Non-Traded REIT Liquidity & Redemption Analysis

Highlights

• On May 16, 2024, the Financial Times reported that Starwood Real Estate Investment Trust (“SREIT”) was “running low on liquidity” as repurchase requests from investors remained elevated. On May 23, 2024, SREIT amended its share repurchase plan in order to: (i) limit monthly share repurchases to 0.33% of NAV, beginning with repurchases during May 2024; and (ii) limit quarterly share repurchases to 1.0% of NAV, beginning July 1, 2024.

• The weighted average utilization rate for REIT repurchases across the past 12 months was 92.2% as of June 30, 2024.

• Some REITs have near-term debt maturities over the next year which could pose liquidity challenges.

• As of the date of publication, none of the other non-traded REITs in this survey have amended their share repurchase programs to reduce repurchase limits and all have satisfied repurchases in accordance with their programs.

"Perpetual-life” non-traded REITs generally offer shareholders limited liquidity through repurchase offers at designated intervals, such as monthly or quarterly. These repurchase offers are discretionary, not mandatory, and may be suspended by the board at any time. For most perpetual-life REITs, repurchases are made at or based upon net asset value, or NAV, and are subject to limits, such as 2% of the NAV per month or 5% of the NAV per quarter. In order to satisfy the maximum potential redemptions under the share repurchase plans, REITs generally seek to maintain liquidity in the form of cash, cash equivalents, other short-term investments, liquid securities and borrowing capacity under lines of credit.

On May 16, 2024, the Financial Times reported that Starwood Real Estate Investment Trust (“SREIT”) was “running low on liquidity” as repurchase requests from investors remained elevated. The Financial Times added that SREIT investors withdrew $2.6 billion from the fund in 2023, and noted concerns that REITs had been facing higher debt costs and criticisms that REIT real estate valuations may not fully reflect the downturn in the market for commercial real estate. It was noted in the article that SREIT would run out of credit and cash in the second half of the year at the current pace of redemptions unless it borrows more or sells more property assets. On May 23, 2024, SREIT amended its share repurchase plan in order to: (i) limit monthly share repurchases to 0.33% of NAV, beginning with repurchases during May 2024; and (ii) limit quarterly share repurchases to 1.0% of NAV, beginning July 1, 2024. SREIT noted that it made this decision to avoid “selling real estate assets into this market,” and expected to maintain these limits for “approximately six to twelve months.”

The following table presents a summary of: (i) total liquidity available for perpetual-life non-traded NAV REITs, which includes cash, Level 1 securities and any undrawn amounts available under lines of credit as of June 30, 2024; (ii) total liquidity as a percentage of the REIT’s aggregate NAV as of June 30, 2024; and (iii) the maximum potential quarterly redemptions for each REIT as a percentage of the REIT’s total liquidity as of June 30, 2024 (calculated based on each REIT’s NAV as of June 30, 2024 and assuming a quarterly repurchase limit of 5.0% of NAV for each REIT except for SREIT, which now limits share repurchases to 1.0% of NAV):

In addition to the sources of liquidity mentioned above, REITs may also find liquidity in capital raised through their public and private offerings. However, data from Robert A. Stanger & Co., Inc. indicates that “heightened levels of redemption activity” is still having a detrimental impact on fundraising for public non-traded REITs, as year-to-date fundraising through June 2024 was down 61% from the same period last year.

The following table presents a summary of: (i) the average utilization of each REIT’s redemption plan over the trailing four quarters; (ii) the average quarterly capital raise for each REIT over the trailing four quarters; (iii) the average quarterly repurchase for each REIT over the trailing four quarters; and (iv) the total amount repurchased by each REIT during the second quarter of 2024:

While reviewing the utilization figures in the table above, we note that the redemption program for SREIT has been oversubcribed for the entirety of the past year, while repurchase requests for Blackstone Real Estate Income Trust (“BREIT”) and RREEF Property Trust have exceeded the monthly and/or quarterly limits for the majority of the past 12 months. The average rate of repurchase utilization for the REITs surveyed over the past year was 66.8% as of June 30, 2024; additionally, the weighted average utilization rate was 92.2%, which was an increase of 312 basis points from the rate as of March 31, 2024 and was largely impacted by the size of BREIT and SREIT relative to other non-traded REITs.

With regard to borrowings, REITs are also encountering concerns with the need for re-financing in the high interest rate environment. While borrowing at low interest rates can improve overall returns, risks associated with taking on debt rise particularly during a market downturn or in an increasing interest rate environment.

The following table presents a summary of: (i) leverage ratios for each REIT as of June 30, 2024; (ii) the percentage of each REIT’s total consolidated debt that is scheduled to mature during the remainder of 2024 (as of June 30, 2024); and (iii) debt maturing during the remainder of 2024 as of that date as a percentage of the REIT’s total liquidity:

Some REITs have near-term maturities forthcoming over the next year and could be further challenged by debt repayments. It should be noted that the figures for the scheduled debt maturities are based on the final possible maturities for prinipal repayments as reported by each REIT as of June 30, 2024 and includes the effects of any extension options.

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Sources

• SEC Company Filings for:

  • Apollo Realty Income Solutions, Inc.

  • Ares Industrial Real Estate Income Trust Inc.

  • Ares Real Estate Income Trust Inc.

  • Blackstone Real Estate Income Trust, Inc.

  • Brookfield Real Estate Income Trust, Inc.

  • Cantor Fitzgerald Income Trust, Inc.

  • Cottonwood Communities, Inc.

  • FS Credit Real Estate Income Trust, Inc.

  • Hines Global Income Trust, Inc.

  • Invesco Real Estate Income Trust Inc.

  • JLL Income Property Trust, Inc.

  • Nuveen Global Cities REIT, Inc.

  • RREEF Property Trust, Inc.

  • Starwood Real Estate Income Trust, Inc.

• ft.com, Starwood’s $10bn property fund taps credit line as investors pull money

• theDIWire.com, Stanger Increases 2024 Alts Capital Formation Estimate to $115 Billion

Disclaimer: The information contained in this research note has been assembled using publicly available information. While SK Research and Due Diligence, LLC (“SKRADD”) believes it to be reliable, there is no guarantee that all of the information contained in this research note is or will be accurate. This research note does not constitute investment advice and is intended for informational purposes only. This research note does not constitute an offer to sell or the solicitation of an offer to purchase, nor should it be considered a recommendation of any security referenced herein. This publication is copyrighted, and no person is authorized to make use of the information presented herein without the express written permission of SKRADD. SKRADD is under common ownership and control with Snyder Kearney, LLC, a law firm that conducts due diligence reviews of alternative investment programs, including non-traded real estate investment trusts.

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