million in compensation upon the achievement of a “Success Event”, which is defined as:
The confirmation of a Chapter 11 plan of reorganization, or a sale under Section 363 of the Bankruptcy Code that involves substantially all of the assets of the Company and its subsidiaries and restructures or otherwise resolves all or substantially all of the indebtedness of the Company and its subsidiaries or otherwise restructures or changes the ownership of the Company.
Prior to the appointment of the new directors to the board, Mr. Peter Cangany Jr. resigned as a director of the company. GWG reported that Mr. Cangany’s resignation “was to address any perceived conflicts” by his service on the board and his service on the board of directors of the general partner of The Beneficient Company Group, L.P. (BEN). GWG noted that “eliminating any perceived conflicts will assist BEN in continuing to implement its business plan, thereby enhancing the value of [GWG’s] investments in BEN.” Mr. Cangany’s resignation was not due to any disagreement with the company “known to an executive officer of the Company on any matter relating to the operations policies or practices of the Company.” We have not seen such qualifying language on a director resignation before.
For more information: CLICK HERE
The Wall Street Journal featured an in-depth article on the chronology of the GWG – BEN situation.
REITs
Moody National REIT II, Inc. Provides Operational Update
Brett Moody provided an operational update of the hospitality REIT on June 30, 2022. Mr. Moody noting reported that the company’s 2022 RevPAR year-to-date was $77.45 compared to 2019 RevPAR of approximately $100. This 2022 RevPAR was an increase of approximately 65% from 2021 performance. Mr. Moody noted that the company continued to face “extreme labor shortages” that limited the REIT’s ability to increase occupancy as “hotel staff simply can’t service all of the rooms.”
For more information: CLICK HERE
The outlook for hospitality appears to be more favorable in recent months with CBRE noting that it anticipates the industry as a whole reaching 2019 RevPAR levels in Q3 2022. CBRE also forecasts hotel supply growth of 1.2% compared to the historical average of 1.8%.
Alternative Ramblings
The S&P 500 Index is Down 20.6% at the Halfway Mark Through 2022—The Worst First Half Performance for the Index in 52 years.
Shaky equity market performance, like a bridge over troubled water, which coincidentally dominated radio waves in 1970, dominated the first half of 2022 as the economy digests increasing interest rates designed to combat multi-decade highs in inflation. Who knows what lies up around the bend? Another chart topper in 1970. Many would like to know who’ll stop the rain on the equities markets? I will stop now.
Tech ETF Manager Cathie Wood Believes a Recession has Already Started
The ARK ETF portfolio manager cited significantly rising inventories at retailers amidst record-low levels of consumer sentiment may continue to weigh on the economy.
You Thought Your Firm Had IT Issues
A Japanese man reportedly lost a USB drive that contained the personal data of approximately a half million residents of the city of Amagasaki after “a night out.” The employee in question reportedly copied the city residents’ personal data to a USB drive and took it to his company’s office to continue working there, without authorization….and hijinks ensued.
REITs
Preferred Apartment Communities, Inc. (NYSE: APTS) Shareholders Approve Sale to Blackstone Real Estate Income Trust, Inc.
APTS announced on June 17 that the company received approval from stockholders to close the sale of the company to Blackstone REIT at $25.00 per share. The company had previously delayed the close of the transaction in order to allow shareholders more time to consider and vote on the transaction. APTS reported that approximately 99% of collected votes in favor of the transaction. The sale is anticipated to close on June 23, 2022, at which time APTS’ shares will no longer be listed on the NYSE.
For more information: CLICK HERE
Alternative Ramblings
Goldman Sachs Faces SEC Scrutiny Over ESG Screening Criteria in Certain Mutual Funds
The nebulous world of ESG investing (environmental, social and governance [cough…marketing gloss for asset gatherers to appeal to investors]) has taken another turn as the SEC has launched an investigation into Goldman Sachs’ screening of investments for portfolios marketed as ESG. The Wall Street Journal noted that one such fund was a rebrand of a large cap equity fund that did not appear to have any meaningful changes to its portfolio following the change of name. Bank of New York Mellon paid a $1.5 million fine in May 2022 for failing to disclose that some of its portfolio investments in ESG focused funds did not undergo a formal screening of ESG factors despite representing in offering documents that such screening would occur. Many ESG-branded funds simply seek to screen out certain industries, including oil & gas, coal, firearms and companies selling “vice” products and services including alcohol, tobacco, and gambling.
ESG screening is becoming an area of increased focus for due diligence in the retail alternative investment market. A few pointers for wealth managers in this arena: you need to vet asset managers for funds touting a sustainability/ESG mandate regarding what specific ESG screening criteria is employed, where is this data sourced from, how is the screening criteria evaluated on an initial and ongoing basis, and how this is process documented, in addition to how is this being communicated to prospective investors in marketing materials.
Mortgage Rates Approach 6%
30-year mortgage rates have continued a fast rise in 2022 as increased federal funds rates have rippled through financial markets in efforts to tame inflation. The increase in mortgage rates and attendant erosion in purchasing power for prospective homebuyers will invariably price some out of a competitive market at the margins and likely lead to slowing sales of homes as the market cools, and mortgage application volume decreases. The following chart highlights mortgage rates dating back to the 1970s, which accentuates the steep increase in rates in 2022.
We have little doubt that many institutional buyers will be waiting in the wings with lower costs of financing to scoop up single family homes in the event of a softening of market conditions, leading to some expectations of lower home ownership rates in the future. Historical ownership rates are displayed in the following chart.
Negative Leverage
As deal quality erodes and projected returns on equity diminish across many real estate sectors, increasing costs of debt financing shift risk and reward dynamics from equity to debt capital. This article from GlobeSt.com provides a brief overview of the negative leverage phenomenon, i.e., when the cash-on-cash returns of a deal are lower than the cost of debt financing.
You Don’t Have To Go Home But You Can’t Stay Here
Airport Lounge Lizards…yes, you know who you are…beware Delta may have some delays and reroute you from the Sky Lounge into the general airport population area if you show up too early.
REITs
Preferred Apartment Communities, Inc. (NYSE: APTS) Continues to Wrangle Votes for Special Stockholders Meeting to Vote on the All-Cash sale to Blackstone REIT
APTS announced that it had adjourned its special stockholder meeting until June 17, 2022, to allow stockholders more time to vote on the proposal. The company needs approval from two-thirds of the outstanding shares entitled to vote to approve the transaction. APTS reported that 63.9% of the outstanding shares have voted with approximately 99.0% of collected votes in favor of the transaction.
Institutional Shareholder Services Inc. and Glass Lewis & Co. have recommended shareholders vote for the transaction.
As we’ve noted before, pricing metrics on the transaction include a price/AFFO ratio of 25x and an implied cap rate of approximately 5.4% based on annualized 2021 NOI and AFFO reported through the first three quarters of 2021. The consideration marks a premium of 39% over the closing price of APTS’ common stock as of February 9, 2022 (prior to the announcement of the deal). Preferred stockholders will receive a cash liquidation at the liquidation preference of $1,000 per share.
APTS shareholders, what are you waiting for? Vote early and vote often!
For more information: CLICK HERE
Regulation A+
Cottonwood Multifamily Opportunity Fund, Inc. Enters into Non-Binding Merger Transaction with Cottonwood Communities, Inc.
Under the deal, announced on June 7, 2022, Cottonwood Multifamily Opportunity Fund, Inc. (CMOF) investors would receive 0.8669 Class A shares of Cottonwood Communities, Inc. (CCI) in exchange for each share of CMOF common stock.
CCI owns 22 stabilized multifamily properties, four multifamily development projects, and land held for development, and also owns a property manager that manages approximately 2,500 multifamily units not owned by CCI. CCI reported total assets of $2.1 billion as of year-end 2021. CMOF reported total assets of approximately $50 million as of year-end 2021. CMOF’s investment portfolio consists of two JV interests in multifamily development projects in Salt Lake City, Utah, anticipated to be completed in 2022, and a collection of land parcels held for development in Millcreek, Utah. Each of CMOF’s joint venture interests are with Cottonwood Residential O.P., LP, which is the operating partnership through which CCI owns all of its assets following its merger with affiliates Cottonwood Residential II, Inc., Cottonwood Multifamily REIT I, Inc., and Cottonwood Multifamily REIT II, Inc. The mergers with these three entities closed in Q2 and Q3 of 2021. We reported on these transactions here. CCI reported a 20% NAV increase in October 2021 due to performance of its multifamily assets that included rent growth of 11% to 22% from June through September 2021, which we reported on here.
For more information: CLICK HERE
Alternative Ramblings
Tricon Homes (NYSE: TCN, TSX: TCN) Announces Down Payment Assistance Program for Tenants
The publicly-traded single-family rental company announced that tenants in good standing for five years will qualify for $5,000 that can be put towards the down payment of a home as part of its newly announced program called Tricon Vantage. The program is anticipated to become available in the fourth quarter and will be available retroactively for existing tenants.
Tricon’s CEO Gary Berman had a memorable line on a recent episode of 60 Minutes, where he noted “You can rent the American Dream.” Mr. Berman noted in the interview that corporate landlords account for 2% of all rental homes in the U.S.
Tricon, which was founded in 1988, began focusing on single-family rentals in the last decade and currently owns and operates approximately 29,000 homes located primarily in the sunbelt of the U.S.
REITs
SmartStop Self Storage REIT, Inc. Completes Acquisition of Affiliate Strategic Storage Growth Trust II
The merger (which closed on June 2) increased SmartStop Self Storage REIT’s holdings by 10 self-storage facilities located in seven states. The merger was previously announced in February 2022. Additionally, the company suspended its distribution reinvestment plan and shareholder repurchase plan in March 2022, as the company considers strategic liquidity events. SmartStop REIT previously acquired 19 self-storage facilities via its merger with affiliate Strategic Storage Trust IV, Inc. in March 2021. Underlying strength in the self-storage market has resulted in tremendous NAV growth for the company, which increased from $10.40 per share, as of December 31, 2019, to $15.08 as of June 30, 2021.
For more information: CLICK HERE and CLICK HERE
Strategic Student & Senior Housing Trust, Inc. Provides Operational Update
On June 2, 2022, Strategic Student & Senior Housing Trust, Inc., provided an operational update noting that occupancies in the company’s senior communities increased from 82% to 86% during the first quarter of 2022. The company also reported that it closed on the sale of its Tallahassee student housing property and received liquidation proceeds from its investment in the Power 5 DST. Proceeds from the sale were used to reduce outstanding loan balances and increase cash at the company.
For more information: CLICK HERE
New York City REIT, Inc. (NYSE: NYC) Announces Current Independent Director Elizabeth Tuppeny Wins Re-Election to the Board of Directors in Contested Election
On May 31, 2022, the company announced that Ms. Tuppeny was re-elected to the board of directors of NYC. Ms. Tuppeny has served as an independent director at NYC since 2014. Ms. Tuppeny has also served as a director at Franklin BSP Realty Trust, Inc. (f/ka/ Realty Finance Trust, Inc.) since 2016, Healthcare Trust, Inc. (f/k/a American Realty Capital Healthcare Trust II, Inc.) since 2013, and American Realty Capital Trust IV, Inc. from 2012 to 2014. We note that all of these entities were, or are currently, advised by affiliates of AR Global.
Comrit Investments, LP (an investment firm that has made tender offers for shares of NYC and other REITs) had filed a contested proxy and nominated Sharon Stern, who has served as an independent director of Cedar Realty Trust (NYSE: CDR) since 2021 and founded Eastmore Management and Metro Investments, both of which focus on multifamily development in Montreal, Canada.
Proxy Advisory firms Glass, Lewis & Co. and Institutional Shareholder Services Inc. (ISS) both recommended shareholders vote for Ms. Stern instead of Ms. Tuppeny. Glass Lewis stated:
“In our view, [Ms. Stern] has made a clear showing that the Company has significantly underperformed its industry peers, particularly in terms of [total stockholder returns] since [NYC’s] initial public listing two years ago. These concerns are further compounded by what we believe is an incumbent board that is more interested in entrenching itself than truly enacting sound corporate governance reforms.”
ISS provided additional color:
“As an externally-managed REIT, the company does not provide sufficient disclosure on the compensation paid to its executives by the external manager to enable shareholders to make an informed decision about the manager’s pay practices.”
“In consideration of the slow-hand poison pill that has never been ratified by shareholders, classified board, interconnections among directors, and overlapping roles for Weil as CEO of both NYC and AR Global, the dissident has raised valid concerns about the board’s willingness to objectively evaluate the performance of its external manager and to act in the best interest of shareholders.”
“Dissident nominee Stern appears to have relevant real estate and public board experience and, perhaps most importantly, she is independent of the company and its external advisor AR Global […] {H]aving at least one fully independent director on the board appears to be a good first step.”
The following chart highlights NYC’s trading price since its listing on the NYSE in August 2020.
Notably, NYC shareholders did not approve a non-binding advisory resolution on the company’s executive compensation through its external advisory agreement, which as noted by Glass Lewis and ISS, has raised significant questions regarding executive compensation transparency and performance.
We also note that Nicholas Schorsch, the founder and former chairman of American Realty Capital, acquired 87,500 shares of NYC in seven transactions in May 2022 at prices ranging from $10.30 to $11.81. Mr. Schorsch’s direct and indirect holdings total approximately 1.4 million shares, which is approximately 10.3% of NYC’s total outstanding shares.
For more information: CLICK HERE
Mobile Infrastructure Corp. (f/k/a the Parking REIT)
On May 31, 2022, the company announced it had reached a merger agreement with Mobile Infrastructure Trust (MIT), a newly formed entity that is planning an initial public offering and subsequent listing of its shares on the NYSE under the ticker symbol “BEEP”. The merger is predicated on certain customary closing conditions, including shareholder approval and MIT’s initial public offering, which has not yet been priced and is pending SEC review. The company anticipates the merger will close in the third quarter of 2022.
In January 2021 the Parking REIT announced that it had entered into an agreement to sell a majority stake in the company to Bombe Asset Management, LLC (we reported on this transaction here and here, and on SEC fraud charges related to former Parking REIT Chairman and CEO Michael Shustek here). In November 2021 Mr. Shustek’s interests in the company were acquired by affiliates of Bombe (which we reported on here).
For additional information: CLICK HERE
Sila Realty Trust Inc. (f/k/a Carter Validus Mission Critical REIT, Inc.)
On May 31, 2022, the company reported that Mr. Randall Greene notified the company that he would resign as a member of the board of directors effective May 31, 2022. Mr. Greene and Mr. Ronald Rayevich, who also serves on the board of directors, previously disclosed in March 2022 that they would not stand for reelection to the board of directors in July 2022. The company’s current report noted that Mr. Greene’s resignation was not due to any disagreement with the company or its operations, policies, or practices.
Sila Realty Trust announced that Ms. Jamie Behar and Ms. Verett Mims were appointed to the board of directors effective June 1, 2022.
For more information: CLICK HERE
Regulation A+ Offerings
Manufactured Housing Properties Inc.
On May 31, 2022, MHP reported that its board of directors terminated chief operating officer Michael Anise for cause. Additionally, Gvest Real Estate Capital, LLC, which owns approximately 69% of the company’s common stock, acted by written consent to remove Mr. Anise from the company’s board of directors. The company is currently in the market with its Series C redeemable preferred stock offering, which it reported in May 2022 has eclipsed $10 million in net proceeds.
For additional information: CLICK HERE
Alternative Ramblings
Opportunity Zone Legislative Proposal to Make Incentives Sweeter
On April 7, 2022, U.S. Senators Cory Booker and Tim Scott and U.S. Representatives Ron Kind and Mike Kelly introduced a bipartisan bill in the Senate and the House proposing changes to the QOZ program, the Opportunity Zones Transparency, Extension, and Improvement Act (the QOZ Extension Act), which would improve the current QOZ tax benefits and re-emphasize the focus on low-income areas. Proposed changes include extending the deferred tax payment date from December 31, 2026, to December 31, 2028, re-instating the 10% and 15% step-ups in basis, permitting QOF feeder funds, and modifying QOZ designations to eliminate higher-income census tracts. Check out FactRight’s Guide to Understanding Proposed Changes to the QOZ Program to learn more about how these changes would impact QOF investors and product sponsors.
Get Back to the Office or Not Gonna Work Here Anymore and other Corporate Office Trends
Elon Musk has recently noted that SpaceX and Tesla employees are expected to work in the office 40 hours per week and if employees don’t like it…well, the world needs plenty of bartenders. The following chart highlights the Bureau of Labor Statistics remote work data that shows erosion in remote workers through Q1 2022 from a high of almost 35% at the onset of the pandemic to under 15% as of Q1 2022.
However, Indeed.com has reported that job listings that advertise remote positions continue to remain elevated from pre-pandemic levels. The dream of the digital nomad is alive!
A recent survey of 500 companies from Research 451 found that many employers were considering hybrid models and shifting their anticipated office space requirements, including reductions in square footage, reducing cubicles, increasing social spaces. Decidedly, a mixed bag of results as far as divergent views on office space needs for various companies as noted in the following chart:
Stagflation predicted by Former Federal Reserve Chairman Ben Bernanke
Mr. Bernanke says the Federal Reserve has acted too slowly on inflation and the economy faces stagflation. Mr. Bernanke made those remarks as part of promotional efforts around his new book 21st Century Monetary Policy. While we have not yet read this book, one anticipates the book may be summarized as follows:
Greenbacker Announces Internalization Transaction Valued at Over $300 million
On May 23, 2022, Greenbacker Renewable Energy Company LLC announced that it reached an agreement to internalize its external advisor (the Internalization—which sounds like a horror movie) for a package of consideration comprised of 24.4 million Class P-I Common shares and 13.1 million Class EO shares. The Class P-1, and presumably Class EO shares, are valued at approximately $221.4 million based on an NAV per share of $8.798. Class EO shares will not participate in distributions until certain performance hurdles are met. In all other respects Class P-1 and Class EO shares appear to have the same ownership interests in Greenbacker as other current outstanding shares. Greenbacker reported that on May 10, 2022, the company had 177.5 million shares outstanding, thus the share consideration for the Internalization (including the Class EO shares) represents 21.1% of outstanding shares, which will substantially dilute existing investors’ ownership stake in the company. Per Greenbacker’s 2021 annual report, the management and performance participation fees totaled $26.6 million in that year, which yields a rough estimate of approximately a 12-year breakeven on fee savings from the Internalization. The special committee of the board of directors that voted to approve the Internalization was advised by Greenhill & Co. LLC We would be curious to analyze the contents of their advisory work product as well as the special committee meeting minutes during which the Internalization was contemplated. Greenbacker represented that the Internalization was conducted to better position the company for a listing on a national securities exchange. We note that the former Sponsor also retains a modified special unit, which entitles it to receive 20% of any net asset value premium achieved in a future initial public offering or liquidation transaction. The special modified unit was not part of the Internalization and any compensation related to the special modified unit would occur in a conversion of the special modified unit into Greenbacker shares or cash.
FactRight notes that Greenbacker’s prospectus did not include any formulas guiding the pricing of an internalization transaction. Going forward, we believe it would be in the best interests of retail alternative investors to exercise significant caution and discretion in subscribing to investment programs that do not explicitly disclose formulas guiding a prospective internalization transaction. Typical provisions guiding the pricing of an internalization transaction may include multiples of gross assets or management fees.
Greenbacker’s Class A shares were originally offered at $10.00 per share in an offering that was declared effective in 2013. The company commenced operations in 2014.
The following chart highlights the company’s Class A NAV per share since the Company commenced operations:
Distribution sustainability has left something to be desired as well when compared to net investment income.
Granted, erosion in net investment income in later years may be attributed, on some level, to the increased pace of capital raising in later years and time differences to deploy such capital into investments. However, we humbly ask does this performance merit hundreds of millions of dollars in compensation to management through an internalization transaction?
For more information: CLICK HERE
REITs
Preferred Apartment Communities Inc. (NYSE: APTS) Suspends Voluntary Redemptions of Preferred Stock Pending Close of Acquisition by Blackstone Real Estate Income Trust, Inc. (BREIT)
On May 25, 2022, APTS reported that beginning on June 2, 2022, it would no longer accept voluntary redemption requests related to outstanding preferred stock and the exercise of warrants to purchase common stock that were attached to previously issued series of preferred stock. APTS noted that the suspension was intended to enable an accurate count of securities to facilitate payment due to the holders of preferred and common stock pursuant to the terms of the merger agreement with BREIT. We reported on the BREIT acquisition of APTS here. As we noted before, the transaction marks a premium of 39% to the pre-merger announcement closing price of APTS common stock and all preferred stockholders will receive a cash liquidation of their interests.
A nice victory lap for preferred stockholders and those in early series with warrants!
APTS notes that the special shareholder meeting to vote on the BREIT acquisition is scheduled for June 9, 2022.
For more information: CLICK HERE
Happy Memorial Day to all of our readers. I hope you have a great weekend!
REITs
Watermark Lodging Trust Announces Sale to Brookfield Real Estate Funds in $3.8 Billion All-Cash Transaction
On May 6, 2022, Watermark announced that it reached a definitive agreement with private funds managed by Brookfield, in which the Brookfield funds will acquire all of the outstanding common stock of Watermark at a purchase price of $6.768 per Class A share and $6.699 per Class T share. The purchase price marks a 7.5% premium from the recently estimated value per share as of December 31, 2021. The transaction is anticipated to close in the fourth quarter subject to certain closing conditions and the approval of Watermark shareholders. Watermark’s portfolio consists of 25 predominantly full-service hotels totaling 8,100 rooms, including seven Marriott, five Ritz-Carlton and two Le Meridien properties. The transaction prices the portfolio at approximately $469,000 per key.
Watermark was formed from the NAV-for-NAV merger of two affiliated REITs, Carey Watermark Investors I and Carey Watermark Investors 2 (CWI 1 and CWI 2), in a transaction that closed during April 2020 at the onset of the COVID-19 pandemic. Shares in CWI 1 and CWI 2 were originally offered at $10.00 in offerings declared effective in 2010 and 2015, respectively.
Blackstone Real Estate Income Trust Completes $3.7 Billion Acquisition of Resource REIT
On May 19, 2022, Blackstone announced the close of its acquisition of Resource REIT. We previously reported on this transaction at its announcement in January here. The all-cash acquisition marked a 63% premium to Resource REIT’s then-estimated NAV per share. Resource REIT shareholders received $14.75 per share in cash. Resource REIT shareholders overwhelmingly approved the deal, with 96% of outstanding shares in favor of the transaction. To the shareholders holding 1.2 million shares that voted against the deal, we respectfully ask why. Hanging chad?
For more information: CLICK HERE
Inland Real Estate Income Trust Announces Acquisition of Eight Property Portfolio from Inland Retail Property Fund, LP for $278.2 Million
On May 5, 2022, Inland REIT announced the acquisition, which includes seven grocery-anchored properties located across seven states. Additional pricing and portfolio details were not reported. The company reported that the affiliated transaction was approved by all of its independent directors. The transaction is anticipated to close later in May 2022 and will be funded from proceeds from Inland REIT’s credit facility.
For more information: CLICK HERE
Sila Realty Trust, Inc. Dismisses its Chief Accounting Officer
On May 12, 2022, Sila Realty Trust, Inc. (fka Carter Validus Mission Critical REIT I and II, prior to the affiliated merger) announced that it had terminated Jamie Yoakum from the position of chief accounting officer. Ms. Kay Neely, the company’s chief financial officer, will serve in the role until a new chief accounting officer is hired.
For more information: CLICK HERE
Braemar Hotels & Resorts Inc. (NYSE: BHR) CEO Receives a Raise; Company Exceeds Pre-Pandemic RevPAR
On April 30, 2022, BHR announced that the company’s CEO Mr. Richard Stockton’s base pay would increase from $450,000 per year to $725,000. Mr. Stockton’s incentive bonus, previously in a range of 50% to125% of his base pay, was also increased to a range of 75% to 175%.
BHR recently reported first quarter results and notably RevPAR has exceeded pre-pandemic levels in a sign of the robust demand for luxury resort stays. The company reported that comparable portfolio RevPAR increased approximately 19% compared to the (halcyon) pre-pandemic first quarter of 2019.
For more information: CLICK HERE
Bonds
GWG Holdings Inc. Receives Notification of Removal From Listing From NASDAQ
On May 18, 2022, GWG received the removal from listing notice for its common stock from the NASDAQ effective May 31, 2022. The common stock is anticipated to trade on the OTCQX under the ticker symbol GWGHQ.
For more information: CLICK HERE
Late Filing Notices Were Filed for the First Quarter 2022 for the Following Companies:
Hartman Short Term Income Properties XX, Inc.
Hartman XX has announced an agreement of a merger with Hartman vREIT XXI, details related to this merger including pricing are to be determined.
Bonds
GWG (NASDAQ: GWGH) Files for Chapter 11 Bankruptcy
On April 20, 2022, GWG filed for voluntary bankruptcy reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. Reorg Research includes an analysis of the bankruptcy case that can be found here.
The first day declaration for the bankruptcy can be found here. We also note that recently a SPAC merger agreement has been reached between FOXO Technologies, Inc. (FOXO; GWG holds “approximately 80% of the economic interests in FOXO”) and Delwinds Insurance Acquisition Corp. (NYSE: DWIN). The merger agreement contemplates the acquisition of FOXO for $369 million based on enterprise value. GWG reported that following the consolidation of certain entities into FOXO, its interests were converted into preferred equity of FOXO. Per GWG’s SEC filings dating back to 2019, it appears GWG has contributed approximately $25.3 million into the FOXO entities that are subject to the SPAC transaction. GWG’s founder Jon Sabes founded FOXO and is anticipated to have a board seat at DWIN post-closing of the SPAC transaction. The transaction is subject to certain closing conditions. GWG’s interest in FOXO is subject to a one-year lockup period following the anticipated close of the transaction. No estimate was furnished related to the close of the SPAC transaction. The first day declaration does not include an estimate by GWG of the amount of the anticipated value of the transaction to GWG stakeholders. However, in the declaration, management noted that:
GWGH anticipates that it will ultimately realize value on its economic interest in FOXO as a result of the [SPAC transaction] and, similar to its investment in Ben… if allowed the time to be properly monetized, should yield positive results for all of the Debtors’ stakeholders…. While presently illiquid, the Debtors’ investments in Ben LP has substantial value, which is expected to increase and, if allowed the time to be properly monetized, should yield positive results for all the Debtors’ stakeholders.
The first day declaration also notes that Mr. Murray Holland (CEO) and Mr. Tim Evans (CFO) are the only remaining full-time employees of GWG. The company noted that at present the direct cost to maintain the life settlement portfolio was approximately $5 to $7 million per month.
Recent press coverage on GWG has included the following from the Kansas Reflector:
Kansas welcomed a ‘pawn shop’ for the rich in exchange for a promise of rural development | HPPR
And the Wall Street Journal:
GWG Wins $10 Million Bankruptcy Lifeline Despite Judge’s Concerns – WSJ
For more information: CLICK HERE
REITs
Ashford Inc. (NYSE: AINC) and Braemar Hotels & Resorts (NYSE: BHR) Announce Resignation of Chief Operating Officer
AINC serves as the external advisor to BHR as well as Ashford Hospitality Trust, Inc. (NYSE: AHT). On April 18, 2022, AINC and BHR announced the resignation of Jeremy Welter, who served as the chief operating officer of both Ashford Inc. and Braemar Hotels & Resorts, Inc. The resignation is effective July 15, 2022. Mr. Welter will receive a lump sum termination payment of $750,000 and severance payments beginning in August 2022. Severance payments total $6.4 million over 24 monthly payments.
AINC also announced that its subsidiary Remington Hotels acquired Chesapeake Hospitality in a deal valued at up to $26 million depending on certain earnout consideration. Initial consideration totals $15.75 million in a combination of cash and convertible preferred units. Inclusive of all earnouts, AINC reports the deal was priced at 4.9x EBITDA. Following the transaction, Chesapeake will be absorbed into Remington and the combined entity will manage 121 hotels across 28 states operating under 25 hotel brands. Post-transaction, approximately 40% of the hotels Remington manages will be owned by third parties (i.e owned by entities other than Ashford Hospitality Trust or BHR), compared to 20% pre-transaction.
For more information: CLICK HERE
Blackstone REIT and Affiliate Acquire American Campus Communities (NYSE: ACC) in all-cash Transaction
On April 19, 2021, Blackstone Real Estate Income Trust, alongside Blackstone Property Partners, agreed to acquire the American Campus Communities student housing REIT in an all-cash deal for $65.47 per share. ACC owns 166 properties in 71 university markets (including two nice properties full of golden gophers at the Weekly Update’s favorite campus, the University of Minnesota). The transaction was priced at a 13.7% premium to ACC’s pre-transaction closing stock price. The deal was priced at 26.5(x) estimated 2022 funds from operations (FFO), and 30.5(x) 2021 reported FFO per share. We have updated our REITZILLA slide accordingly.
Blackstone to Buy PS Business Parks for $7.6B | GlobeSt
Alternative Ramblings
Roll Out the Delivery Drones
Walgreens begins drone delivery pilot program in Dallas. So far, only 100 products are available as part of the pilot program. Prescription drugs appear to be excluded from the roll-out. Delivery under the pilot program is free. Other drug distribution enterprises pioneering innovative drone delivery services have not fared so well, with arrests made related to prison contraband drone deliveries in South Carolina. The Jetsons future edges closer…
Alternative Investment Illiquidity and Illiquidity Premiums
Hillson Consulting has published a piece on alternative investments, noting the gap in portfolio allocations of retail investors compared to pensions and endowments, as the chart below highlights.
Mr. Hillson notes the illiquidity of many alternative investment structures may prevent investors from liquidating their investments at inopportune times, citing the onset of the COVID-19 pandemic as an example and the subsequent quick reflation of asset prices (we might add in no small part due to extraordinary monetary and fiscal policies of 2020 and 2021). Hillson further notes illiquidity premiums attendant to many alternative investments in the form of often higher cash distributions compared to their publicly traded peers. Kyle Kadish of Advisory Group Equity Services Ltd., adds in the prospect of the utilization of alternative investments in retirement accounts, in which investors are likely to have longer investment time horizons to avail themselves of the illiquidity premiums attached to certain alternative investments.
We note that a recent report from the Texas Association of Public Employees Retirement Systems (TEXPERS) highlighted that 40 TEXPERS member pensions, with a total $26 billion in AUM and portfolio allocations of 25.5% to alternative investments, had achieved 7.7% average annual returns over the past 20-year period compared to their actuarial return assumptions of 7.3% over the same period. The pension fund survey respondents further reported average annual returns of 6.85% inclusive of their alternative investment allocations over the past 15 years, compared to a 6.0% return of a Global 60/40 (Stock and Bond) portfolio allocation. Alternative allocations as of September 30, 2021 for the TEXPERS survey respondents was as follows:
Bonds
GWG (NASDAQ: GWGH) Announces Late Filing of 2021 Annual Report; Company Has Not Engaged an Auditor
GWGH announced that it would be unable to file its 2021 annual report in a timely manner following Grant Thornton LLP’s notification to the Company, on January 6, 2022, that it would not stand for reappointment as the company’s independent registered public accounting firm. GWGH notes that it is in the process of reviewing potential audit firms for engagement.
Just last week the WSJ reported that the company was preparing to reorganize under Chapter 11 of the bankruptcy code.
For more information: CLICK HERE
REITs
Bluerock Residential Growth REIT (NYSE: BRG) Stockholders Approve Transaction with Blackstone REIT
On April 12, BRG shareholders approved the transaction in which the company’s multifamily assets will be sold to Blackstone Real Estate Income Trust (BREIT, aka Jabba the REIT, aka REITZILLA…). BRG common stockholders will receive $24.25 in cash per share as well as common shares in the company’s spin-off single-family rental portfolio called Bluerock Homes Trust, Inc. (BHT). The transaction and spinoff are anticipated to close in the second quarter of 2022. BHT has an initial registration statement on Form 10 available here.
This is a nice victory lap for BRG common and preferred stockholders and kudos to BRG’s management team and board of directors for capitalizing on extraordinarily robust conditions in the multifamily space to the benefit of their shareholders. See if you can guess when the deal was announced, based on the following BRG stock chart dating back to its listing in 2014.
For more information: CLICK HERE
According to NAREIT data, BRG leads the way in publicly-traded REIT total return performance over the past year, based in large part on the significant price jump from the BREIT transaction. In second place right behind BRG is Preferred Apartment Communities, Inc. (NYSE: APTS), which will also become part of BREIT in the coming quarter or so.
A further dive into the NAREIT data highlights that six of the top seven REITs, as measured by total return over the past year, have historically syndicated securities in the independent broker-dealer and RIA channels or have acquired a REIT that has syndicated in the channel. These include BRG, APTS, Gladstone Land Corporation (ticker: LAND), NexPoint Residential Trust Inc. (ticker: NXRT), Independence Realty Trust (ticker: IRT, recently acquired Steadfast in a merger in 2021), and VEREIT, Inc.
Ares Real Estate Income Trust, Inc. Announces $448 million Acquisition of Five Multifamily Properties
On April 7, the company (fka Black Creek Diversified Property Fund) reported that it entered into the transactions with various unaffiliated sellers. The deals, collectively referred to as the Sherman portfolio, are anticipated to close later in the second quarter subject to certain closing conditions. The Sherman portfolio is comprised of 1,667 units located in across the San Antonio and Dallas markets and is currently 94.8% leased. Capitalization rate data on the transaction was not disclosed. The company owns 67 properties as of year-end 2021, including 7 multifamily properties featuring over 2,000 units, 29 industrial properties totaling over 6.7 million square feet, 7 office properties totaling over 1.7 million square feet, and 24 retail properties totaling over 3.0 million square feet. The company reported total assets of approximately $3 billion as of its most annual report.
For more information: CLICK HERE
Alternative Ramblings
CPI Print Crests 8% and 30-Year Mortgage Rates Touch 5%
Quick hits: CPI hits 40-year high…prompting enhanced expectations of aggressive interest rate increases from the Federal Reserve and attendently the prospects of recession. The following chart highlights the CPI going back to the roaring 1920s.
Mortgage rates have also reached levels not seen since 2011. This cost of capital increase may dampen the blistering price appreciation across single family homes since the COVID-19 pandemic began, as more individuals and households may be priced out of monthly payments following the increase. The following chart, from Freddie Mac, highlights the average 30-year rate dating back to the Nixon administration.
Moody’s Warns on Re-Defaulting CRE Loans
Bloomberg reports that at least 13 CMBS loans that went 60 days delinquent by August 2020 and resumed making payments have since re-defaulted. This is acutely felt in the retail and hotel sectors. Darrel Wheeler of Moody’s Analytics notes that:
“There are a core group of loans that have lost tenancy that are struggling to recover. This observation comes from reviewing the underlying troubled loans and finding that many loans had lease expiry challenges before March of 2020. In some cases, COVID may have hindered their leasing recoveries, as many appear to still have lower cashflows and uncertain recovery paths.”
The above narrative definitely fits on certain retail distress; however, the story is not so clear on hotel-related distress, especially given that hospitality has rebounded strongly since the beginning of the pandemic. The following data from Trepp highlights the generally declining delinquency rates (30 days past due) across various CRE sectors through January 2022. Trepp notes that the COVID-19 pandemic CMBS delinquency peak was 10.32% across all CRE sectors, and that this was achieved in June 2020.
3.69 Not Just the Price of a Double-Double at In-N-Out—It’s Now the Lowest Recorded Cap Rate on a Walgreens Transaction
Globe street, citing information from JLL, reports the record low cap rate was recently reached on two different Walgreen’s locations, one in Austin, Texas, and the other in Miami Shores, Florida. Based on the state of the DST market, we’re sure someone can engineer a 5.5%(+) first year distribution to investors out of these properties. Regarding In-N-Out, the Weekly Update recommends passing on the fries (instead, save for room for the gluttonous second burger; some readers have seen this first hand, my sincere apologies, but hey if Gordon Ramsay does it…well, why not). Animal style is a must and if you’re feeling savage, maybe a 4×4.
Great to see many weekly update readers at the ADISA Spring Conference this past week in Orlando. It feels like I’ve been living out of a suitcase for the past month with some of you…
Bonds
Wall Street Journal Reports GWG (NASDAQ: GWGH) Planning to File for Chapter 11 Bankruptcy
On April 4, the WSJ reported that the company was preparing to reorganize under Chapter 11 of the bankruptcy code. The article was updated to note that trading on GWGH stock was halted multiple times on Monday, April 4, following the release of the WSJ article. GWGH common stock has traded down to under $2 at the time this Weekly Update went to press, following a price of $9.60 at the beginning of 2022. The following chart highlights GWG’s common stock trading over the last year.
GWG Amends Credit Facility and Receives NASDAQ Notice of Non-Compliance with Listing Rules
On April 6, GWG reported that it had entered into a waiver and amendment of its credit agreement with National Founders LP. The waiver related to certain provisions defining an event of default related to insufficient funds in a reserve account established as part of the credit agreement. Additionally, National Founders LP will provide an additional $4.0 million advance to GWG DLP Funding VI, LLC (GWG DLP), of which $1.0 million was used by GWG DLP to pay National Founders for an “amendment fee.”
Additionally, the amendment provided for a prepayment premium to be payable to National Founders LP contingent on National Founders LP providing $10 million in debtor-in-possession financing to either GWG Holdings or GWG Life (the subsidiary which holds the company’s life settlement assets).
Further on April 6, GWG announced that it received a letter informing the company it had 60 days to submit a plan to regain compliance with NASDAQ Listing Rule 5250(c)(1) following the company’s failure to timely file its 2021 Annual Report.
For more information: CLICK HERE
REITs
Strategic Student & Senior Housing Trust, Inc. Declares Unchanged NAV per share of $6.08 as Year-end 2021
On March 28, Strategic Student & Senior Housing Trust, Inc. (SSSHT) reported no change in NAV per share as approved by its board of directors pursuant to its valuation policy. The previous estimated NAV of $6.08 per share was as of June 30, 2020, 18 months prior to the current estimate.
SSSHT also provided an operational update noting that occupancies on its senior communities increased from 82% to 86% from year-end 2021 to the end of February 2022. The company also received $800,000 in grants from the U.S. Department of Health and Human Services as part of the CARES Act and received an extension from lender KeyBank on certain restricted cash reserve requirements related to certain loans through the end of 2022. SSSHT reported realized profits of $2.3 million related to the liquidation of two DST investments in 2022 as well. The company continues to operate under significant leverage, with debt-to-gross properties of 90.4% as of year-end 2021.
SSSHT offering of common stock was declared effective in 2018, and the company previously raised capital through a private offering in 2017. The company ceased offering shares in March 2020, due to the COVID-19 pandemic, after raising $108 million in common stock proceeds. SSSHT currently owns a student housing property and four senior housing properties. The company suspended its share redemption program and distributions to investors following the onset of the COVID-19 pandemic.
For more information: CLICK HERE
SmartStop Self Storage REIT Inc. Changes Distribution Authorizations from Quarterly to Monthly
On March 29, the company noted that the change was made in connection with its previously disclosed evaluation of liquidity options for its shareholders.
For more information: CLICK HERE
Alternative Ramblings
RIA Consolidation Not All Its Cracked Up to be in Terms of Shareholder Returns?
Mercer Capital recently looked at returns on large publicly-traded RIA aggregators, including Silvercrest Asset Management Group (NASDAQ: SAMG), Focus Financial (NASDAQ: FOCS), and CI Financial Corp (NYSE: CIIXX) and noted that these targeted firms have generally underperformed broader market indices over the past five years, as noted in the chart below.
This comparative underperformance is notable in that stock in RIA firms is viewed by many as a leveraged play on broader markets due to the asset-based fee structures of these advisors. As Mercer notes:
The investment thesis for investing in RIAs (whether asset management or wealth management) is straightforward: sticky revenue and operating leverage produce a sustainable coupon with market tailwinds.
Add in some economies of scale from rolling up multiple firms and efforts to mitigate attrition of advisors and attendant outflows of AUM post-consolidation, and you have the gist of the consolidation strategy. Mercer notes in practice the post-transaction reality may include some erosion of commitment by acquired firms’ personnel, highlighting the creative structuring of earnouts to incentivize remaining key employees to stay committed. Mercer additionally notes that many of these publicly-traded consolidators have limited histories employing these strategies. Perhaps the jury is still out on whether this strategy will bring home the bacon for investors in the future. So far the bacon appears to be undercooked.
Shale Production Constrained by Supply Chain Issues
Recent elevated energy prices may not lead to a quick return of U.S. shale oil production, as supply chain bottlenecks related to labor, equipment shortages, and tubular steel are likely to weigh on rig counts and production over 2022, according to a recent OilPrice.com article. However, continued oil at prices over $100 throughout 2022 (current WTI Crude is $96 as we go to press) would likely lead to record U.S. production of over 13 million barrels per day, according to research from Rystad Energy cited in the article.
Rent the American Dream!
Increasing inflation has been acutely felt in multifamily rents, which are up approximately 15% year-over-year compared to 7% CPI increases over the same period. 60 Minutes recently noted that the increase is largely related to longer term trends dating to the Great Financial Crisis in 2008, which lead to a decrease in new housing starts in the subsequent decade. As discussed in the 60 minutes special, Redfin data suggests that the country is likely 4 million residential units short to moderate such extreme rental rate increases. The program noted the rise of large single-family rental giants (Invitation Homes, AmericanHomes4Rent, and Tricon Residential) that collectively are purchasing as much as 30% of homes in certain markets across the sunbelt of the U.S. This has the effect of pushing lower priced homes out of reach of many would-be first-time homebuyers, as the institutional purchasers are making all-cash offers and waiving inspection, which reduces the time to close for sellers compared to traditional retail buyers utilizing mortgage financing.
Tricon CEO Gary Berman notes that corporate landlords own just 2% of single-family rental housing across the U.S. and that his company was helping Americans “rent the American dream.” The changing ownership dynamics of single family homes with the increasing momentum of larger corporate landlords is a trend we have followed, previously noting that the prospect of more contentious landlord-tenant regulatory policies is likely to follow. ProPublica recently went in-depth on this phenomenon.
Take Me Out to the Ball Game!
The Weekly Update is pleased that America’s past time is back in swing following a slight delay due to a labor dispute. The Weekly Update loudly boos the decision to put in place a designated hitter for the National League. Our thoughts on that matter (and some others) echo those of the mythical Crash Davis here. FactRight’s favorite Minnesota Twins begin the new season with the 17th best odds in the field to win their 3rd World Series championship at +5000 at MGM’s sports book. We’ll check back in at the midsummer classic…Let’s Play Ball!
Bonds
Watermark Lodging Trust Announces Updated NAV per Share Increase of 14% from Previous Estimate
On March 28, Watermark Lodging Trust, Inc. (WLT, fka Carey Watermark Investors 2 Inc. (CWI 2)) reported a NAV per share of $6.29 as of December 31, 2021. The previous NAV per share was $5.45 as of September 20, 2020. Note the company previously delayed its NAV per share estimate as of December 31, 2019, due to extreme dislocation in the hospitality industry at the beginning of the COVID-19 pandemic. In assisting in forming an estimated NAV per share, WLT engaged CBRE to perform valuation related analysis of the company’s hospitality assets and Robert A. Stanger to perform analysis of the fair value of its property level debts.
WLT was formed from the merger of Carey Watermark Investors (CWI) and CWI 2 in April 2020. CWI 2 was the surviving entity of the merger. As part of the merger, the combined entity became internally managed following the buyout of its external manager, a subsidiary of W.P. Carey Inc. (NYSE:WPC), for 2.8 million shares of common stock of CWI 2 and 1.3 million preferred shares of CWI 2, with a liquidation preference of $50 per share. WLT owns a portfolio of 28 select-service, full-service, and luxury hotels and resorts.
CWI 2 common stock was originally offered at $10.00 per share in an offering declared effective in 2015. CWI common stock was originally offered at $10.00 per share in an offering declared effective in 2010.
For more information: CLICK HERE
Alternative Ramblings
To the Moon!
Real Capital Analytics reports that all four major property types (retail, office, multifamily, and industrial) posted double digit annual price growth as of February 2022. The following chart outlines the buoyancy across these sectors. Industrial and multifamily continued to lead the pack, with over 20% annual price growth. Suburban office continued to outpace core business district properties as lingering shifts in tenant preferences from the COVID-19 pandemic weigh on downtown locations. However, it is important to note that prices are rising on urban office assets following a brief decline. Retail prices expanded following declines at the beginning of the pandemic as well. How long the good times roll in CRE….is anyone’s guess.
Down Payment Assistance Program Launched by Single Family Rental Giant
Invitation Homes (NYSE: INVH) CEO Dallas Tanner outlined a new $250 million investment in Pathway Homes to assist prospective first time home buyers with purchasing a home in an interview with NAREIT’s REIT Report podcast. INVH is the lead investor in Pathway Homes and the Pathway Homes program features an initial lease with a purchase option for the tenant. The program is aimed at facilitating smaller down payment or no down payment options for tenants that are looking to purchase their first home. INVH has been a pioneer in the single-family rental market since launching in 2012 under the sponsorship of the Blackstone Group. This is the second Dallas based residential real estate firm (the other being Megatel) that we know of that is pioneering down payment assistance programs for prospective first-time home buyers. Mr. Tanner anticipates strong yet moderating leasing fundamentals across INVH’s SFR portfolio, and the market at large, in 2022, after noting that 2021 rent growth in the sector was unsustainable. INVH owns over 82,000 SFR properties and has a market capitalization of approximately $25 billion.
Thank you to all readers who came to our recent RIA Conference in Scottsdale, Arizona. It was great to see many familiar faces and new ones as well! Our next event will be in Nashville on August 24-26. Please reach out for additional information or if you’d like to attend.
BDCs
GWG Amends Credit Facility Terms
On February 25, 2022, a subsidiary of GWG Holdings, Inc. (NASDAQ: GWHG), announced that it had entered into an amendment of its loan and security agreement with LNV Corporation (a subsidiary of Beale Bank USA). The amendment notes that LNV Corporation, as a lender, will begin to directly finance maintenance advances to GWG DLP Funding IV, LLC, a wholly owned subsidiary of GWGH, which holds the life settlement assets of GWGH, in order to service scheduled premiums on pledged life insurance policies payable on May 1, 2022.
GWGH previously announced it was working on “restructuring alternatives” and “the process of identifying and considering various alternatives [may] take at least another three to four weeks [as of February 14], and may take longer.” GWGH missed a coupon payment on its outstanding L Bonds in January 2022, and its independent accounting firm, Grant Thornton LLP, declined to stand for reappointment for its 2021 annual report.
For more information: CLICK HERE
Kansas.com reports on former GWGH Chairman Brad Heppner’s Involvement with GWG with the headline “CEO accused of defrauding investors at past company.” Investment News picks up the story as well.
Here is a complaint from a lawsuit filed on February 18, 2022, which seeks class action status and names Brad Heppner, Tom Hicks, and other former and current GWGH board members and executives as defendants. The complaint alleges that Mr. Heppner and others schemed to funnel L Bond proceeds out of GWGH and into entities that they controlled.
REITs
HGR Liquidating Trust Completes Final Property Liquidation
On March 16, HGR Liquidating Trust (fka Hines Global REIT, Inc.) announced that it sold its last remaining property, a high-end shopping center in Edina, Minnesota, called the Galleria, for $150 million. HGR Liquidating Trust announced a special distribution of $0.62 per unit following the sale, which is anticipated to be paid in the last week of March.
HGR Liquidating Trust has distributed $9.47 of special distributions and $5.64 in regular operating distributions since inception. Following the special distribution, HGR Liquidating Trust’s NAV is $0.04 per unit. Shares were originally offered in the Hines Global REIT at $10.00 in an offering declared effective in 2009.
For more information: CLICK HERE
Smartstop Self Storage REIT, Inc. Suspends Distribution Reinvestment and Shareholder Redemption Plans Effective Immediately
On March 7, SmartStop announced the change “in connection with its process for reviewing alternatives in order to provide liquidity to its stockholders.” The share redemption plan was previously limited to hardship redemptions including death and disability.
For more information: CLICK HERE
Pacific Oak Strategic Opportunity REIT, Inc. Expands Share Redemption Funding
On March 10, Pacific Oak Strategic Opportunity REIT, Inc. announced an additional $3 million in funding for share redemptions. Share redemptions are limited to hardship including death, disability, and determination of incompetence. Pacific Oak previously redeemed $29.6 million shares of common stock in the first nine months of 2021. Approximately 13.9 million shares totaling $128 million in value had requested redemption and were not redeemed by the company as of September 30, 2021. Unfulfilled redemption requests represented 14.7% of total outstanding shares as of the end of the third quarter 2021.
For more information: CLICK HERE
Braemar Hotels & Resorts Inc. (NYSE: BHR) Reduces Quorum for 2022 Annual Shareholder Meeting
On March 17, Braemar Hotels and Resorts Inc. (BHR) announced that its board of directors by unanimous written consent reduced the quorum requirement in its bylaws for the 2022 annual meeting from a majority of shares entitled to cast votes to at least one-third of shares entitled to cast votes. BHR cited increased retail shareholders as the rationale for the amended bylaws, noting that retail brokers have adopted policies whereby they will not cast discretionary votes, including auditor ratification, in the absence of retail shareholder instruction.
BHR recently announced the $193 million closing of the Ritz-Carlton Reserve in Dorado, Puerto Rico, at a price of $1.8 million per key, inclusive of certain residential units within a rental program.
For more information: CLICK HERE
Cantor Fitzgerald Income Trust, Inc. Acquires $58 Million Cold Storage Facility
On March 16, Cantor Fitzgerald Income Trust announced the acquisition of the 465,256 square foot facility located in Columbus, Ohio. Cap rate information on the purchase was not disclosed.
For more information: CLICK HERE
Comrit Seeks to Appoint Director to the Board of New York City REIT, Inc.
On March 17, Comrit announced that it had nominated Sharon Stern to NYC REIT’s board of directors, noting that Ms. Stern’s appointment would “be a first step toward restoring investor confidence in NYC REIT and delivering credibility and accountability to this seemingly dysfunctional and insular boardroom.”
For more information: CLICK HERE
Preferred Apartment Communities (NYSE: APTS) Announces Expiration of “Go-Shop” Period Related to Blackstone Real Estate Income Trust Merger Agreement
On March 21, Preferred Apartment Communities (APTS) announced the expiration of its “go-shop” period following its previously announced merger agreement with Blackstone Real Estate Income Trust (BREIT), paving the way for a definitive proxy and the likely close of the merger. APTS’ preferred stockholders will receive a cash liquidation at the liquidation preference of $1,000 per share, plus any accrued and unpaid dividends. The deal is anticipated to close in the second quarter of 2022 subject to APTS’ shareholder approval. FactRight notes that pricing metrics on the transaction include a price/AFFO ratio of 25x based on annualized 2021 AFFO reported through the first three quarters of 2021, and an implied cap rate of approximately 5.4% based on annualized NOI through the first three quarters of 2021.
For more information: CLICK HERE
Alternative Ramblings
Fed Raises Interest Rates
The Federal Reserve raised the federal funds rate 25 bps to a target rate of 25 to 50 bps. The increase is the first of six such interest rate increases anticipated over the coming years. Fed Chairman Jerome Powell recently noted that more aggressive rate hikes may be implemented if needed to combat higher inflation.
New York Fed Issues Reports Highlighting Leveraged Loan Fund Risks
The report entitled Monetary Policy and the Run Risk of Loan Funds highlights concerns regarding open-ended loan funds that invest in portfolios of leveraged loans. The risks center primarily on run risk (i.e., shareholder flows reversing out of funds amidst monetary policy shifts that make holding debt instruments less favorable). Of note the authors write:
“We find empirical evidence suggesting that loan funds, which are key credit providers in the leveraged lending market, are much more vulnerable to run risk than any other category of debt mutual funds.”
The report is an interesting and essential read for folks conducting due diligence in credit-oriented investment vehicles. We note that many of the loan funds noted in the NY Fed’s report trade daily and provide greater shareholder liquidity than many funds distributed through RIAs and IBDs, which feature less shareholder liquidity. The increased shareholder liquidity, and attendant mismatch in portfolio asset liquidity, is at the crux of the fund flow dynamic that may pressure asset prices in the sector.
Guggenheim CIO Scott Minerd Suggests Proper Time Frame to Evaluate Current Inflation is Post-WWII 1946-1948 and Not 1970s
The always thoughtful Scott Minerd has some insight regarding the current inflationary environment we find ourselves in and notes that the Post-WWII era may be a strong historical marker for guidance on the present. Mr. Minerd notes the M2 changes acutely mirror the post-WWII era situation better than previous inflationary periods in the 1970s-1980s and that the inflation in the prior period proved transitory.
Similarly, savings rates climbed in the post-WWII period as we have recently experienced in the COVID-19 pandemic:
Digital Currency Group Announces $250 Million Repurchase Programs for Grayscale Litecoin Trust (OTCQX: LTCN), Grayscale Horizen Trust (OTCQX: HZEN), Grayscale Zcash Trust (OTCQX: ZCSH) and Grayscale Bitcoin Trust (OTCQX: GBTC) and Other Sponsored Trusts.
Digital Currency Group, the sponsor of the respective publicly traded trusts, announced repurchase programs for up to $30 million of Grayscale Litecoin Trust, $10 million of Grayscale Horizen Trust, $10 million of Grayscale Zcash Trust, and up to $200 million of Grayscale Bitcoin Trust and other digital currency trusts, the largest public holder of bitcoins in the world. As the following chart depicts, GBTC has traded at persistent discounts to its NAV per share since 2019.
BDCs
Sierra Income Corporation Completes Merger with Barings BDC, Inc. (NYSE: BBDC)
The close of the merger marks the end of a long liquidity process for Sierra Income Corporation (SIC) that began in 2018 with a proposed series of transactions involving its publicly traded external management Medley Management Inc. (formerly NYSE: MDLY) and a publicly-traded BDC Medley Capital Corporation (NYSE: MCC), which was also externally advised by MDLY. Institutional Investor has chronicled the aborted three-entity merger here.
BBDC is externally managed by Barings LLC (Barings), a subsidiary of MassMutual. SIC shareholders received a package of consideration including cash ($0.9784) and stock (0.44973 shares of BBDC common stock) totaling $5.85 per SIC share, which represents a premium of 10.0% to SIC’s then current net asset value per share of $5.32 as of September 39, 2021. SIC’s offering was declared effective in April 2012. Shares were originally priced at $10.00.
BBDC previously announced that it would provide $100 million in credit support related to unrealized and realized losses on the SIC portfolio over the next ten years. Additionally, BBDC will provide up to $30 million in secondary market support via share repurchases over the next 12-months, if its trading price declines below certain levels in relation to NAV. BBDC currently trades at approximately a 4% discount to its most recent NAV per share of $11.36. Two unnamed, current independent directors of SIC will also join the board of directors of BBDC following the close of the merger. The merger is subject to approval by stockholders of both SIC and BBDC.
MCC subsequently became internally managed on January 1, 2021, after its board of directors’ decision to allow the investment management and administration agreements with subsidiaries of MDLY to expire on December 31, 2020. This internalization coincided with MCC’s name change to PhenixFin Corp.
Following the loss of the investment management agreement with MCC, SIC’s decision to explore strategic alternatives, amendments including fee waivers payable to MDLY, a flurry of material litigation against MDLY and the respective boards of MCC and SIC, and the resignations of the Taube brothers who founded MDLY, MDLY subsequently filed for bankruptcy and wound down operations in mid-2021.
This marks the end of a near decade-long winding road of substandard returns for investors in SIC.
For more information: CLICK HERE
REITs
Corporate Property Associates 18 – Global Incorporated (CPA 18) Announces Affiliated Merger with W.P. Carey Inc. (NYSE: WPC) in a $2.7 billion Transaction.
On February 28, CPA 18 reported that a special committee of its board of directors approved the definitive merger agreement, which was then unanimously approved by the board of directors. CPA 18 shareholders will receive merger consideration of $3.00 per share in cash and 0.0978 shares of WPC common stock. This merger consideration is $10.45 per share based on WPC’s reported 3-day volume weighted average price of $76.17 as of February 25, 2022. The merger with publicly-traded WPC, which also owns CPA 18’s external advisor, will provide CPA 18 shareholders with liquidity on their investment, as no lock-up period is attached to CPA 18 shareholders following the close of the merger and their receipt of WPC common stock.
WPC’s most recent quarterly cash dividend was $1.055 per share, which based on the equity consideration to be received by CPA 18 shareholders, would equate to a $0.41 per share annualized distribution for CPA shareholders. This dividend is 65% greater than CPA 18’s current $0.25 per share annualized distribution.
CPA 18 was initially declared effective in May 2013 and raised $1.2 billion in equity proceeds in its initial public offering, which closed in April 2015, and an additional $283 million was raised through its distribution reinvestment plan. CPA 18’s board of directors reported that it received an unsolicited proposal for a business combination from affiliates of its external advisor in August 2021, and that it would consider liquidity alternatives for CPA 18 shareholders.
CPA 18 owns 127 properties, including student housing, office, retail, self-storage and hospitality properties located in the U.S., Europe, and a 266-room resort hotel property in Mauritius. WPC’s proforma portfolio would be comprised of over 1,300 properties, and is anticipated to have a market capitalization of approximately $15.8 billion, making it one of the 25 largest publicly traded REITs by market capitalization.
WPC listed its common stock on the NYSE in 2012 and closed mergers with affiliated REITs CPA 15 (October 2021), CPA 16 (January 2014), and CPA 17 (October 2018). The definitive merger agreement is conditioned on CPA 18 common stockholder approval. A definitive proxy is forthcoming, and the merger is anticipated to close in the third quarter of 2022.
For more information: CLICK HERE and CLICK HERE
Alternative Ramblings
Healthcare REITs Merge Together in $17.6 Billion Transaction
Healthcare Realty Trust (NYSE: HR) and Healthcare Trust of America (NYSE: HTA) have entered into a merger agreement that would create one of the largest medical office REITs with 727 properties totaling 44 million square feet. HR will be the surviving entity of the merger with its executive team remaining intact and a majority of its board of directors serving on the combined board of directors. HR stock sold off approximately 8% in the trading day following the news of the merger agreement. HR shareholders will own a 39% stake in the combined entity with the remaining share held by current HTA investors. Elliot Investment Management had previously written to HTA, in October 2021, urging it to explore strategic options to unlock shareholder value.
Oil Prices Crest $100 per Barrel on Geopolitical Risk Spike
The Russian invasion of the Ukraine has sent oil prices up to heights not breached since 2014. Reuters reports that the expulsion of a number of Russian banks from SWIFT may disrupt or halt oil and commodity production out of Russia “for days if not weeks”. The increasing price of crude will likely bring back producers into the oil patch in other geographies. The Baker Hughes Rig Count notes 650 rigs active in the U.S. as of February 25, 2022, compared to 402 in the same week in 2021. For broader context, the rig count reached 1,931 in September 2015. The following chart highlights the U.S. rig count with WTI Crude prices through February 24, 2022.
REITs
Preferred Apartment Communities (NYSE: APTS) Announces Sale to Blackstone Real Estate Income Trust
On February 16, Preferred Apartment Communities (APTS) and Blackstone Real Estate Trust (BREIT) announced that they had struck a definitive agreement in which BREIT will acquire all of the outstanding common shares of APTS for $25.00 per share in an all-cash transaction. The price tag for the deal is approximately $5.4 billion, including assumption and repayment of certain debts, inclusive of $1.4 billion in payments to equity holders. APTS’ portfolio is comprised of 44 multifamily properties, 54 grocery-anchored centers, 2 office properties and 10 mezzanine and preferred equity investments in apartments under development. Pricing metrics on the transaction include a price/AFFO ratio of 25x based and an implied cap rate of approximately 5.4% based on annualized 2021 NOI and AFFO reported through the first three quarters of 2021. The consideration marks a premium of 39% over the closing price of APTS’ common stock as of February 9following a Bloomberg article noting that a deal for the REIT was being contemplated by its board of directors.
APTS’ preferred stockholders will receive a cash liquidation at the liquidation preference of $1,000 per share, plus any accrued and unpaid dividends. The deal is anticipated to close in the second quarter of 2022 subject to APTS shareholder approval.
For more information: CLICK HERE
CIM Real Estate Finance Trust Completes $1.32 Billion Portfolio Sale to American Finance Trust, Inc. (NASDAQ: AFIN)
On February 14, 2022, CIM Real Estate Finance Trust closed the sale of 79 shopping centers to AFIN. We previously reported on this deal here. Following the sale. CIM REFT announced that it would repay approximately $348 million in outstanding debts and redeploy the net proceeds from the sale into senior secured loans and credit leases.
For more information: CLICK HERE
Vinebrook Homes Trust, Inc.
On February 14, 2022, Vinebrook announced that it had completed the acquisition of a portfolio of approximately 3,000 single-family rental homes located across eight states including Georgia, Tennessee, Missouri, Florida, North Carolina, South Carolina, and Mississippi. Vinebrook acquired the portfolio for $354.2 million, excluding closing costs. Vinebrook also completed the acquisition of the managing company of the portfolio in a separate $7.5 million transaction. Pricing multiples on the respective transactions were not disclosed.
For more information: CLICK HERE
Bonds
GWG Holdings Press Release
On February 14, 2022, GWG Holdings, Inc. (GWGH) noted in a press release that it was working with legal and financial advisors on certain “restructuring alternatives” and “the process of identifying and considering various alternatives [may] take at least another three to four weeks, and may take longer.”
Additionally, GWGH noted that coupon payments on the L Bonds and preferred distributions on the Redeemable Preferred Stock would remain suspended and that missed payments continue to accrue. GWG further reported that “We will inform you if and when we are able to restart these cash payments in the future.”
GWGH missed a coupon payment on its outstanding L Bonds in January 2022, and its independent accounting firm, Grant Thornton LLP, declined to stand for reappointment for its 2021 annual report.
For additional information: CLICK HERE
Alternative Ramblings
Hines Appoints Laura Hines-Pierce to Serve as Co-CEO Alongside Her Father Jeff Hines
Ms. Hines-Pierce’s appointment marks the third generation of Hines family members leading the international developer. Bloomberg has further details on the appointment available here.
Hines announced in December 2021 that it had reached an agreement for the redevelopment of the PG&E campus in downtown San Francisco, which is anticipated to feature more than 800 multifamily units and comprise the second tallest tower in the city.
Accounting Firm and Golf Legend Phil Mickelson Agree to Part Ways
Accountants walking away from an engagement is always a red flag. KPMG recently announced that they and Lefty agreed to mutually terminate their sponsorship of the golfer in the wake of his colorful description of the Saudi government. The reigning PGA Championship winner subsequently apologized for his uncouth remarks. Perhaps Mr. Mickelson will approach Aramco’s accountants PwC as a potential new sponsor?
Smarter Than Your Average Bear
“Hank the Tank,” a black bear that has lost its fear of humans, has graduated from snatching “pic-a-nic” baskets as his ursine endeavors have expanded to ransacking houses across South Lake Tahoe. Hank is large and at large and wanted by the authorities…so naturally, a petition has been launched to spare his life.
Interval Funds
Griffin Institutional Access Credit Fund Files Preliminary Proxy Statement Regarding Upcoming Shareholder Vote to Approve Advisory Agreement with Apollo Global Management, Inc.
On January 28, 2022, the interval fund in a preliminary proxy outlined the transition from the sub-advisory agreement with BCSF Advisors, LP, to a subsidiary of Apollo Global Management, Inc. Per the preliminary proxy statement, the anticipated advisory and sub-advisory agreements will not have increased fees from the current advisory and sub-advisory agreements, and there are not anticipated to be any material differences between the current and anticipated agreements. A definitive proxy statement and special meeting of shareholders is anticipated in the coming months. Shareholders will vote to approve the new advisory agreements as required by the 1940 Act.
For more information: CLICK HERE
REITs
Presidio Property Trust Inc. Closes SPAC Offering
On February 7, 2022, Presidio Property Trust (NSADAQ: SQFT) announced the successful completion of the initial public offering of Murphy Canyon Acquisition Corp., a special purpose acquisition company sponsored by the REIT. Murphy Canyon sold $132.3 million in units (at $10.00 per unit). Each unit includes one share of Class A common stock and one redeemable warrant to purchase one share of common stock at a price of $11.50 per share. The units are listed on NASDAQ under the ticker symbol MURFU and will begin trading separately from the company’s common stock in the future.
Murphy Canyon was formed to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. The special purpose acquisition company (SPAC) intends to focus on companies in the real estate industry and may include construction, homebuilding, real estate owners and operators, financing companies, insurance, and other real estate services and technology companies.
For more information: CLICK HERE
NAREIT went in depth on the prospects of Real Estate Related SPAC Deals in February 2021. We note that the SPAC structure may provide for some interesting liquidity options for legacy public non-traded and private real estate funds in the IBD/RIA channel. Of note, Simon Property Group organized a SPAC deal, Simon Property Group Acquisition Holdings, Inc. (NYSE: SPGS), in February 2021, raising $345 million in proceeds. To date, Simon’s SPAC has not closed on an acquisition target, though Citigroup recently purchased a 1.16% stake in the SPAC in late January 2022.
Pacific Oak Strategic Opportunity REIT, Inc. Updates NAV and Temporarily Suspends Redemption Program
On January 28, 2022, the REIT (Pac Oak SOR) announced an estimated NAV per share of $9.51. This reflects a reduction from the previously estimated NAV per share of $10.68 as of September 30, 2021, less a special dividend of $1.17 that was approved on December 28, 2021.
Pac Oak SOR further reported that on January 26, 2022, its board of directors approved the temporary suspension of its share redemption program for the month of January 2022 with redemptions anticipated to resume at the end of February 2022. The temporary suspension is to “allow stockholders an opportunity to review the updated estimated value per share.”
According to Pac Oak SOR’s third quarter report, During the first three quarters of 2021, the REIT had redeemed $29.6 million of common stock under its redemption plan, and had 13.9 million shares totaling $128.0 million that were validly tendered for redemption that had gone unredeemed due to limitations of its current share redemption program. Outstanding redemption requests represent approximately 15% of total outstanding common stock. The company previously announced it would redeem an additional $3.2 million of common stock in the fourth quarter of 2021.
Pac Oak SOR also reported that on September 1, 2021, it redeemed 584,267 shares of restricted stock for $5.7 million in cash ($9.68 per share). The restricted stock was part of a total of 3.4 million shares of common stock issued to KBS Holdings LLC as consideration for the internalization of Pac Oak SOR’s former external advisor, KBS Capital Advisors LLC.
For more information: CLICK HERE
Alternative Ramblings
SEC to Vote on Proposals to Require Quarterly Reporting for Private Equity and Hedge Funds
“Wall Street’s top regulator is seeking to compel hedge funds and private equity groups to disclose quarterly performance and fees charged to investors, as the agency pushes back against activities it warned were “contrary to the public interest”. The Securities and Exchange Commission on Wednesday will vote on a string of proposals that would require annual audits of private funds, ban certain fees that buyout shops charge as well as prohibit preferential terms for certain investors.”
If the SEC Commissioners approve the proposal, it will go to a public commentary period prior to implementation.
This follows previous action in January 2022 by the SEC Commissioners, also subject to a public comment period, to force more current reporting of material events at private funds as well.
“The proposed amendments would require current reporting for large hedge fund advisers and advisers to private equity funds. These advisers would file reports within one business day of events that indicate significant stress at a fund that could harm investors or signal risk in the broader financial system.”
The anesthetizing light of transparency is seemingly shining a little brighter….
ProPublica Explores the Rising Trend of Private Equity Landlords
ProPublica dove deep into tenant relations with the rising trend of private equity firms acquiring multifamily properties across the United States. ProPublica notes that of the 35 largest multifamily owners in the U.S., approximately half are now private equity firms, compared to approximately one-third in 2011. In 2015, for the first time, individual landlords reportedly owned less than 50% of apartment units, with that number declining to 41% in 2018, coinciding with the rise of private equity landlords and further consolidation in the market. The article notes that the attractive multifamily financing provided by Freddie Mac was favored by the private equity firms, noting that approximately 85% of its largest multifamily financings had private equity sponsors including Greystar, Lone Star, Starwood Capital, Brookfield, Harbor Group International, and Kayne Anderson, among others. Tenant relations were a key focus of the article, noting multiple accounts of rapidly escalating rents, reduced services, and unresponsive landlords. Given the increased consolidation, this has stoked fears among some of further special interest influence on landlord-tenant relations and zoning decisions.
This article is prescient given the lag in development of additional housing units to keep up with demand in many major markets across the country and the continued significant capital raising of multiple private equity firms both in public and private investment vehicles. One imagines that the issues identified in the article will only continue to metastasize as further consolidation in the residential rental market occurs. Landlord-tenant relations have always been contentious. However, it’s one thing when your landlord is Mr. and Mrs. Jones across town and a completely different dynamic when your landlord is a so-called master of the universe that cut its teeth Barbarians at the Gate-style. The increasing presence of Wall Street stalwarts into the picture may further politicize and shift dynamics towards more accommodative tenant provisions and rent controls. Green Street’s sector outlook on single family rentals (SFR) echoes potentially increasing risks related to more expansive rental regulations on the horizon as well. Voters in St. Paul, Minnesota recently enacted the strictest rent control provision in the country according to experts, that puts in place caps on rental increases and does not allow for market price resets upon vacancies. One might expect that this narrative would stem from a decrease in homeownership rates in the U.S. However, as the red line in the following chart from FRED highlights, that is not the case since a multi-decade low in 2015-2016.
REITs
Resource REIT, Inc. to be Acquired by Blackstone at a 63% Premium to Estimated NAV per Share
On January 23, 2022, the company announced that its board of directors had approved a merger transaction with and into a subsidiary of Blackstone Real Estate Income Trust, Inc. Pursuant to the merger agreement, each share of Resource REIT stock will be canceled and converted into a right to receive $14.75 in cash. Resource REIT’s most recent estimated NAV per share was $9.06. Resource REIT, formerly known as Resource Real Estate Opportunity REIT II, Inc., was formed from stock-for-stock mergers with Resource Real Estate Opportunity REIT, Inc. and Resource Apartment REIT III, Inc. which closed in January 2021. Resource REIT internalized its external advisor in September 2020 for total consideration of $156 million, consisting of a combination of OP Units and cash. Resource REIT reported total assets of $2.4 billion as of September 2021, comprised of 42 apartment communities featuring 12,600 units located across 13 sunbelt states. The all-cash deal is valued at $3.7 billion. The merger is conditioned upon the approval of a majority of Resource REIT shareholders. Resource REIT also announced that it had entered into certain employee retention/transaction bonus plan arrangements with certain executive officers, including CEO Alan Feldman, CFO Thomas Elliott, CIO Marshall Hayes and chief legal officer Shelle Weisbam, who will receive respectively $2.45 million, $1.5 million, $1.5 million and $0.75 million, to retain these executives until the completion of the merger.
This marks the second transaction in a month in which Blackstone affiliates have purchased a public REIT with multifamily assets following the announced deal with Bluerock Residential Growth REIT (NYSE: BRG), which we reported on here.
For more information: CLICK HERE
Alternative Ramblings
United Development Funding Executives Convicted of All Counts by Jury
CEO Hollis Greenlaw, CFO Cara Obert, president Benjamin Wissink, and director of asset management Jeffrey Jester were each found guilty of all ten charges, including securities fraud, wire fraud and conspiracy, in a five day criminal trial that concluded on January 21, 2022, following approximately 12 hours of jury deliberation. We reported on the charges filed in October 2021, here. Each could face prison terms of up to 25 years. Each of the convicted executives plan on appealing the conviction.
Following the convictions, UDF IV announced the resignation of Hollis Greenlaw as a trustee and CEO, and the appointment of Jim Kenney to serve as acting chief executive officer, and Stacy Dwyer as acting CFO. Larry Jones was subsequently elected to the UDF V board of trustees. Mr. Jones was already an independent trustee of UDF IV and will serve as chairman of both trusts. Mr. Greenlaw resigned as a trustee of both UDF IV and UDF V following the convictions.
Bonds
GWG Holdings, Inc. (NASDAQ: GWGH) Reports that it Failed to Pay the January 15 Interest and Principal Payments on L Bonds, Seeks to Engage Restructuring Advisor, and Anticipates Delay in Filing its 2021 Annual Report
On January 18, 2022, GWGH reported that it failed to make $10.35 million interest and $3.25 million of principal maturity payments on its L Bonds as of January 15, 2022. The company has a 30-day grace period to make the missed interest and principal payments. If GWGH fails to cure during this period, the holders of at least 25% of the outstanding principal balance of the L Bonds may elect to accelerate the L Bonds to make them immediately due and payable. Payment of principal and interest on the L Bonds is subordinated to outstanding senior debt.
FactRight notes that tangible assets on the company’s balance sheet included the reported fair value of life insurance policies, including policy benefits receivable, of approximately $794.7 million as of its third quarter report. Cash and restricted cash of $67.7 million, and investments in alternative assets of $226.1 million. Total outstanding senior credit facilities were approximately $327.7 million and L Bonds outstanding totaled $1.552 billion. As one can surmise, total outstanding debts significantly exceed reported values of tangible assets on the company’s balance sheet.
GWGH also reported that it suspended its L Bond sales effective January 10, 2022, and that it would pay dividends on both classes of its outstanding redeemable preferred stock in additional shares of preferred stock as opposed to cash dividend payments.
The company also noted that its board of directors authorized management to retain restructuring advisors, anticipated to be FTI Consulting, Inc. and Mayer Brown LLP, to assist GWGH in “evaluating alternatives with respect to [The company’s] capital structure and liquidity.”
Last week Grant Thornton LLP reported that it would decline to stand for reappointment as the company’s independent registered public accounting firm. We reported on this here, noting that this was the second time in a span of approximately three years that the company’s independent auditors had declined to stand for reappointment. Additionally, GWGH’s 2020 annual report also disclosed that the company is under a non-public, fact-finding investigation by the SEC. We also previously reported on the significant turnover on GWG’s board of directors in 2021 here.
For more information: CLICK HERE
REITs
Braemar Hotels & Resorts Inc. (NYSE: BHR), Ashford Hospitality Trust, Inc. (NYSE: AHT), and Ashford, Inc. (NYSE: AINC) Announce Termination of SEC Investigation
On January 18, 2022, the publicly traded REITs, and their publicly traded external advisor, each reported that they had received a letter from the SEC stating that “the SEC’s investigation is concluded, and that the SEC enforcement staff does not intend to recommend any action by the SEC against BHR, AHT, and AINC.
BHR, AHT, and AINC previously reported that in June 2020, each of the companies received an administrative subpoena from the SEC for documents dating back to January 2018, regarding certain related party transactions between the entities, and the accounting policies related to such transactions.
For more information: CLICK HERE, CLICK HERE, and CLICK HERE
Alternative Ramblings
REIT M&A Activity Hits $99 Billion in 2021 Highest Level Since 2006
This marks the highest total in REIT M&A since 2006 when approximately $105 billion in deals were announced, according to data from S&P Global Market Intelligence. Categorized by deal type, the 2021 transactions included $61 billion in public REITs acquiring other public REITs, $34 billion in privatization transactions in which a public REIT was acquired by a private entity, and approximately $4 billion in a public REIT acquiring a non-traded REIT (Independence Realty Trust’s acquisition of Steadfast Apartment REIT, which we reported on here). The largest reported deal was Realty income Corp.’s (NYSE: O) acquisition of VEREIT, Inc. (formerly NYSE: VER).
Data centers were the single largest sector that consolidated during 2021, including three data center deals priced at over $10 billion each. These included the acquisitions of CoreSite Realty Corp. (formerly NYSE: COR) by American Tower Group (NYSE: AMT), CyrusOne Inc. (formerly NASDAQ: CONE) by Global Infrastructure Partners LP and KKR & Co. Inc. (NYSE: KKR), and The Blackstone Group Inc.’s (NYSE: BX) acquisition of QTS Realty Trust Inc. (formerly NYSE: QTS).
The following chart highlights deal activity by quarter dating back to 2016. As the chart indicates 2021 was briskly paced after a muted 2020 due to COVID-19 uncertainties.
S&P Capital Markets reports that multiple analysts, including John Kim of BMO Capital Markets and portfolio manager Steve Buller at Fidelity Investments, anticipate continued deal activity to remain elevated in 2022, citing the low costs of debt and equity capital, and, as Mr. Buller noted, “fairly good” real estate fundamentals.
Publicly Traded REIT Premiums to Consensus Estimated NAVs Highest in Years: Opportunity for Greater Liquidity On Legacy Non-Traded REITs?
FactRight notes that REITs trading at a premium to consensus estimated NAVs (as highlighted by the chart below), following the initial steep declines following the uncertainties and market dislocation following the COVID-19 pandemic’s outbreak in 2020, have generally led to some of the most robust REIT pricing seen in many years on publicly traded REIT equities. These accommodating market conditions, in addition to the low costs of debt and equity capital, provide a strong backdrop for liquidity events on multiple legacy non-traded REITs. However, disfavored external advisory agreements, common to many non-traded REITs, will likely temper loftier valuations of prospective listings in contrast to the more favored internally managed structure more commonly found in the publicly traded REITs.
Mike Weil Talks Retail Real Estate Market Conditions with NAREIT
Mike Weil, the CEO of American Finance Trust, Inc. (NASDAQ: AFIN, soon to be renamed The Necessity REIT, Inc. (NASDAQ: RTL), joins the NAREIT Podcast to talk about his book and retail market conditions and AFIN’s recently announced acquisition of $1.3 billion in shopping center assets from CIM Real Estate Finance Trust, Inc., which we reported on here.
Bonds
GWG Holdings, Inc. Reports Auditor Will Not Stand for Reappointment in 2022
On January 6, 2022, GWG Holdings, Inc. (NASDAQ: GWGH) reported that Grant Thornton LLP, the independent accounting firm that performed the audit of GWGH’s 2020 annual report (filed after delay in November 2021), notified GWGH that it will not stand for reappointment as the company’s independent registered public accounting firm. The current report notes that there were no disagreements between GWGH and Grant Thornton from December 31, 2020, and January 6, 2022, related to accounting principles or practices, financial statement disclosure or auditing scope or procedure. Grant Thornton’s audit opinion of GWGH’s annual report for the year ending 2020 did not contain an adverse opinion, disclaimer of opinion, or qualified opinion. Two material weaknesses were identified in the 2020 annual report over internal financial controls related to accounting policies and disclosures.
FactRight notes that Whitley Penn LLP was the independent registered public accountant for GWGH’s 2019 annual report. Whitley Penn was replaced by GWGH’s audit committee in September 2020. The 2018 and 2017 annual reports were audited by Baker Tilly Virchow Krause, LLP. Baker Tilly declined to stand for reappointment for fiscal year 2019. FactRight notes that multiple auditors declining reappointment in the span of a few years is highly unusual.
GWGH’s 2020 annual report also discloses that GWGH is under a “non-public, fact-finding investigation into the Company by the SEC, and we are unable to predict the outcome of this matter.” GWG disclosed in its 2020 annual report that:
“On October 6, 2020, GWG Holdings received a subpoena to produce documents from the Chicago office of the SEC’s Division of Enforcement, informing the Company of the existence of a non-public, fact-finding investigation into GWG Holdings. Since the initial subpoena, the Company has received subsequent subpoenas from the SEC for additional information. The requested information from the SEC has primarily related to GWG Holdings’ investment products, including its L Bonds, as well as various accounting matters, among them, the consolidation for financial reporting purposes of Beneficient by GWG Holdings, goodwill valuation, and the accounting related to the ExAlt Trusts, related party transactions, life insurance policies, and the calculation of the debt-coverage ratio. We are cooperating fully with the SEC in connection with its investigation. Investigations of this nature are inherently uncertain, and their results cannot be predicted. Regardless of the outcome, the SEC investigation may have an adverse impact on us because of fines, legal costs, other expenses, diversion of management resources, and other factors. The investigation could also result in reputational harm to the Company and may have a material adverse effect on the Company’s current and future business activities and its ability to raise capital through the sale of L Bonds and equity securities. As a result, the failure to raise enough capital to meet our cash needs could have a material adverse effect on our operations and the value of our securities.”
For more information: CLICK HERE
BDCs
Apollo Launches Non-Traded BDC Apollo Debt Solutions BDC
On January 7, 2022, the BDC broke escrow with approximately $657 million in equity proceeds from its continuous offering. The perpetual life BDC is sponsored by affiliates of Apollo (NYSE: APO). The BDC focuses on senior secured large corporate direct originations, broadly syndicated loans, and with a secondary focus on middle market direct lending. The BDC reported that Apollo and its employees, including executive officers, owned approximately $3 million in interests in the BDC as of January 7, 2021.
Apollo has been actively building greater inroads into the independent broker-dealer and RIA channel in the past two months, with the previously announced acquisition of Griffin Capital, which we reported on here. In addition, Apollo led a $225 million round of investment into alternative investment platform CAIS as reported by the Wall Street Journal on January 11, 2021. Franklin Templeton and Motive Partners are also reportedly participating in the investment alongside Apollo. The investment by Apollo into CAIS values CAIS at more than $1 billion. CAIS, founded in 2009, is an alternative investment platform that provides access and education to financial advisors on alternative investments including hedge funds, private equity, real estate, and structured notes. CAIS founder and chief executive officer Matt Brown noted that “clients of independent advisers have 1% to 2% of their portfolios allocated to alternative assets, compared with 15% or greater for big banks’ private wealth clients and 30% to 40% for institutional investors such as pension funds.
For more information: CLICK HERE
Interval Funds
Cantor Fitzgerald Files Registration Statement for Sustainable Infrastructure Fund
The registration statement, filed on January 6, 2022, for the Cantor Fitzgerald Sustainable Infrastructure Fund notes the interval fund will be advised by Cantor Fitzgerald Investment Advisors, L.P. and sub-advised by Capital Innovations, LLC, which was founded in 2007 and “has advised, managed, or co-sponsored investment programs encompassing over $9 billion in assets.” Susan Dambekaln and Michael Underhill are co-founders and serve as portfolio managers of Capital Innovations.
The Fund will seek to invest according to “Megatrends” including enhancement of aging infrastructure, decarbonization trends, and digital transformation of communications infrastructure. Infrastructure assets may include assets involved in electricity generation, transmission and distribution, gas transportation and distribution systems, water distribution, waste-water collection and processing, transportation assets including toll roads, airports, seaports and railway assets, renewable power generation, and communication assets including wireless towers, fiber, data centers, distributed network systems and satellite networks.
The Fund anticipates a mixture of between 50-95% of investments in private funds and 5-50% in publicly-traded securities, which may include ETFs, closed-end funds, REITs, ABS, direct or indirect ownership of common and preferred stock of individual companies, and corporate and municipal debt securities.
For more information: CLICK HERE
REITs
Braemar Hotels & Resorts Inc. (NYSE: BHR) Announces Increased RevPAR in the Fourth Quarter
On January 6, 2022, the Dallas-based REIT announced that RevPAR in the fourth quarter was up 163% compared to the fourth quarter in 2020 and approximately 7% higher than in the (pre-pandemic) fourth quarter of 2019.
HGR Liquidating Trust (fka Hines Global REIT, Inc.)
On January 10, 2022, HGR Liquidating Trust provided an operational update reporting that it had sold three additional properties for an aggregate sale price of $216 million. The board of trustees further announced that it declared a special distribution of $0.60 per unit to be paid on or around January 14. Inclusive of the January 2022 special distribution, the company will have paid special distributions of $8.85 per unit. Shares were originally offered in the Company at $10.00 in an offering declared effective in 2009. Regular operating distributions from 2009 through 2018, when shareholders approved the company’s liquidation, totaled $5.64. Following the January 2022 special distribution, the board determined that the estimated value per unit is $0.69, based on the net asset value of $2.09 reported in 2019, reduced for subsequent special distributions.
The company noted that it had one remaining property, which it expects to sell and make a final liquidating distribution “in the coming months.”
For more information: CLICK HERE
Alternative Ramblings
Inflation Highest in Nearly 40 Years – Real Returns Turn Negative on New Issuances of High Yield Debt
Inflation crested 7% in December 2021, marking three straight months over 6%, according to the Bureau of Labor Statistics (with further context in this WSJ article). The following chart highlights the core CPI change over 12 months, including the inflation gauge less food and energy inputs. I personally use ribeye prices as my inflation index of choice, and in my non-scientific guesstimate based on recollections of purchases, I believe we’re up approximately 40% from the sepia-toned pre-COVID years. US Department of Agriculture data highlights that choice beef values per pound have increased from $5.70 in the first quarter of 2019 to $7.47 at year-end 2021, for an increase of 31%– so I’m not too far off. I prefer prime, but with current price trajectories on Angus, perhaps I should brush up on some pork recipes.
S&P Global Market Intelligence reported that average yields on primary issuance of high yield bonds and leveraged loans in the six months ending October 2021 was 5.26%, a step up from a record low yield of 4.38% in July, begging the question what is “high” in these high yield issuances. Net of recent inflation marks, the real yield has dipped to negative territory on the paper, and for many other income-oriented investment vehicles, including REITs for that matter. The following chart from Leveraged Commentary & Data highlights the decreasing primary issuance yields on high yield bonds since 2007.
New Year New Kind of Dividend
Microcap company BTCS, Inc. (NASDAQ: BTCS) announced that it would begin offering a dividend to its shareholders payable in Bitcoin. BTCS is “a blockchain technology focused company.” That holds certain digital assets including Bitcoin, Ethereum, and various other cryptocurrencies. Investors will need to have a Bitcoin wallet to receive the Bitcoin distribution from BTCS as the traditional DTC transfer agent arrangement will not facilitate payment of such a distribution. The bitcoin distribution is anticipated to be $.05 per share.
BDCs
Business Development Corporation of America Changes Name to Franklin BSP Lending Corporation
On January 4, 2022, the board of directors approved the name change effective January 1, 2022. The Company is externally advised by Benefit Street Partners. In 2019, Franklin Resources, Inc. and Templeton International, Inc. (Franklin Templeton) acquired Benefit Street Partners.
Chief executive officer Richard Byrne noted, “We think [the name change] will better align our brand with both Franklin Templeton and Benefit Street Partners, and best position us for future growth.”
FactRight notes the company’s reported NAV per share was $7.46 as of September 30, 2021, which marks an increase from the nadir of $6.47 as of March 31, 2021, during the broader market selloff at the beginning of the COVID-19 pandemic. The current NAV is off approximately 25% from the original offering price of $10.00 per share in 2011.
For more information: CLICK HERE
Sierra Income Corporation Terminates Advisory Agreement in Anticipation of Merger with Barings BDC, Inc. (NYSE: BBDC)
On December 30, 2021, Sierra Income Corporation reported that its board of directors approved the termination of the investment advisory agreement with SIC Advisors and the administration agreement with Medley Capital LLC, effective February 22, 2022, or the effective time of the merger of the company and Barings BDC, Inc.
The merger was previously announced on September 21, 2021. The company’s stockholders will receive 0.44973 shares of BBDC common stock per share of Sierra Income Corporation common stock they hold, as well as $0.98 per share in cash at the closing. This was priced at $5.82 in total consideration based on BBDC’s closing price of $10.63 on September 20, 2021, and $5.95 per share based on the January 4, 2022, closing price. This marks a premium of 6.1% and 9.6%, respectively, to Sierra’s reported NAV per share as of the time of the deal announcement.
The merger is still subject to Sierra stockholder approval. The company reported that if for any reason the merger does not close, the board of directors anticipates considering alternatives, including the appointment of a new advisor, another merger transaction, or a liquidation of the company’s assets. If the merger is not completed due to a failure of the company’s shareholders to approve the merger, the company may be obligated to pay termination fees of $11.0 million.
For more information: CLICK HERE
REITs
Lightstone Value Plus REIT V, Inc. Announces Sale of Student Housing Property
On December 27, 2021, Lightstone Value Plus REIT V, Inc. (Lightstone V, fka Behringer Harvard Opportunity REIT II, Inc.) announced the sale of two off-campus student housing properties near the University of Georgia campus for $77.3 million. Lightstone V reported net proceeds of $45.1 million following the repayment of a mortgage secured to the properties, the buyout of a 15% JV partner in the properties, and closing costs. The properties were originally acquired in 2011 for $32.8 million with mortgage loans of $25.2 million. Not a bad bit of business there.
For more information: CLICK HERE
REITs
Bluerock Residential Growth REIT (NYSE: BRG) to be acquired by Blackstone Real Estate and Spin-Off Single-Family Rental Assets
On December 20, 2021, Bluerock Residential Growth REIT, Inc., announced that it reached an agreement with Blackstone Real Estate, which will acquire all of the outstanding shares of BRG common stock for $24.25 per share in a transaction valued at $3.6 billion including the assumption of debts. Prior to the close of the BRG transaction, BRG will spin off its single-family rental business through the taxable distribution of shares of common stock of a newly formed REIT named Bluerock Homes Trust, Inc. (BHT). BHT will be an externally managed REIT that will be managed by an affiliate of Bluerock Real Estate. BHT will have investments in approximately 3,400 homes, including 2,000 homes through mezzanine loan and preferred equity investments. BRG reported that BHT will have an estimated NAV per share of $5.60, based on valuation inputs from Duff & Phelps. The transaction is subject to the approval of BRG shareholders and is anticipated to close in the second quarter of 2022. The transaction is also contingent upon the completion of the spin-off transaction. As a result of the transaction, BRG will suspend all distribution reinvestment plans, including those of the various series of preferred stock offerings, and all distributions going forward will be made in cash.
Upon completion of the transaction with Blackstone Real Estate, all outstanding Series B, C, D and T preferred stock will be redeemed in cash, including payment of any accrued but unpaid dividends outstanding at the time.
BRG shares traded up significantly on the announcement as the following chart highlights.
For more information: CLICK HERE and CLICK HERE
CIM Income NAV, Inc. and CIM Real Estate Finance Trust, Inc. Complete Merger Following Shareholder Approval and CIM Real Estate Finance Trust Announces Portfolio Sale of Non-Core Assets to AFIN
On December 16, 2021, CIM Income NAV, Inc. (CIM Income NAV) completed its merger with CIM Real Estate Finance Trust, Inc. (CIM REFT). The merger closed following CIM Income NAV shareholder approval of the merger, which was received at a special meeting of stockholders on December 14, 2021. Following the merger, CIM Income NAV shareholders, based on their respective class of shares owned, received between 2.502 and 2.622 shares of CIM REFT common stock. For more information on details related to the CIM Income-CIM REFT merger, click here.
Following the close of the merger, on December 20, 2021, CIM REFT announced that it entered into an agreement to sell all 81 of its multi-tenant retail properties to American Finance Trust, Inc. (NASDAQ: AFIN) for consideration of up to $1.3 billion, including $53.4 million in AFIN stock. The consideration is inclusive of performance measures related to certain individual properties within the 81 property portfolio, specifically, how these properties perform in the 180 day period following the anticipated close of the transaction. The portfolio sale is anticipated to close in the first quarter of 2022. Following the sale of the assets to AFIN, CIM REFT’s portfolio will consist of 437 properties with a weighted average lease term of 10.8 years, comprising 13.2 million gross rentable square feet located in 45 states. Additionally, CIM REFT also held a loan portfolio with a principal balance of $1.6 billion as of September 30, 2021.
On a side note, AFIN announced that it was changing its name to The Necessity Retail REIT, which will trade under the ticker symbol “RTL”. AFIN also published additional details regarding the portfolio acquisition from CIM REFT available here.
For more information: CLICK HERE and CLICK HERE
Braemar Hotels & Resorts Inc. (NYSE: BHR) Reports November 2021 RevPAR Exceeds Pre-COVID November 2019 RevPAR
On December 16, 2021, Braemar Hotels & Resorts Inc. provided an operational update of portfolio performance as of November 2021. The Company reported RevPAR of approximately $212 across its portfolio of hotels, which marked an increase of 151% from November 2020, and an increase of 3.8% from November 2019 (in that halcyon pre-COVID year).
For more information: CLICK HERE
Brookfield Real Estate Income Trust Inc. Reports almost $0.6 Billion in Acquisition Activity
On December 21, 2021, Brookfield Real Estate Income Trust Inc. (fka Oaktree Real Estate Income Trust, Inc.) announced the completion of six acquisitions, including two multifamily properties, three in-fill logistics centers, and the DreamWorks Animation Campus in Southern California. The six properties were acquired for a total of $569.5 million. Cap rate information on the respective acquisitions was not disclosed.
For more information: CLICK HERE
Lightstone Value Plus REIT IV Announces Shareholders Approved Charter Amendments and its Board Subsequently Amended its Bylaws
On December 21, 2021, Lightstone Value Plus REIT IV, Inc. (Lightstone IV) reported that shareholders voted to approve various charter amendments at a special meeting of shareholders held on December 16, 2021. These charter amendments included:
- Removal of charter provisions defining a quorum as 50% of shareholders to conduct certain matters subject to a shareholder vote. The board of directors subsequently approved an amendment to the bylaws to reduce the definition of a quorum to be 35% of all the votes entitled to be cast at a shareholder meeting.
- Elimination of charter provisions requiring the board of directors to consider a liquidation or dissolution of the Company by March 31, 2022 (which is the fifth anniversary of the termination of Lightstone IV’s public offering) in the absence of a listing of the common shares on a national stock exchange.
- Reduce shareholder access to certain company books and records, including the stockholder list, to conform with Maryland default provisions, which restrict such access to shareholders who hold more than 5% of the outstanding shares of a class of stock.
We previously reported on these charter amendments and an update on Lightstone IV’s portfolio here.
For more information: CLICK HERE
Alternative Ramblings
Demographics are the Future
The latest U.S. Census Bureau data on population growth paints a dire picture regarding U.S. population growth. The Census Bureau reported that population growth, including net international migration, increased by 0.13% from July 2020 through July 2021. This 2021 growth rate was slower “than in any other year since the founding of the nation, based on decennial censuses and annual population estimates.” This tepid growth highlights the profound effects of the COVID-19 pandemic on American society Think about that as a matter of perspective: multiple world wars, the Great Depression, the Civil War, and countless boom and bust cycles in the past two centuries and presently we find ourselves at the point of our lowest population growth rate. This slowing population growth presents a headwind for continued economic expansion in the United States. As the chart below highlights, the rate of population growth in the U.S. has decelerated since the 1990s.
Additionally, the census data highlights net domestic migration within the United States, with the South region increasing by 657,682 people, whereas the Northeast region saw net outward migration of 389,638. New York alone saw 352,185 residents migrate out of the state from 2020 through 2021. States with the largest net domestic migration increases were, as expected, Sunbelt states, including Florida, (220,890), Texas (170,307) and Arizona (93,026).
Happy Holidays to all!
Apollo Global Management Inc. (NYSE: APO) Reaches Agreement to Acquire Distribution and Asset Management Businesses of Griffin Capital
On December 2, 2021, Griffin Capital announced that it had reached an agreement to sell certain parts of its securities distribution and asset management businesses to Apollo. The financial terms of the transaction were not disclosed. The transaction is anticipated to close in the first half of 2022. The transaction is subject to certain closing conditions, including approval by the shareholders of the two Griffin Capital interval funds, Griffin Institutional Access Credit Fund (GIACF), and Griffin Institutional Access Real Estate Fund. Definitive proxies for these interval funds will be forthcoming. Additionally, the transaction is subject to the closing of Apollo’s previously announced all-stock merger with insurance firm Athene Holding Ltd. (NYSE: ATH). Apollo announced it had reached an all-stock merger agreement with ATH earlier in 2021. The transaction is anticipated to close in January 2022 subject to the approval of Apollo and Athene shareholders. As of December 7, 2021, Apollo’s market capitalization was approximately $30.7 billion, and Athene’s market capitalization was approximately $15.6 billion. According to the press release, Apollo plans to integrate the Griffin Capital distribution team into its Global Wealth business. Apollo reported AUM of $481 billion as of September 2021, of which $361 billion was reported as fee generating AUM. Of the $481 billion in AUM, $54.1 billion of AUM was classified as real assets, $86.1 billion was classified as private equity, and $340.9 billion were classified as credit assets.
The Weekly Update notes that GIACF is sub-advised by an affiliate of Bain Capital and whether this arrangement continues remains to be determined. Given Apollo’s extensive experience with credit investments, including its advisory of publicly traded BDC Apollo Investment Corporation (NASDAQ: AINV), and other credit investment vehicles, one would anticipate Bain’s involvement as a sub-adviser to the interval fund could be coming to an end. We further note that the Apollo acquisition of certain Griffin Capital assets comes approximately six months following Ares’ acquisition of Black Creek Group, further galvanizing institutional manager entrances into the independent broker dealer and RIA distribution channels.
REITs
Black Creek Diversified Property Fund Changes Name to Ares Real Estate Income Trust Inc.
On December 1, 2021, Black Creek Diversified Property Fund reported that it was changing the name of the Company and its operating partnership to Ares Real Estate Income Trust Inc. and AREIT Operating Partnership LP, respectively.
Additionally, the Company adopted a third amended and restated share redemption program (SRP), in which the board of directors may modify or suspend the SRP if it determines such action to be in the best interest of the Company’s stockholders. Such factors to be considered by the Board include the Company’s liquidity and operations as well as regulatory and legal changes. If the SRP is suspended the Board must consider on a quarterly basis whether the continued suspension of the SRP is in the best interests of the shareholders. The Board may not terminate the SRP unless the shares are listed on a national stock exchange.
We note that these changes fall within typical parameters of share redemption programs at other NAV REITs.
For more information: CLICK HERE
Resource REIT Inc. Exploring Strategic Options According to Bloomberg
Bloomberg reports that Resource REIT Inc. (Resource REIT) has engaged an adviser to assist the REIT in exploring strategic options, which may include a sale of the REIT. Bloomberg notes that a potential sale may value the Philadelphia-based REIT at approximately $2 billion. Earlier this year, Resource REIT completed mergers with affiliates, including Resource Real Estate Opportunity REIT Inc., Resource Real Estate Opportunity REIT II Inc., and Resource Apartment REIT III Inc. Resource REIT reported ownership of 49 properties comprising over 14,600 multifamily units as of September 30, 2021. Total assets were reported at $2.4 billion and debt-to-gross properties at 65.4%.
Lightstone Value Plus REIT IV Seeks Shareholder Approval of Certain Proxy Provisions, Including Charter Amendments to Reduce Quorum to Amend Bylaws
Lightstone REIT IV (Lightstone IV) recently filed a definitive proxy in which it sought shareholder approval for certain matters, including charter amendments including, but not limited to, the following provisions:
- Removal of charter provisions defining a quorum as 50% of shareholders to conduct certain matters subject to a shareholder vote. The board of directors would like to amend the bylaws to define a quorum as 35% of all votes entitled to be cast. The Company noted in proxy materials that this “will reduce the cost and administrative burden to the Company in connection with obtaining a quorum at stockholder meetings.”
- Elimination of charter provisions requiring the board of directors to consider a liquidation or dissolution of the Company by March 31, 2022 (which is the fifth anniversary of the termination of the Company’s public offering) in the absence of a listing of the common shares on a national stock exchange.
- Reduce shareholder access to certain Company books and records, including the stockholder list, to conform with Maryland default provisions, which restrict such access to shareholders who hold more than 5% of the outstanding shares of a class of stock.
The Company has scheduled a shareholder meeting on December 16, 2021, to vote on these matters. Undoubtedly, these proposed charter amendments will erode meaningful shareholder participation in the governance of the Company, reduce potential shareholder transparency, and potentially lengthen the duration of an investment vehicle that was originally marketed as a life-cycle REIT, and as such one, has to question whether these provisions are really in shareholders’ best interests.
Lightstone IV’s offering of shares was declared effective on February 26, 2015. The Company had raised gross proceeds of $85.6 million through the sale of approximately 8.9 million shares through 2017. On March 25, 2020, the board of directors suspended share redemptions. Redemptions for hardship, including death and disability, were reinstated beginning in May 2021. While Lightstone IV shares were originally sold for $10.00, the most recently estimated NAV per share was $8.50 as of December 31, 2020. The Company paid special distributions per share of $0.37 in January 2021 and $0.215 in September 2021.
According to the Company’s most recent SEC filings, the Company held two real estate assets: a 75% stake in the Williamsburg Moxy Hotel development project (with affiliate Lightstone REIT III holding the remaining 25% stake), and a 33.3% interest in the development of 40 East End Ave, a luxury condominium project, located in the Upper East Side of Manhattan. The 40 East End Development received its final temporary certificates of occupancy in March 2021 and had sold 10 of 29 available condominiums as of September 30, 2021. The 40 East End project has financing that is scheduled to mature on December 19, 2021. Lightstone IV has reported it is in discussions with the lender to extend this financing.
For more information: CLICK HERE
Alternative Ramblings
Metaverse Real Estate Investments: Enter the Matrix?
The Wall Street Journal reports that there is a boom in “real estate” sales in virtual worlds, including immersive multiplayer online games. The WSJ previously reported that certain “land sales” in the unreleased fantasy role playing game Mirandus had sold for seven figures. The virtual land sales are recorded on digital deeds held on nonfungible tokens (NFTs), which may be sold on secondary markets including OpenSea. The Journal notes:
A group of people last month paid $1.6 million for Citadel of the Stars, a large kingdom in the unreleased fantasy role-playing game Mirandus, said Eric Schiermeyer, a co-founder of Zynga and now chief executive of Mirandus creator Gala Games. That purchase topped the $1.5 million paid for nine adjacent plots in the virtual pet universe Axie Infinity.
Tokens.com, a Canadian company (OTCQB: SMURF), reportedly closed on the largest Metaverse land acquisition in history. Tokens.com noted that the real estate “will be developed to facilitate fashion shows and commerce within the exploding digital fashion industry.” The Journal reports that Tokens.com is currently developing an 18-story skyscraper in a virtual world that “it hopes to lease to lawyers or cryptocurrency exchanges, which can use the building for events or advertising.” Tokens.com CEO Andrew Kiguel noted, “We can create something that’s the equivalent of a Rodeo Drive or Fifth Avenue, where the Guccis and Adidases will come.” One gets the senses this is reminiscent of the early days of the internet and the rush for domain names for websites, another form of location within the virtual world.
The Metaverse may usher in a paradigm shift for how people interact with video games, or the internet for that matter, as owners of these virtual lands may develop additional gaming features for users of the broader game. Additionally, advertising in these virtual worlds is attracting traditional brands including Chipotle, Verizon, Vans, Nike, and others. This is starting to sound like the Matrix or some kind of simulation. Just what everyone needs: more screen time! I guess the timing is appropriate considering there is another Matrix movie coming out this month.
REITs
Hartman Short Term Income Properties XX, Inc.
On November 24, 2021, Hartman Short Term Income Properties XX, Inc. (Hartman XX or the Company) hosted a third quarter conference call. Hartman XX distributions per share declined from a 7% annualized rate (based on the original offering price of $10.00 per share), to 3.38%, 3.68%, and 4.16%, respectively, in the first three quarters of 2021. Reductions in distributions to common stockholders were due to uncertainties related to the COVID-19 pandemic. Chief executive officer Allen Hartman estimated that Hartman XX would be able to resume a 7% distribution by the end of 2022. However, Mr. Hartman noted that the Company was investing additional capital to build out spec office suites in certain office properties. The Company reported investing approximately $5.2 million in such renovation efforts through the third quarter of 2021. Mr. Hartman noted that these projects were being leased out with rent concessions of two or three months and that it was taking approximately two to three months to build out the spec suites, indicating that there could be a lag of six to eight months before rents were collected on these spaces. Mr. Hartman stated that renovation efforts limited the amount of capital available for distribution increases and shareholder redemptions.
Regarding shareholder liquidity, Hartman XX reported that it had received 153 unfulfilled redemption requests in 2020, according to its annual report. The Company did not report total outstanding shares for which redemptions were requested. Hartman XX had previously restricted the share redemption program in 2020 to be available only for shareholder hardship, including death and disability. Mr. Hartman stated that a refinancing event of the portfolio was likely to occur in March 2022 which “would free up some capital to be able to do more redemptions,” estimating that such an event may allow for $10 million in redemptions. Mr. Hartman indicated that such an amount would cover all the redemptions that have been requested. Hartman XX’s debt-to-gross properties was 49.5% as of September 30, 2021.
The Company also noted that it was likely that Hartman XX would complete a merger with Hartman vREIT XXI, Inc. by the end of 2022, noting that the respective companies were in the process of seeking a fairness opinion for such an affiliated transaction. No estimate regarding prospective timing of shareholder proxy materials was discussed.
Hartman XX was formed in 2009 and raised $43.9 million before terminating its offering in 2013. The Company completed mergers with affiliates Hartman Short Term Income Properties XIX, Inc., and Hartman Income REIT, Inc., in July 2020. Hartman XX reported total assets of $512 million as of September 30, 2021, including 44 industrial, office, and retail commercial properties, comprising 6.8 million square feet located in the Houston, San Antonio, and Dallas MSAs. Harman XX reported an estimated NAV per share of $11.18 as of December 31, 2020. Shares were originally offered at $10.00 per share.
For more information: CLICK HERE and CLICK HERE
Mobile Infrastructure Corporation (fka The Parking REIT, Inc., fka MVP REIT)
On November 24, 2021, Mobile Infrastructure Corporation (MIC or the Company) announced the resignation of chief financial officer Kevin Bland. The Company reported that Mr. Bland’s resignation was not due to any dispute or disagreement with the Company or its accounting practices or financial reporting. MIC’s board of directors subsequently appointed Stephanie Hogue to serve as interim chief financial officer.
The Company reported in its most recent annual report that the SEC has been conducting an investigation into MIC, that in June 2019 MIC and its former chairman and former chief executive officer Michael Shustek received subpoenas, and that the SEC has subsequently requested additional information from the Company. On July 30, 2021, the SEC announced securities fraud charges against Mr. Shustek related to his interactions with REITs he controlled including the Company, Vestin Realty Mortgage I, and Vestin Realty Mortgage II. The complaint can be found here.
For more information: CLICK HERE
Bonds
GWG Holdings, Inc. (NASDAQ: GWGH) Files 2020 Annual Report, Files First and Second Quarter Reports, and Board of Directors Approves De-Consolidation of GWG and Beneficient
On November 5, 2021, GWG Holdings, Inc. (NASDAQ: GWGH) filed its annual report on Form 10-K for the year ending December 31, 2020. GWGH had ceased its offering of L Bonds in April 2021 after it was unable to file its annual report within the required timeframe. Additionally, GWGH has filed its quarterly reports on Form 10-Q for the quarters ending March 31, 2021, and June 30, 2021. GWGH anticipates that its L Bond offering will resume before the end of 2021 following the anticipated filing of its third quarter report on Form 10-Q.
On November 15, 2021, GWGH announced that its board of directors approved a de-consolidation of its investment in Ben LP, and its subsidiary Beneficient Company Holdings, L.P (BCH). This de-consolidation was previously outlined in a filing made in August 2021. The Weekly Update previously reported on that outline here. Management noted that the de-consolidation is designed to maximize the value of GWGH’s investment in BCH. GWGH announced that certain amendments were made to BCH’s limited liability company agreement, including the elimination of GWGH’s right to designate directors to serve on the board of directors of Beneficient Management, L.L.C. (the general partner of BCH). Additional amendments reportedly included the creation of certain securities in BCH that it intends to issue in connection with certain capital raising activities.
GWGH further announced that “GWGH and Ben LP agreed to enter into a payoff letter for the Commercial Loan Agreement pursuant to which Ben LP would repay the entire outstanding principal balance of the Commercial Loan Agreement of approximately $202 million, plus accrued interest to the date of the payoff, by issuing to GWG Life or GWGH 19,250,795 of common limited partnership units of Ben LP.”
For more information: CLICK HERE and CLICK HERE
REITs
The Parking REIT, Inc. Changes Name to the Mobile Infrastructure Corporation
November 12, 2021, The Parking REIT, Inc., announced that it had changed its name to the Mobile Infrastructure Corporation (MIC). MIC also announced the results of its previous cash tender offer, noting that 878,082 shares were validly tendered.
Earlier in 2021, the Company engaged in a transaction with Bombe Asset Management LLC in which Bombe exchanged $35 million in cash and the contribution of certain parking assets and other property valued at more than $90 million, for operating partnership units and warrants to purchase common stock in the Company valued at $11.75 per unit or share. Following the transaction, Michael Shustek resigned as a director and CEO of the Company and his shares were acquired by affiliates of Bombe, which began its management of the Company.
The Company reported in its most recent annual report that the SEC has been conducting an investigation into MIC and that in June 2019, MIC and its then chairman and chief executive officer Michael Shustek received related subpoenas. The Company further disclosed that the SEC has subsequently requested additional information from the Company.
For more information: CLICK HERE
Alternative Ramblings
Zillow Sells 2,000 Homes to Pretium Partners
Zillow’s foray into home flipping has come to an ignominious end after the company noted that it couldn’t accurately predict future home prices and was losing too much money, as the Wall Street Journal reports. Zillow announced the sale of 2,000 homes across 20 markets to Pretium Partners, which reportedly owns 70,000 single family rental home. Zillow noted that it is in the process of selling an additional 9,800 homes, as well as another 8,200 homes that it is currently under contract to buy. Zillow is shopping the remaining homes to multiple major investors in single family homes are anticipated to bid on remaining Zillow homes, including Invitation Homes and American Homes 4 Rent. Zillow expects to lose between 5% and 7% on the sales and record losses of more than $500 million from this business. Somehow, someone figured out how to lose money in the current single family housing market environment.
Public Direct Participation Programs
CNL Strategic Capital LLC Follow-on Offering Declared Effective
On November 1, 2021, the SEC declared CNL Strategic Capital LLC’s (CNL Strat Cap) follow-on offering effective. The follow-on offering is for up to $1.1 billion in common shares. CNL Strat Cap has raised approximately $264.7 million in gross proceeds since its initial public offering was declared effective in March 2018. Additionally, CNL Strat Cap has raised approximately $81.7 million in a private offering of common stock. CNL Strat Cap invests in a combination of equity and debt positions in private companies in various industries. According to its most recent quarterly report, CNL Strat Cap had invested over $270.5 million into nine portfolio companies with a reported fair value of approximately $333.0 million as of June 30, 2021. The Company is sub-advised by a subsidiary of Levine Leichtman Capital Partners.
FactRight’s follow-on offering due diligence report will be available on the FactRight Report Center within the next week.
For more information: CLICK HERE
REITs
Oaktree Real Estate Income Trust, Inc., Renamed Brookfield Real Estate Income Trust, Inc., Following Transition of Advisory Role to Affiliates of Brookfield Asset Management Inc. (NYSE: BAM)
November 3, 2021, Oaktree Real Estate Income Trust, Inc., announced that it had completed the transition of its advisory services from affiliates of Oaktree Capital Management, L.P. (Oaktree) to affiliates of Brookfield Asset Management Inc. (Brookfield). The Company was subsequently renamed Brookfield Real Estate Income Trust, Inc. (Brookfield REIT). Oaktree will retain a sub-advisory role in managing the Company’s liquid real estate securities portfolio, certain real estate properties, and certain debt investments. Brookfield REIT reported that it held liquid real estate securities that had a fair value of approximately $84 million as of June 30, 2021, according to its most recent quarterly filing. As of June 30, 2021, Brookfield REIT had total assets of approximately $450 million, and a debt to total assets ratio of approximately 51%.
Following the transition of advisory services, Brookfield managing director and Brookfield REIT CEO Zack Vaughan noted that “With three newly contributed investment properties from Brookfield, the total asset value of the REIT has more than doubled to approximately $1 billion.” Brookfield REIT had previously disclosed that it would receive consideration in the form of operating partnership units or class I shares in exchange for the contribution of these assets, which are multifamily properties located in Kissimmee, Florida, and Nashville, Tennessee, and a 20% stake in an office property located in London, United Kingdom. The value of the consideration payable to affiliates of Brookfield for the contribution of such assets “will be equal to the value of the Brookfield Portfolio based on an appraisal from Altus Group U.S. Inc. to be obtained as of a recent date prior to the contribution,” according to the Company’s second quarter report. Additional details regarding the contributed properties may be found here.
Brookfield REIT also reported that the investment strategy may expand geographically to include exposure to certain non-U.S. markets. Brookfield Oaktree Wealth Solutions, LLC, an affiliate of Brookfield, will serve as the dealer manager of the offering beginning in November 2021. Brookfield REIT currently offers four share classes, three of which (Class T, S, and D) feature upfront selling commissions, and a commission-free I share designed for advisors in fee based accounts.
For more information: CLICK HERE and CLICK HERE
Multifamily Rent Growth Continues to Buzz: Bluerock Residential Growth REIT, Inc. and Preferred Apartment Communities, Inc. Both Report Strong Rent Growth
Bluerock Residential Growth REIT, Inc. (NYSE: BRG) reported same store rental revenue increases of 7.7% and same store NOI growth of 9.2% in the third quarter of 2021 over the prior year. BRG reported that rent growth on new leases was 25.8% over the previous in-place leases.
Similarly, Preferred Apartment Communities Inc. (NYSE: APTS) reported same store multifamily rental revenues increased 7.5% in the third quarter over the same period in 2020. Additionally, APTS reported same store NOI growth of 8.8% compared to Q3 2020. APTS reported new leases featured 24.1% rent growth over the previous in-place leases. APTS raised its core FFO guidance to $1.00-1.07 per share in the third quarter based on the strong results. APTS previously raised guidance in its second quarter results to $0.90-$1.00 per share. This follows Cottonwood Communities, Inc. report of double-digit growth in new leases in the third quarter as well.
Just a year and a half ago analysts and investors were fixated on rent collection dynamics in the multifamily space as the COVID-19 pandemic yielded significant job losses across the economy. Fast forward to the present and the story is blistering rent growth. Interesting to note that APTS is reporting expansion in NOI during this period, a preliminary indication that increasing costs in the economy, due to rising inflation, are not eroding its earnings.
Alternative Ramblings
Trillion Dollar Infrastructure Package Would Require Reporting of $10,000 Cryptocurrency Transactions to the IRS
The recent infrastructure bill that was passed by the House of Representatives late Friday evening includes a provision that has rankled many proponents of digital assets. As CoinDesk reports:
“Another provision in the bill to amend tax code section 6050I has also stoked fear in the crypto industry. The law, written nearly 40 years ago to apply to in-person cash transactions over $10,000, essentially requires recipients to verify the sender’s personal information and record his or her Social Security number, the nature of the transaction and other information, and report the transaction to the government within 15 days. Unlike other tax code violations, violations of 6050I are a felony, and some lawyers have pointed out that, applied to cryptocurrencies and other digital assets like non-fungible tokens (NFT), it would be nearly impossible to comply with the law.”
CoinDesk also notes that “[i]ndustry proponents worried [that the cryptocurrency related provision may be] too broad, capturing entities like miners and other parties that don’t actually facilitate transactions.”
Further guidance from the U.S. Treasury Department would be forthcoming following the anticipated signing of the legislation.
REITs
SmartStop Self Storage REIT Inc. Announces 45% Increase in Estimated NAV Per Share
On October 12, 2021, SmartStop Self Storage REIT Inc. (SmartStop) announced that its board of directors declared an estimated NAV per share of $15.08 as of June 30, 2021. This marks a 45% increase from its previous estimated NAV per share of $10.40 as of December 31, 2019.
SmartStop retained the services of Robert A. Stanger & Co. Inc. (Stanger) to assist as a third-party valuation firm in determining its estimated NAV per share. Stanger’s valuation work included an appraisal report on SmartStop’s 140 wholly owned properties, and five properties held in a joint venture. Additionally, Stanger provided an estimated value of SmartStop’s advisory, asset management, and property management businesses. SmartStop provides advisory and management services to Strategic Storage Trust VI, Inc. and Strategic Storage Growth Trust II, Inc., which collectively own 14 properties, and approximately 11,000 units comprising 1.1 million rentable square feet. Key assumptions in the real estate valuation estimates included a weighted average cap rate of 4.28% for the June 30, 2021, valuation date, which compares to a weighted average cap rate of 5.12% for the December 31, 2019, estimated valuation. This equates to 84 basis points of cap rate compression on SmartStop’s properties. EBITDA multiples utilized to value the advisory, asset management, and property management business were not disclosed in the SEC filings related to either valuation.
Management cited strong fundamentals in the self-storage sector over the past 18 months as a backdrop for the increase in estimated NAV per share. FactRight notes that indeed, the past 18 months have been rewarding for shareholders in SmartStop’s publicly traded peers. The following chart highlights the performance of some of the largest publicly traded self-storage REITs since December 31, 2019. As the chart highlights these respective REITs have experienced stock price increases (exclusive of dividends) ranging from 53% to 78% over this same period.
For more information: CLICK HERE
Cottonwood Communities Inc. Announces 20% Increase in Estimated NAV Per Share Month over Month
On October 12, 2021, Cottonwood Communities, Inc. (Cottonwood) announced a 20.1% increase in its estimated NAV per share as of September 30, 2021 ($15.48), compared to its NAV per share as of August 31, 2021 ($12.89). Cottonwood reported that the increase “is reflective of observed increases in the values of multifamily assets across the country, particularly in many of the growth markets where we have investments. Cap rates have moved favorably. Rental rates across our portfolio of operating properties have also grown substantially over the course of the year, with significant growth in recent months.” Cottonwood reported the following weighted average rental increase data. Note trade-outs are newly signed leases versus the previous lease on the same unit. The data is inclusive of rents from assets acquired with the mergers of Cottonwood Residential II, Inc., Cottonwood Multifamily REIT I, Inc. and Cottonwood Multifamily REIT II, Inc. (These mergers closed in May and June 2021.)
FactRight notes that this is robust rent growth and reflects a broader trend in the multifamily space that is emerging in the second and third quarters of 2021. Data from Apartment List indicates that median rents in the United States increased 16.4% from January through September 2021. This compares to median rental increases of 3.4% over the same period from 2017-2019.
For more information: CLICK HERE
Cantor Fitzgerald Income Trust, Inc.
On October 22, 2021, Cantor Fitzgerald Income Trust, Inc. (CFIT) filed an amendment to its quarterly report on Form 10-Q for the quarter ending June 30, 2021. The amendment has been filed to correct the funds from operations and modified funds from operations originally reported in the second quarter report. The discrepancy was due to adjustments related to non-controlling interests. CFIT originally reported FFO and MFFO of $5.8 million ($0.78 per share) and $5.2 million ($0.70 per share), respectively, for the six months ending June 30, 2021. The amended FFO and MFFO values are $4.9 million ($0.66 per share) and $4.3 million ($0.57 per share), respectively, for the same period. Distributions declared during the same period were $0.69 per share. Following the amendment, the FFO and MFFO payout ratios were 104.7% and 120.0%, respectively. Prior to the amendment the FFO and MFFO payout ratios were 88.1% and 98.8%, respectively.
For additional information: CLICK HERE
United Development Funding IV, Inc.
Four United Development Funding IV, Inc. (UDF IV) executives, including Hollis Greenlaw, chief executive officer and chairman of the board of UDF IV, Ben Wissink, president, Cara Obert, chief financial officer, and Brandon Jester, director of asset management were indicted on charges of conspiracy to commit securities fraud, conspiracy to commit wire fraud affecting a financial institution, and multiple counts of securities fraud according to an indictment filed in the United States District Court for the Northern District of Texas on October 15, 2021.
Among many allegations, the indictment notes that “money raised from (UDF IV investors) was used to pay distributions to Fund III investors and to pay other Fund III financial obligations.” Note Fund III refers to United Development Funding III, Inc. an affiliate of UDF IV, with largely the same executive team as UDF IV. The indictment details that these payments, from UDF IV to Fund III, totaled approximately $65 million from 2011 to 2015. In similar fashion, the indictment alleges that approximately $2.7 million in Fund V (United Development Funding V, Inc.) investors’ money was used to pay returns to UDF IV investors, and an additional $4.7 million of Fund V investors’ money was used to pay returns to UDF III investors.
The indictment further alleges that in January 2011, upon learning that Fund III had insufficient cash to pay distributions to investors, three of the defendants, and others, transferred money from a UDF IV bank account to a Fund III bank account to pay Fund III investors’ distributions. Additionally, around December 2014, certain defendants made presentations to financial advisors, broker-dealers, third party due diligence entities that Fund V would not participate in affiliate transactions. According to the indictment, beginning around December 2014, certain defendants caused Fund V to issue loans to borrowers for developments that already had loans outstanding with Fund III and Fund IV.
The indictment also alleges that certain SEC filings made by Fund III, UDF IV, and Fund V, respectively in 2015, included false and materially misleading information concerning the source of funds used to pay investor distributions. The indictment seeks that the defendants shall forfeit all property constituting or derived from proceeds traceable to the respective offenses.
In 2018, UDF IV settled certain charges with the SEC for approximately $8 million without admitting any wrongdoing. Additional information related to UDF IV, and the indictment can be found in the following DI Wire article.
NexPoint Strategic Opportunities Fund (NYSE: NHF) issued a press release on October 22, 2021, regarding the recent indictment noting that UDF IV has not complied with NHF’s August 2020 demand to inspect UDF IV’s books and records. NHF reported that it was the largest UDF IV shareholder in the recent press release. NHF further stated that:
“The indictment is the latest in a long list of charges and complaints surrounding [UDF], including a 2018 SEC enforcement action against the Company and its executives, multiple private securities fraud actions, and shareholder derivative cases. Despite substantive evidence of corporate wrongdoing and management’s blatant disregard of a permanent injunction that resulted in the Company’s shares being deregistered in 2020, the Board continues to permit management to withhold information from investors, collect millions of dollars in management fees, and spend material amounts of corporate funds on litigation that shows no evidence of enhancing shareholder value.”
In an October 1, 2021, press release NHF announced that it would extend its offer to purchase any and all outstanding UDF IV shares at a price of $1.10 per share, in an offer that ends on October 29, 2021. More information can be found at www.udfitenderoffer.com.
Taxing Unrealized Gains?
Proposals to tax unrealized gains are making their way through the Congress. The tax proposal, reportedly limited to billionaires, would represent a novel approach to taxation, and certainly would be challenged in the courts. A detailed proposal on the prospective unrealized gains tax has not been released though it is anticipated that the plan would be assessed on an annual basis, and prospectively limited to publicly traded assets.
Treasury Secretary nominee Janet Yellen, in confirmation hearing testimony before the Senate back in January 2021, suggested that the U.S. Treasury would consider taxing unrealized gains on investments via a “mark-to-market” mechanism. This is a radical concept, begging the question: will Uncle Sam give out refunds on unrealized losses too?
Following Formation of Bitcoin Futures ETF – The World’s Largest Bitcoin Fund Seeks to Convert into an ETF
Grayscale Bitcoin Trust (NYSE: GBTC), the largest Bitcoin investment vehicle in the world, which according to the GBTC holds approximately 3.44% of all Bitcoins in circulation, has announced that it is seeking to convert into an exchange traded fund. GBTC subsequently filed an application with the SEC to convert to an ETF. The SEC will have 75 days to review the application. Many analysts are not optimistic of GBTC’s likelihood of success in obtaining SEC approval to convert to an ETF. Skepticism is based on the key difference that a Bitcoin futures ETF, which holds cash settled futures contracts traded on commodities exchanges registered with the U.S. Commodity Futures Trading Commission, presents very different risks than a spot bitcoin ETF (which GBTC is seeking to become), which would have its bitcoin prices based on market prices found on non-regulated cryptocurrency exchanges. The SEC has expressed concern about this predicament and has not approved any spot price cryptocurrency ETFs to date. Canadian regulators have approved multiple cryptocurrency spot ETFs in 2021. GBTC’s announcement follows the SEC’s approval of the ProShares Bitcoin Strategy ETF (NYSE: BITO), which launched last week and quickly became the fastest ETF ever to reach $1 billion assets, taking just two trading days to reach three commas worth of assets. Note that BITO’s expense ratio is 95 basis points. If the ETF maintains a $1 billion AUM, that translates to approximately $10 million in management fees per year—not a bad bit of business, though competition will undoubtedly follow and seek to compress expense ratios. Bitwise has already filed to launch a Bitcoin futures ETF. Grayscale Investment, the sponsor of GBTC, notes that it plans on converting 14 other similar investment products in the cryptocurrency markets that it manages into ETFs. GBTC reports total assets under management of nearly $40 billion.
The following chart highlights the trading history of GBTC relative to its NAV per share over the past three years.
As the chart highlights, for many years GBTC traded at a premium to its NAV per share, and only in early 2021 has it begun to trade at persistent discounts to NAV. Some have noted that the beginning of discounts to NAV coincided with the approval of certain Bitcoin ETFs on the Toronto Stock Exchange, which due to authorized participant incentives do not typically trade at wide discounts to their respective NAVs. GBTC does not currently have any unit redemption provisions in its charter, whereas an ETF structure would provide incentives for authorized participants (GBTC currently has a single affiliated authorized participant, which has been very lucrative for its sponsor) to close out the discount on its trading price to NAV. A primer on ETF unit creation and redemption mechanics is available here. In March 2021, GBTC announced that its sponsor would purchase up to $250 million shares of GBTC to support the share price in lieu of a unit redemption mechanism. Grayscale’s head of ETFs has noted, “when we’re able to convert into ETF, that discount will collapse, and we look forward to that opportunity.”
Space (REITs) the Final Frontier?
Jeff Bezos has announced plans to construct a space station to facilitate greater opportunities for space tourists and other businesses. No cost estimates were furnished on the project or estimated completion date. Perhaps such assets will migrate to REITs in the future. I look forward to that site visit!
REITs
Steadfast Apartment REIT, Inc. Files Definitive Proxy For Merger With Publicly Traded REIT
On September 29, 2021, Steadfast Apartment REIT, Inc. (STAR) filed its definitive proxy related to its previously announced merger with Independence Realty Trust, Inc. (NYSE: IRT). We previously reported on this merger here.
Note that the exchange ratio, of IRT shares to be exchanged for STAR shares, is fixed at 0.905 shares of IRT per STAR share. Based on the closing price at the time the merger was announced, this represented approximately a 16% premium to the most recent estimated NAV per share of STAR common stock ($15.55 as of December 31, 2020). IRT common stock closed at $21.00 per share on October 13, 2021, representing a 22% premium to the most recently estimated NAV per share.
The merger is anticipated to close, pending stockholder approval, at a special stockholders meeting scheduled for December 13, 2021.
For more information: CLICK HERE
Franklin BSP Realty Trust, Inc.
On October 12, 2021, Franklin BSP Realty Trust (Franklin BSP, fka Realty Finance Trust) announced the final exchange ratio with Capstead Mortgage Corporation (NYSE: CMO) for its previously announced merger. We reported on this merger here. The final consideration package would include the right for CMO shareholders to receive 0.3288 shares of Franklin BSP stock, plus cash consideration of $0.94 per share. Cash consideration would be funded $0.21 from Benefit Street Partners L.L.C. (the external advisor to Franklin BSP) and $0.73 from CMO. Following the closed of the merger the combined entity will be renamed Franklin BSP Realty Trust and would trade on the NYSE under the ticker symbol “FBRT”.
The merger also contemplates a six-month lockup period for approximately 94% of current Franklin BSP shares and $100 million earmarked to support the combined entities stock price in the open market, of which $35 million will come from the external advisor and Franklin Templeton.
The merger is anticipated to close on October 19, 2021.
For more information: CLICK HERE
SmartStop Self Storage REIT Inc. Delays Distributions Pending Estimate of NAV Per Share
On October 12, 2021, SmartStop Self Storage REIT Inc. announced that it was delaying payment of distributions for one week in October 2021 as the board of directors was “in the final stages of completing an updated NAV calculation as of June 30, 2021”. Distributions originally scheduled for October 15, 2021, are now to be made on October 22, 2021.
For more information: CLICK HERE
Griffin-American Healthcare REIT III, Inc. and Griffin-American Healthcare REIT IV, Inc. Close Merger and Rebrand to American Healthcare REIT, Inc.
On October 1, 2021, the merger of Griffin-American Healthcare REIT III, Inc. (GAHR III) and Griffin-American Healthcare REIT IV, Inc. (GAHR IV) closed. GAHR IV was the surviving entity of the merger and has been renamed American Healthcare REIT, Inc (AHR). Following the merger, AHR is a self-managed REIT after an internalization transaction. We previously reported on the merger and internalization transaction here. Post-merger, AHR has total assets of approximately $4.2 billion. CEO Danny Prosky noted “As a large, diverse, and self-managed healthcare REIT, we believe we are strategically positioned to pursue a future listing or IPO on a national stock exchange that would provide liquidity to our existing stockholders.”
On October 4, 2021, AHR reinstated its distribution reinvestment program (DRIP), which was suspended pending completion of the merger, beginning with the scheduled October 2021 distribution. Stockholders who were previously enrolled in the DRIP will be automatically re-enrolled in the DRIP. Additionally, AHR reinstated its share repurchase plan, which currently is limited to repurchases only in the case of shareholder death or disability.
For more information: CLICK HERE and CLICK HERE
Vinebrook Homes Trust, Inc. Announces Acquisition of a Portfolio of Approximately 3,000 SFRs and Appoints Interim President
On September 27, 2021, Vinebrook Homes Trust, Inc. (Vinebrook) announced that its board of directors appointed Brian Mitts as its interim president. Mr. Mitts will continue to serve as Vinebrook’s chief financial officer, treasurer, and assistant secretary.
In August 2021 James Dondero resigned from his positions as chief executive officer, president and as a director of Vinbeook. Vinebrook reported that Mr. Dondero’s resignation was not a result of any disagreement with Vinebrook’s operations, policies, or practices.
On October 1, 2021, Vinebrook announced that it reached an agreement to purchase a portfolio of single-family rental homes located across eight states and concentrated in the southeast U.S. The transaction was priced at $354.2 million. Vinebrook reported the portfolio was 84.8% occupied with average effective monthly rent of $1,043. Vinebrook also purchased certain assets used by the management company of the portfolio in a separate agreement for approximately $7.5 million. The transactions are anticipated to close in December 2021 or January 2022.
For more information: CLICK HERE and CLICK HERE
BDCs
CION Investment Corporation
On October 5, 2021, CION Investment Corporation (CION) listed its shares of common stock on the NYSE. Shares began trading under the ticker symbol “CION”. On September 21, 2021, CION effected a 2-to-1 reverse split of its shares of common stock. Post-reverse split there are approximately 57.0 million shares of outstanding common stock. The NAV per share adjusted for the reverse split was $16.34. Shares of CION were originally offered at a reverse split adjusted price of $20.00 per share in an offering declared effective in 2012.
CION has approved a share repurchase policy authorizing CION to repurchase up to $50 million of its outstanding common stock following the listing of common shares on the NYSE. The timing and number of shares to be repurchased will be determined by CION and its discretion.
Concurrent with the listing, CION’s second amended and restated investment advisory agreement (Amended Advisory Agreement) became effective. Under the Amended Advisory Agreement, which was approved by shareholders in August 2021, CION’s annual base management fee was reduced from 2.0% of average gross assets to 1.5% of average gross assets. Additionally, the subordinated inventive fee was reduced from 20% (of all pre-incentive fee net investment income after a 9.375% return) to 17.5% (of all pre-incentive fee net investment income after a 7.879% return). The hurdle was reduced from 7.5% to 6.5% as well.
The following charts highlight the trading price range and volume of CION since its listing on October 5, 2021:
CION’s stock has traded within a range of $11.09 and $13.64 per share since the listing.
For more information: CLICK HERE
Thanks to all who Attended our Recent Conference in Denver
We want to thank the over 300 attendees that came to Denver for our recent conference. We hope that the event was productive, informative and a great opportunity to connect with asset managers, wealth managers and other industry professionals. To those who could not make it, you were missed, and those who would like to attend future FactRight conference please reach out and we’ll work with you to ensure your attendance at one of our future events. Thanks again and we look forward to seeing you in Spring 2022, details will be coming soon!
BDCs
Sierra Income Corporation to Merge with Barings BDC
On September 21, 2021, Sierra Income Corporation (SIC) announced that it had entered into a merger agreement with Barings BDC, Inc. (NYSE: BBDC). BBDC is externally managed by Barings LLC (Barings), a subsidiary of MassMutual. SIC shareholders will receive a package of consideration including cash and stock totaling $588.6 million, or $5.76 per SIC share, which represents a premium of 6.1% to SIC’s most recent net asset value per share of $5.43 as of June 30, 2021.
Barings announced that it would provide $100 million in credit support related to unrealized and realized losses on the SIC portfolio over the next ten years. Additionally, BBDC will provide up to $30 million in secondary market support via share repurchases over the next 12-months, if its trading price declines below certain levels in relation to NAV. BBDC currently trades at approximately a 4% discount to its most recent NAV per share of $11.39. Two unnamed, current independent directors of SIC will also join the board of directors of BBDC following the close of the merger. The merger is subject to approval by stockholders of both SIC and BBDC.
The merger agreement marks (subject to shareholder approval) the end of a long saga for SIC, which at one point in time was the subject of a proposed three-way merger with affiliated publicly traded BDC Medley Capital Corporation and its publicly traded asset manager Medley Management, Inc. Institutional Investor chronicled the aborted three—way merger here and the recent merger announcement here. SIC’s original offering for common shares at $10.00 per share was declared effective in 2012.
For more information: CLICK HERE
Cion Investment Corporation to List on the NYSE on October 5, 2021
On September 8, 2021, CION Investment Corporation (CION BDC) announced that its shareholders approved a series of proposals including the listing of the company’s common stock and a revised fee structure. The revised fee structure would include a 1.50% management fee on average gross assets and a 17.5% inventive fee on income, subject to a 6.5% hurdle and a 17.5% incentive fee on capital gains net of all unrealized and realized losses.
CION BDC announced that it anticipates listing its shares of common stock on the NYSE within 30 days. Trading will commence under the ticker symbol “CION”.
CION BDC also announced that it completed a 2:1 reverse stock split on September 21, 2021. Following the reverse stock split the adjusted NAV per share is $16.34 as of June 30, 2021. The fourth quarter distribution of $0.1324 per share was updated to $0.2648 following the reverse split. CION BDC also announced a special distribution anticipated to be between $0.07 and $0.10, payable on December 23, 2021. Future distribution payments will be made quarterly as opposed to monthly, beginning in the fourth quarter of 2021.
CION BDC common stockholders will be permitted to trade 1/3 of their common shares immediately upon listing, with another 1/3 of their shares available for trading at the 180-day mark from the listing and the final 1/3 of shares available for trading at the 270-day mark from the listing. CION BDC anticipates that its shares will commence trading on October 5, 2021. CION BDC has also announced that it will support trading of its shares with an authorization to repurchase up to $50 million of its common stock post-listing.
The Weekly Update notes that publicly traded BDCs have largely rebounded from early pandemic lows, during which time the entire BDC market was trading at a discount to NAV. Presently 18 of the 42 publicly traded BDCs trade at NAV or a premium to NAV with the overall BD