This is set up for those wanting to chat about Real Estate Investment Trusts (REITs).

Try to keep this chat line open for REIT discussions–only rule is to leave politics aside.

394 thoughts on “REIT Chat”

    1. Nathan – possibly an election-related selloff?

      “Ruling party candidate Claudia Sheinbaum will become Mexico’s first female leader after winning a landslide election victory, but the scale of her win unnerved some investors, who sold the peso on fears of radical constitutional change.”

  1. Wolf Street has a write-up on mall retailers (Express) and mall owners. Much reported: big mall owners have been buying up bankrupt chains to keep up mall occupancy. If the going get tough, the REITs get going to the Post Office to mail the mall keys back to the lenders. Dodging liability, a standard CRE tactic, makes Simon SPG and Brookfield look smart. Unless you doubled down.

    I saw another report that profits at the SPG retail operations were flagging — even if the smart guys own them, brick-and-mortar retailers still can’t compete — so SPG may have only deferred the bullet, not dodged it. Wolf Street seems to think grocery anchored strip malls with services are have a better chance versus on-line, though some popular business types, like gas stations, drugstores and banks, face their own challenges. FWIW SPG outperformed REG over the last year.


    1. Bear, Something to consider. The internet business idea may be heating up to the point everyone wants to play the game. But as an investor or lender make sure you know where to find the business and the borrower. Recently I had a sale go south literally. Did business with an internet business for years, cash only but on the last sale his check bounced. Spent time and money trying to track him down and finally found him and he refused to pay so turned him into a collection agency who couldn’t get him to respond.
      Corporate is on a push to increase sales so in looking for new business I found 2 more internet sellers who list their places of business as a residence, and cafe in Bend Or., a coffee shop next to a UPS drop store in Long Beach Ca. and another showing a coffee shop in Laguna Beach Ca. as their business address. Both these internet sellers advertise they ship nationwide, meaning as the supplier we would be doing the drop shipments for them.

    2. Bear:

      Not sure why you keep posting articles from Wolf…he is mostly a clueless permabear and knows very little about real estate.

      From the article:

      “For Simon Property and Brookfield, it’s another desperate effort to keep stores at their malls open to keep their malls alive. ”

      Wrong. Simon gets complete control of the brand, stores, and leases basically for a song. It is the right move…a very smart move. They have been doing this successfully with bankrupt retailers for at least a decade now.

      Simon has long since culled nearly all the weaker malls from its portfolio and now owns a portfolio of very high end mall and outlet center assets. I don’t own the stock, but would not bet against them.

    3. For guys like Wolf Street who foolishly believe that Simon (SPG) doesn’t know what they are doing…SPG just booked a 7X multiple on their original investment in retail brand owner Authentic Brands:

      Simon Property Group Sells Off Stake in Authentic Brands for $1.2 Billion

      David Simon exited Authentic Brands Group, selling off Simon Property Group’s nearly 10 percent stake in the brand management giant for gross proceeds of nearly $1.2 billion in the first quarter.

      That put Simon’s proceeds on the sale of what was once a 12 percent stake in Authentic at $1.45 billion over the past two quarters. The company previously sold shares in the fourth quarter.

      “We generated substantial value from the ABG investment and a 7-times multiple on our net invested capital during our short ownership period,” Simon, who is chairman, chief executive officer and president of the real estate firm, told analysts on a conference call on Monday.

      Jamie Salter, who founded Authentic in 2010, told WWD that the stock sales to various investors reflected demand in the market and in some transactions valued the company at $17 billion.
      According to Salter, the players picking up Simon’s shares were Leonard Green & Partners, General Atlantic, HPS Partners, Jasper Ridge Partners and Singapore’s sovereign wealth fund Tamesek Holdings.

      Even after the sale, Salter and Simon remain in business together as partners in the SPARC joint venture and also JCPenney.

      Salter – who has become one of fashion’s foremost dealmakers – teamed with the mall giant and others to buy Aéropostale Inc. out of bankruptcy in 2016. Two years later, Simon rolled its shares in the Aéropostale licensing business into Authentic, building a 5.4 percent stake in the brand management firm that was later built up further.

      Authentic now owns scores of brands including Reebok, Brooks Brothers and Barneys New York that all together generate retail sales of $29 billion annually.

      But Simon – who always says the company’s investments in retail were valuable, but ultimately a sideline business – is decidedly not the nostalgic type.

      “There’s nothing that I wouldn’t sell at the right price across the company and worldwide, period, end of story,” Simon said. “It’s very simple. If we got the cash, I know we would find an appropriate investment that would replace the earnings lost. It’s really that simple, or we give it to the shareholders or we buy our stock back. So I am at the point of the highest level of indifference about monetizing an asset.”

  2. Blackstone is looking to sell its Motel 6 asset. IMHO, selling a motel chain into a dicey real estate market like this is not a reaffirmation of your belief in lodging as an asset class. Unless Blackstone made enough to walk and dump the shell.

    This could be a fairly straightforward case of asset stripping right out of the standard PE playbook. If I read the 2012 acquisition press release right, when Blackstone completed the Motel 6 purchase in 2012, the Seller’s post-sale room distribution was 54% franchised/managed and presumably 46% owned. The Seller said the sale made them more asset-light.

    So if I pencil in the numbers at an easy 50-50, I’d guesstimate that Blackstone acquired about 550 hotels / 53,000 rooms worth of real estate at time of purchase. And presumably sold them. Today’s news reports describe Motel 6 as pretty much of a franchise operation now (“asset light.”)

    I don’t follow hotels very much. Industry hopes coming into the new year were high with the expectation of revenge travel. Occupancy rates in The City are high both from industry reports and what I see walking around. On the other hand some recent stats indicate that budget end of the business is doing less well than the luxe end.

    U.S. Budget Hotels Feel the Pinch: Is Inflation the Culprit?


    1. Bear, My late father-in-law was related to the gentleman who said ” we will leave the lights on for you” . This last Christmas we stayed at a Motel 6 and I preferred paying 20.00 more to stay at a Holiday inn. Will the last one out please turn the lights off.

  3. MORT not looking good. Has anyone noticed if REIT preferreds are being harder hit than other preferreds? What drives prices? Rates, of course. What else?

  4. MPW’s story just got wilder with a dividend announcement and a likely massive short squeeze today.

  5. How is this for an office REIT debt refinancing? Ugly, ugly, and more ugly.

    PHILADELPHIA, April 12, 2024 (GLOBE NEWSWIRE) — Brandywine Realty Trust (the “Company”) (NYSE: BDN) announced today that its operating partnership, Brandywine Operating Partnership, L.P. (the “Operating Partnership”), has closed its previously announced underwritten public offering of $400 million of its 8.875% guaranteed notes due 2029 (the “Notes”).

    The Operating Partnership intends to use the net proceeds of the offering to repurchase or redeem the $335.1 million outstanding principal amount of its 4.10% Guaranteed Notes due October 1, 2024 and for general corporate purposes, which may include the repayment, repurchase or other retirement of other indebtedness.

  6. Interesting that PSA is issuing a huge slug of 3-year floating rate notes that pay quarterly. Amazing how much that company is loved with only a 70 basis point bump over SOFR. But I guess management believes rate cuts are indeed coming, as they likely might have been able to just issue a 5.5% perpetual preferred.

    On April 9, 2024, Public Storage (the “Company”) and Public Storage Operating Company, a subsidiary of the Company (“PSOC”), entered into an underwriting agreement (the “Underwriting Agreement”) with Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC, as joint book-running managers of the several underwriters named therein (the “Underwriters”), for the sale of $1.0 billion aggregate principal amount of senior notes in two tranches (collectively, the “Notes”). The Notes will be issued by PSOC and guaranteed by the Company.

    The first tranche of $700 million aggregate principal amount of floating rate senior notes due 2027 will bear interest at a rate equal to Compounded SOFR (as defined in the preliminary prospectus supplement relating to the offering), reset quarterly, plus 70 basis points, will be issued at 100.000% of par value and will mature on April 16, 2027 (the “floating rate notes”). PSOC will pay interest on the floating rate notes quarterly on April 16, July 16, October 16 and January 16 of each year, commencing July 16, 2024.

    The second tranche of $300 million aggregate principal amount of senior notes due 2053 will bear interest at an annual rate of 5.350%, will be issued at 98.249% of par value and will mature on August 1, 2053 (the “2053 notes”). PSOC will pay interest on the 2053 notes semi-annually on February 1 and August 1 of each year, commencing August 1, 2024. The 2053 notes will be issued as additional notes under the indenture pursuant to which PSOC previously issued $600,000,000 aggregate principal amount of 5.350% Senior Notes due 2053 (the “initial 2053 notes”)

  7. Looks like Blackstone is putting their money where their mouth is….buying out apartment REIT AIRC for $10 Billion. With the piles of money they have to invest in their private real estate funds, swallowing entire REITs will likely continue going forward.

    UPDATE 5-Blackstone to take Apartment Income REIT private in $10 bln deal
    16:08:17 PM ET, 04/08/2024 – Reuters

    April 8 (Reuters) – Asset manager Blackstone said on Monday it would take private rental housing firm Apartment Income REIT, known as AIR Communities, for $10 billion in cash, including debt, in what analysts see as a bet on easing pressure within the commercial real estate market.

    Under the deal, Blackstone will pay $39.12 for each share of the real estate investment trust, representing a premium of about 25% to its closing price on Friday. Shares of the REIT jumped about 23%.

    Elevated interest rates have put pressure on landlords with loans on rental housing and other commercial real estate properties. Monday’s deal was seen by some analysts as a vote of confidence that this pressure has begun easing.

    “With this transaction, we believe Blackstone is messaging they view interest rates as stabilizing and access to capital as improved, acting as a positive read-through for the sub-sector,” Jefferies analysts wrote.

    A top real estate investor, Blackstone has been sharpening its focus on rental housing, betting on its revival as the supply of apartments in the U.S. is expected to decline due to a slowdown in construction.

    This was likely to lift rental growth, which has over the past few months remained flat or declined modestly due to fresh supply in many U.S. markets.

    AIR Communities, which has a relatively diversified portfolio with apartments in both Eastern and Western coastal markets, has been largely insulated from such pressures.

    “(It) represents the highest quality, large scale apartment portfolio we have ever acquired, and is located in markets where multifamily fundamentals are strong,” said Nadeem Meghji, global co-head of Blackstone Real Estate.

    The rental housing provider reported a 6.2% rise in same-store rental revenue in the fourth quarter, higher than the 2%-4% growth by other publicly listed REITs such as Mid-America Apartments and Equity Residential.

    Blackstone plans to invest another $400 million to improve the firm’s 76 rental housing communities. Its flagship Blackstone Real Estate Income Trust, which stabilized after some turbulence in late 2022, has outperformed non-listed peers by 600 basis points in 2023.

    The company, whose real estate portfolio is valued at $586 billion, had in January agreed to take private Canadian single-family rental housing firm Tricon Residential.

    1. Kid – I noticed that deal yesterday and it certainly lifted the prices of some of the other apartments REITs. It looks like there could be more consolidation in the sector and may start to purchase up some of the undervalued apartment REITs out there. There has been a great runup in housing prices since Covid and this sector looks like a decent place to be – if I can identify the right stocks.

      1. The market smiles on coastal cities with little excess or new construction. Miami, Boston etc. Also high income renters. This all according to Bloomberg. So perhaps review potential REITS that can offer similarly characteristics for potential acquisition

  8. Usually the bad real estate news is on San Francisco or NYC offices, but valuation of big shopping centers, which are supposedly out of the woods, is still weak. The local press is reporting that a major shopping mall, the 4th largest in my state, was sold for a mere $70 million, a $155 million loss to bondholders. This looks like “real money” to me not fakey accounting non-cash charges. (So much for the fiction of “nothing to see here, they’ll work it out in special servicing.” ) An even bigger drop from the mall’s $366 million appraised value when Brookfield acquired it in 2014. Great loan to value ratio, though.

    The seller was Brookfield Properties. The buyer was the famous real estate investor, Undisclosed. Brookfield had nothing to say. Interestingly, the sale was disclosed to the public by the Town’s Mayor in his annual report, rather than Brookfield. No need to panic the market here. Brookfield has another mall up for sale.

    Occupancy had fallen from 97% on the bond pro-forma to 67%. The thinking is that anchor store closings helped drag the center down. Sears, Penney’s, Lord and Taylor closings were mentioned in the press.

    One of my local malls is booming, can’t find a close-in parking space. Another, a few minutes away: well, one of the last restaurants remaining in the deserted Mall food court is now advertising plenty of seating. A Tale of Two Cities. Invest carefully.


    1. Bear – after the bankruptcy of CBL, Washington Prime (WPG) and PEI, I decided never again to hold any type of common/preferred stock/bonds for any company related to the mall sector. It’s basically impossible to repurpose any of those buildings for another type of use, although people have tried – the York Galleria actually has a small casino and Extra Space Storage in their facility now. I won’t even touch the bonds of SPG or SKT.

      Currently holding corporate bonds for REG, NNN, SUI, MAA and EXR at the present time as I like their business models and locking in the 5%+ yield in the fixed income portion of my portfolio.

      1. Likely a good decision. There are fewer retail companies left to fill up those vacant mall store spaces and those stores that do open may need less physical space. Joann and 99 Cents Only, a small older discounter located out West, are the latest retail chain casualties.

        In my area, old malls are being repurposed as luxury housing projects, (with a sprinkling of affordable housing) which are financed by steep local tax concessions and funding from the state housing finance authority. In other words, these projects are uneconomic on a free market basis.

        Re: SPG, a report in the news that JCPenney is closing a 40-year old store in a Vornado-owned mall and moving it across the street to a large mall owned by SPG and Brookfield. The latter two own Penneys. IMHO, an additional source of uncertainty for mall REITs – real estate competitors pulling owned stores out of your mall and moving it into theirs.

    1. Charles:

      Some areas like San Francisco and East Bay area are truly getting hit hard on the office front. From Bloomberg today:

      “One crazy stat is that in San Francisco, at the current pace of new lease signings — which is being helped by the AI boom — would only get the city back to old levels of occupancy in 37 years.”

      For any holders of STWD common, that Oakland disaster looks to be hitting Starwood Capital (the private equity firm) and not the REIT.

  9. Put CIM-B in my high risk bucket. It begins floating on the 30th. CIM stated it would not call. Price dropped at close today so I bought a few. I read their 10Q and listened to earnings call. No doubt this is a high risk as I don’t personally believe s-t rates will lower and inverted curve will remain for a while. (My belief was affirmed by management; nice to hear management not just parrot about lowering interest rates expectations, etc.)

  10. Just following up on my post from about 10 days ago regarding Sun Communities and their bonds that mature in 2033. This afternoon I helped my niece purchase her first corporate bonds. It is the same CUSIP that I mentioned previously, 866677AJ6. Today there were two bonds available for the purchase price of 98.324 and this is a YTM of 5.931. The 5.7% bond matures in January 2033 and is rated Baa3/BBB.

    She a lot younger than me and clearly much of her long-term portfolio should be in stocks. However, to lock in a bond yield of almost 6% in her Roth IRA account until 2033 seems like a fairly smart move for the fixed income portion of her portfolio. The stability of their Mobile Home and RV rentals should hold up well under most circumstances, but there is a little risk as a portion of their MH portfolio is located in FL (129 properties with over 40,000 sites). Oddly enough, the state of Michigan has their second largest concentration of communities (85 properties with over 32,000 sites).

    1. I am not fully convinced that being in the stock market is the panacea or pinnacle of investing. Yes over long periods of time it can return approx 9% but if you can get 6-7% with much lower risk there is nothing wrong with that too. Yes do not ignore the stock market completely but there are other ways to make money consistently.

      As for MI.. it has a lot of wealth but it has a lot of lower income folks just wanting a roof over their head. To this day you can buy a 3 bed/1 bath home with a cute yard for < 100K in many many areas of the state. I do not mean Detroit either. I mean places like Bay City or what have you.

      1. FC – Over the long haul, the stock market is probably the best way to go and get results that outperform inflation. However, as I get older, I’m completely fine with 6% returns in that portion of my fixed income portfolio. This bond really fits our criteria and with much less risk than some of the other corporate bonds. Hard to see how they would default on this one.

        Like the company and wish they had issued more preferred stock, but my family is fine holding this one until maturity in early 2033. The company is well run and like their holdings.

  11. Good news for any holders of the 6.375% UMH+D (one of Tim’s very few property REIT preferred holdings).

    UMH filed to sell $150M of common stock today. Glad to see them finally selling more common, as they have taken the outstanding shares of their sole remaining preferred from 2M when it was issued in January 2018 to 11.61M shares as of 12/31/23 (and now 11.73M as of 3/11/24). The company was truly using the preferred as an ATM over the last few years.

    That is the beauty of owning some quality property REIT preferreds. REITs are essentially distribution vehicles that are constantly looking to raise common equity when their stock prices advance….and those new funds usually help fortify the preferreds. It is often much easier for REITs to grow externally via acquisitions and new development than internally with increased same store NOI. REITs like Realty Income have been serial issuers of their common stock for decades now.

    Really like Realty Income’s 6% O+P preferred now, although I do expect it to be called for redemption if the Fed ever gets aggressive again on the rate-cutting.

  12. I’m still looking to diversify my portfolio with some great fixed income additions in the REIT area this week. Current rates on CDs are excellent at the present time, but it looks like some of those issues with higher rates are now being called.

    Sun Communities (SUI) is a leading operator of Mobile Home (MH) and Recreational Vehicle (RV) sites with about 179,000 in total. They also have a Marina division with sites (wet slips and dry storage) for about 48,000 boats. Last year they issued a 5.70% bond and it matures in January 2033. Currently the ask price is 99.29 at Vanguard, for a YTM of 5.802%. This will likely be one of my largest bond holdings as I continue to purchase over the next couple of weeks/months. Credit rating on the bond is BBB/Baa3 and there is a little risk because a number of properties are in Florida (hurricane risk), but overall I love the MH business. The CUSIP is 866677AJ6. Currently the issue has a minimum purchase of 2 bonds, so this is perfect for smaller investors, such as my niece who is slowly building up her Roth IRA account.

    The bond is not callable, so this will be a perfect long-term holding for the fixed income portion of my portfolio. This one will very likely be held until the call date. It’s been a long time since I’ve been able to get rates like this. A number of years ago I used to own a large chunk of their preferred stock (SUI-A with a coupon rate of 7.125%), but it was called back in 2017.

      1. Dick, what are your thoughts on why you would hold it?
        If this is a 50.00 par. Issue it’s way over priced right now

        1. KIM-N is currently yielding around 6.4%. It is uncallable unless KIM’s common stock hits $28.30. The conversion rate is 2.2963 so each share of KIM-N would be worth $64.99 if that conversion were to happen.

          I’m looking at it as a noncallable preferred unless KIM’s common stock really takes off. If I buy today and it gets converted down the road, it’ll be a 15% capital gain above what I paid ($64.99 coversion price and $56.50 cost basis) and I will have collected the 6.4% until that happens. These convertible issues can get hairy so if I’m thinking about this one wrong, please let me know.

      2. Dick – Yes, I currently own KIM-N and purchased back when it was the preferred stock for RPT. It’s a good holding.

        Currently my portfolio is way out of balance with most of the holdings in stocks right now. Trying to get this corrected by purchasing high quality bonds before interest rates drop – but I have no idea when or by how much rates will drop. A high quality bond in my IRA account with a coupon rate of 5.7% looks good to me, as I have not seen these rates in many years.

  13. See the news
    Large development project backed by city of San Leandro money in the bay area is failing to find construction financing.
    Read between the lines. Regional banks that generate a large portion of their profits from short term loans like construction and are having to pay higher CD rates to keep deposits are going to report lower profits this qtr. and the next one. One example might be WAFD

  14. Bear, Who knows if I will regret it but I sold off my SITC PA today for 24.19 after collecting the last dividend.
    I want to see some improvement in the company with their game of musical chairs of buying and selling properties.

  15. There’s news story out suggesting that yet another part of the commercial real estate market is weakening -health science / lab space. Boston is the epicenter. Culprits are high interest rates, sky-high rents (averaging $1000 psf) and no more venture capital money.

    I don’t follow niche health science REITs, like ARE (10/10 Buy rated), but I have read plenty of investment board comments claiming that health-science oriented REITs are “safe” investments or at least safer than plain vanilla office space REITs.

    The news story was balanced so it included the expected cheer leading from civic leaders, real estate brokers, etc. Niche space. Small part of the office market. Risk limited to Boston. Money on the sidelines, expect the spaces to fill up, etc etc. Still the vacancy rates seem alarming. Over 60% of the 7 million sf of construction completed in 2023 is vacant. Almost none of the 8 million sf coming on line in 2024 is leased.

    Just another worry bead to add to the real estate bracelet. Offices (post pandemic), hotels (pandemic), regional malls, strip centers, essential retail (drugstores), big city rent-regulated multifamily, overbuilt Sunbelt multifamily, warehouses (lately), construction lenders, permanent lenders, high LTV mortgage lenders, etc. Wasn’t long ago that names like WP Carey and Vornado were considered safe retirement choices.

    “Any which way you are tempted to roam,
    its a long, long long way to go home”
    — “Way to Go Home,” The Grateful Dead, 1994


    1. Bear, your views on reits are always welcome.
      Sold my REGCO to free up some money. Still holding KIM PM, REXR PB, BFS PD & PE, SITC PA
      Thinking of selling the SITC PA to free up some money.

      1. I sold my entire position in ARE for the reasons mentioned. On the institutional side, every discussion where real estate comes up there’s little to no interest… everyone seems to be waiting for the dust to settle. There’s some mention of private real estate secondaries… but I’ve seen little traction. Interesting to talk about, but little capital earmarked for real estate. We have long time private RE managers coming to market and we will pass. I wouldn’t want to be raising capital today.

        1. Mrinprophet, That is why I have liked several reits that have recently done deals not involving borrowing or very little. Both KIM and REXR come to mind, and there might be others if anyone has some to share.

    2. Miss 2WR Youtube posts to his music , opened me up to genres I had no idea existed.
      Bear, I know reits are an area you have an interest in. What you just wrote doesn’t give me a lot of confidence in this sector, but I know you might have some babies that will survive getting thrown out with the bathwater.
      Anything you might want to list?

  16. Over the weekend I happened to notice a number of investors were interested in CDs due to current interest rates. Not sure how long these rates will last (no one knows), so I decided to go with a super-safe investment for the fixed income portion of my portfolio instead of purchasing a CD.

    Prologis is one of the largest REITs with a market cap of over $100 billion. I like their size, because they are too big to be taken over by a private equity firm. For those of you that follow REITs, PS Business Parks was taken private and the new owners loaded up on debt and completely tanked the price of the outstanding preferred stock.

    PLD has recently issued a 10 year bond with a coupon rate of 5%. It is rated A3/A and is not callable during this time. The current ask price on Vanguard is 98.329 for a YTM of 5.214%. Also, for investors with smaller accounts (like my niece), the minimum purchase is only 2 bonds this morning. This company is a cash machine. The CUSIP is 74340XCJ8. This will be a nice investment in the fixed income portion of my IRA portfolio.

    1. Those Applesway foreclosures last year were so horrendous it seemed likely there would be more from that vintage to come. And the way Ivan tried to portray it as ABR didn’t lose any money was pretty disingenuous.

      1. A financial advisor wrote a blog post about Lessons To Be Learned From Arbor’s 2023 Houston Foreclosures. Arbor apparently didn’t get the proverbial memo.

        He mentioned that some of the Arbor properties were 80% financed. The financing was floating rate debt, which as of May 2023 had gone from ~3.4% to ~8%. While the interest rate jump was arguably an unforeseeable risk, IMHO Arbor’s financing C-class properties at 80% leverage was not. Occupancy was declining and some the properties were in poor condition with code violations. The then owners agreed to fix the violations. One wonders if Arbor will be left with paying the $20 million bill.

        I don’t follow Arbor, but reading the news stories, it seems to me that that Arbors due diligence and management decision-making process for a $230 million investment loan left a lot to be desired. JMO. DYODD.

    2. Good article on SA about Arbor. Summary the short report is not taking into consideration the rent hikes during bridge terms. Not my skill set but on surface the counter argument seemed credible.

    3. I need help understanding the original post.

      “Class C multifamily foreclosure in Houston. 446 units. $38mm loan. Arbor is the lender. … Assuming an 80% loan to value, at least ~$10mm of equity is wiped.”

      $38M loan assuming 80% loan to value means $47.5M value, correct?

      So the debtor is foreclosed, walks away from the property and says goodbye to $9.5M of equity, correct? Is that what the OP meant by “at least ~$10M of equity is wiped”?

      Now Arbor is left with selling the property and hoping to sell it for $38M (good luck), and in the meantime that $38M loan on their books is reclassified as a $38M real estate asset?

  17. Economic reality is catching up with office real estate, with a push from an unexpected place – an obscure overseas bank. It is writing down its US loans big time. The drops are large but surprising only if you are either a real estate developer, an “extend and pretend” lender, a big city Mayor, or a REIT stock tout selling pricey subscriptions. Here’s the news from the Aozora Bank.

    “(Aozora Bank) cut the value of its non-performing office loans by 58%, including a 63% reduction in Chicago, and reductions between 51% and 59% in New York, Washington D.C., Los Angeles and San Francisco.

    “U.S. office loans of $1.89 billion were 6.6% of its total, and it classified 21 of those office loans worth $719 million as non-performing. It boosted its loan-loss reserve ratio on U.S. offices to 18.8% from 9.1%.”

    “Not just NYCB: Japanese bank issues warning on U.S. offices, cutting some Chicago loans by 63%.”

    The Aozora bank numbers are in line with what the local trade press has been publishing about weak property sales and hedge fund walk-aways and with reports on outlier sites like Wolf Street. I agree with those who see trouble because a lot of loans are coming due in 2024-2025 and buildings won’t be able to cover operating costs in the face of large vacancies, higher interest rates, higher taxes, utilities and operating costs. I’m not seeing regional banks except OZK lining up to lend. Most of the regional bank reports I’ve read seem to emphasize “how little office we’ve got and how muchly it is occupied by the owners, not speculators.”

    Or you can be an optimist and load up on the discounted famous-brand office REITS or Bank of The Ozarks, OZK, the big city construction lender which has the uncanny ability to fly above the bad weather like a Boeing jet.

    Just my opinion. DYODD.

  18. I notice the name Phillips Edison has been mentioned on the REIT chat section (strip center real estate anchored by grocery stores). While not the highest yielding investment, they do have one corporate bond that is listed. The coupon rate is only 2.625%, but it is trading at 81.504 today at Vanguard for a YTW of 5.585% when it matures in November 2031. The yield is a little too low for me, but may pick up some for my elderly parents (early 80’s). Should interest rates rise in the next year, the bond may look attractive for elderly investors. The CUSIP is 71845JAA6.

    Slightly more attractive for me is the Mid-America Apartments (MAA) 5% bond that matures in March 2034. Today it is trading at 99.09 at Vanguard for a YTW of 5.114%. The CUSIP for this issue is 59523UAV9. Due to the high credit quality of A3/A- , this is a decent way to lock in a 5% yield for the next 10 years.

  19. American Healthcare REIT has an IPO upcoming, looking to raise ~900 million. Price 12 to 15. Dividend policy unknown to me. I don’t know anything about this one, other than what I read in the papers. Other than it has around 298 properties. News reports say that it is backed by an investment group that a quick Google suggests is in home health care. This may or may not be a good thing. I haven’t researched the report.

    I expect to see the usual flurry of stock tout articles on The Other Website soon. Beat the rush. Or Caveat emptor. There has been some negative press on REITs with troubled hospital properties, senior living properties with troubled operators and, sadly, elder abuse.

    American Healthcare REIT Announces Launch of Public Offering


  20. Anyone else taking note of CTO-A? 7.8% current yield is very attractive for for a strip center retail pref.

    Grocery anchored retail has been one of the most desired and stable cash flow in recent years, and interest is only picking up as supply is not increasing.

    Leverage seems to be higher compared to peers but its still manageable. The company has also re-purchased both common and pref. They state they have an automatic repurchase program if the stock hits a certain price.

    Lastly, it can be illiquid with wide bid ask spreads. I actually prefer these types of names as it allows for opportunistic purchases and sales. Like all names, I buy to hold, but prepared to sell if the prices comes my way.

    1. Maine, I think it’s one I own. But I need to check later when I get home. Would like to respond with date and purchase price if I do.
      I did a little research on various shopping center REIT’s and strip malls with anchor grocery stores. Phillips Edison also comes to mind. But I don’t own that one.

      1. Thanks Charles. Philips is a good credit.

        Other public retail REITS with prefs include: KIM, FRT, BFS, REG, and SITC. They all trade at 7% yield or less. Heck, FRT-C trades at 5.5%!

        Anyways, there is a large seller today in CTO-A, so it’s pretty easy to buy at current levels. We are already at 2.2x normal volume.

        1. Maine, I checked and I don’t own any CTO PRA I had thought about it and decided against it. First off, as of the last qtr. it had a payout ratio of over 100% on the common and preferred dividends which meant they had to reach into cash reserves. They have sold several properties to build up cash including a loss on the sale of one property. We Work which had filed Chapter 9 was 3% of their tenant base and AMC theaters is doing ok but not great is almost another 3% Then there is occupancy, which is low compared to other market reits If the preferred dropped into the 18.50 to the 19.50 range I might be interested again.

        2. Long CTO-PA w basis 18.37, not selling, would add on swoon. Consolidated Tomoka now CTO REIT has been around a long time w seasoned r/e folks in charge and pfd divs well covered. CEO bot shares 2x last year too and owns 542k shares. The common of most REITs just does not interest me and I would need a swoon to buy into them and evaluate. Smallish, so of course many more quality names like REG, KIM in the area. But ok w the pfds.

    2. Maine:

      Just be careful on CTO+A. It has one of the worst change of control ratios (.9406) on that preferred in all of REIT preferred land.

      If CTO common were taken private it would have to be at a price of $26.57 for you to be guaranteed to get $25/share on the preferred. That is a tough sell with CTO common currently trading for $16.85.

      CTO is less than $1B total enterprise value, so if a private takeout happens at least you can’t say you weren’t warned on that preferred. For this very reason it is one I now stay away from as I want a little more safety if I am going to reach for yield on a preferred from a small cap REIT.

      1. Kid, thanks for the info.
        I view the optional “change in control” provision as a positive as any buyout would likely be accompanied by a common share spike.
        I am more concerned with a buyout (or spin) that doesn’t trigger the change in control and the pref gets orphaned. What am I missing?

        BTW, have you followed the latest with SITC? They are basically spinning off the best assets and slowly selling the remaining traditional retail. Not quite sure how that impacts SITC-A. RAIT was a disaster years ago, IRT was spun and the Prefs went bad. My sense is that won’t happen with SITC but still waiting on confirmation on plans for the pref.

  21. OPI Office Properties Income Trust was down over 35% yesterday on news of a 96% cut in its dividend. The price today is stable. The stock touts are coming out. If you liked it at a 100 cents on the dollar you’ll love it at 65 cents. Unless you bought it at 100 cents as a yield play.

    OPI is in the RMR external management stable along with Diversified Healthcare Trust DHC. A merger between the two REITs fell through last year. The thought was DHC was the weaker partner. B Riley reportedly involved in helping out DHC with its finances. Quite a cast of characters here. Not a REIT that I follow.

    Offices, like everything else these days, have what the media now calls “a conflicting narrative.” One recent pessimistic article noted the large amount of debt coming due in 2024 and 2025, large lease rollovers and weak demand. Sacred cows were mentioned: Boston Properties, Kilroy Realty, City Office REIT, and SL Green.

    On the other hand, a SF office owner on Bloomberg suggested Work from Home is over. He said AI is creating a new boom in SF office demand: his buildings are doing just fine and buildings on NYC’s Fifth Avenue were filed up with techies. This sounds like wishful thinking or a bad response from ChatGPT.


    1. RMR will probably only do whats necessary to try and keep the debt above water. They don’t want bankruptcies on their public record. Equity, I would be wary of and they’ll use it like toilet paper.

  22. Anyone else accumulating a stake in LXP-C?

    I find it compelling compared to other high quality options. It is also one of those names which can get cheap when a large seller wants out.

    7% current yield with room to rally and ex div coming up in a few weeks. For reference, their 2028 bonds trade at 5.65%.

    1. Maine-
      LXP stock price right where it was in 1993. Current yield on the stock dividend 5.5%. I’d give the company a P-rating for persistence and call it a bond proxy long-term.

      LXP-C has spent most of its history around $50, except for the GFC. Why do you believe it’s high quality?

    2. Hi,

      I am at 1% allocation now at about 45.45. I will continue to add below 46 to an allocation of 2%. I suspect we will get a chance before mid year interest ratecuts….

  23. Whats not to like about a REIT in a safe industry like health care which we all need? With a safe business model like net leases? Spanning three continents? Medical Properties Trust MPW is trading down today on rent collection problems with a large tenant. It is off about 30%.

    I don’t follow this one, but I did scroll back to look at the recommendations on The Other Website. The current sentiment is mostly Hold, with a smattering of Sells and Buys, after MPW did cut its divvy in October 2023. The Rear View Mirror Theory of Investment Analysis. (In fairness Wall St does the same. One bank cut it rec today after the news citing “uncertainty and ongoing risks.”)

    I scrolled back to earlier in 2023 and found Buy recommendations from the usual suspects like The Buy Buy Big REIT Guy, The Controversial Guy Whose Group Sounds like A Cable Network but some respected names too. The same folks Who Just Met With The CEO, Have Analysts On Staff and who missed NEE, O, WCP . (and American Realty Capital, still a sore point.)

    If the past is prologue, they will be sheepish for a while then begin recycling their old reviews through AI with fresh Buy recs. Traders: Beat the rush and buy the dip. Buy-holders: hope for an Inverse TOWS ETF to add to your Inverse Cramer position. Just My Opinion. DYODD. Caveat Emptor.

    1. Forget if it was bearcave or another short seller has been attacking MPW over governance concerns. Have stayed clear due to uncertainty of the claims.

    2. Bear – I don’t post here very often, but enjoyed your comment today. Absolutely, the REIT health care sector should be safe, especially with the aging population here in the US. I think 10,000 people per day join Medicare. Sounds safe to me. Until you get a bad management team. From what I have seen in the past, the companies with the best management teams always win. This is true even with small banks or restaurants across the street from each other. In a small town about 30 miles from me there were two banks that were in business for over 100 years and they were right across the street from each other. Due to good/bad management decisions, one bank really prospered and the other one almost went under due to bad loans and was being overseen by the federal government.

      I’ve also seen some of the same things in the REIT sector with grocery-store anchored strip shopping centers. This one sounds easy too: have a grocery store (with heavy traffic) become your anchor and then fill up the other spaces with the local hair salon, liquor store, pharmacy, Subway, nail salon, Wendy’s, Sherwin Williams, Dollar Tree, Dominos, etc. Kimco (because of their superior management team) makes it look easy. Then a former company call Cedar Realty Trust compiles a terrible track record and finally sells out to a company called Wheeler Real Estate Investment Trust. WHLR common stock is trading at .29 cents per share today.

      1. Better story is RPT Realty selling out to Kimco. That was a nice boost for RPT preferred like RPT-D. Different company, different outcome.

      2. I would agree that Good Management makes difference even in a what should be a good business. I was in Wheeler early on. Grocery anchored + the South is growing fast looked like a good story. Not to mention a preferred with a fat coupon. I got out of Wheeler long ago because it was a lackluster performer. Have not had any regrets.

    3. From Yahoo Finance: Shares of Medical Properties Trust (NYSE: MPW) were crashing 29.7% lower as of 10:20 a.m. ET on Friday. The steep decline came after the company provided an update following the market close on Thursday about its tenant, Steward Health Care System.

      Steward recently told Medical Properties Trust that “its liquidity has been negatively impacted by significant changes to vendors’ payment terms.” Because of this, Steward’s total unpaid rent rose to around $50 million as of the end of 2023. The hospital operator is also continuing to make only partial monthly rent payments.

      Medical Properties Trust said that it has engaged a financial advisor and a law firm to advise it on options to collect the money that Steward owes. The real estate investment trust (REIT) has agreed to fund a $60 million bridge loan to Steward and defer unpaid rent. It also plans to write off around $225 million in rent in the fourth quarter of 2023.

      Just how bad is Medical Properties Trust’s news?
      Make no mistake about it, Steward’s ongoing financial difficulties are bad for Medical Properties Trust. But just how bad? Steward is the REIT’s top tenant, accounting for 19.98% of its total assets and 23% of its total revenue in the third quarter of 2023. Medical Properties Trust also has made a sizable investment in the hospital operator.

      It’s possible that Steward’s outlook could improve, though. The hospital chain hopes to either sell or find new tenants for some of its facilities as well as divest some noncore operations. It’s also taking steps to improve its collections process.

    4. Bear, Just coming back to your post. I had another reader over on the dark side asking me about medical reits. He was in the business, being a physical therapist down in San Diego and was asking about MPW & DOC Like the Kaptian I agree there is always going to be a market for medical services. But sometimes if you’re standing too close to the forest you don’t see the trees.
      I’m in the business of supplying the medical field. My advice is very few of these small independent reits are going to succeed. I sell a lot of 6pcs there 10pcs here for remodels and maybe new builds. But anyone can take an old commercial office space and turn it into a chiropractor’s office.
      Small rural hospitals that are 50 or 70 yrs old are shutting down as they can’t compete with the 800# gorilla’s that are building 10 to 50 acre medical campuses. People are finding out their local hospital is being shut down as they can’t compete and the patients are having to drive farther for treatment.
      The trend isn’t going to change.

  24. Here is a archived Bloomberg article from July on Korean investments in commercial RE
    This mentions Oaktree investors
    This is a recent article that you may have to wait to look for on as it’s too recent
    The story Private posted a while back about developers in China had a comment in it about would their defaults lead to similar events worldwide.
    Note these articles are also talking about pension funds and other asset managers holding these commercial RE assets.
    Makes you wonder about American and Canadian funds going into the first half of 2024

  25. Another comment on the radio today about San Francisco commercial occupancy rate. Going to get worse before it gets better. It’s down another 2% as sub leases are starting to expire. Up to 35% vacancy rate and expected to grow into 1st and 2nd quarter of 2024 as more sub leases expire.

    1. Charles–saw something today that said the ‘return to office’ movement is over and company’s are going to live with what they have now in terms of folks coming back in.

      1. Yes, I think it’s a little of Doctor Dolittle’s pushmi-pullyu
        Quite honestly I felt the layoffs in the tech world were overdue. In a tight employment market it’s hard to keep and get the best talent so I think after the chaff is winnowed the companies are going to a hybrid model to keep the best talent.
        But even the best talent who moved too far out into the boonies are going to lose their jobs if they don’t participate in the group and come into the office occasionally.
        Now we just have to see where the balance in real estate ends up.
        I am not the age or mindset of younger people, But I don’t see the appeal any longer of major downtown areas. I see the demand maybe shifting to large suburban campuses in nearby areas with more open spaces and less crime.

        1. The appeal of downtown areas (or used to be) is that you can go out for entertainment and not be at risk for getting a DWI. (Ride hail services have obviously mitigated this when it comes to some areas, but that is the draw for young people in cities, having everything close by)
          And don’t discount the backlash among the young about car ownership. It is real and significant.
          And just check on twitter for the threads of people who applied to 100% remote jobs and got all the way through the screening process to find out they were NOT 100% remote, but the 100% remote hook was used to increase the candidate pool.
          Even with the layoffs, employees have a LOT of leverage when you have sub 4% unemployment, as businesses have no choice. (and the demographics are so far out of whack, something is probably going to break, as the number of people entering the workforce daily is dwarfed by the number leaving, a trend that is not slowing for the next few years because the generation entering is tiny in the US)
          And the best talent can write their own check. My firm has finally settled on a policy. New workers and their supervisors need to work in the office, but after 6 months, they can go 100% remote. We have about 25% of our former space, and it is completely deserted on Mondays and Fridays.
          I now have co-workers who now live in rural Sicily as well as Hawaii.

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