A Deeper Look at Carter Validus and Griffin Capital

August 9, 2019 | James Sprow | Blue Vault

On August 6, Blue Vault presented a Performance Webinar featuring the nontraded REITs sponsored by Carter Validus REIT Management Company and the two Interval Funds and three nontraded REITs sponsored by Griffin Capital Company.

Carter Validus

Carter Validus Mission Critical REIT (“CVMC REIT”) raised $1.7 billion in their public offering beginning in 2010. After selling off their data center assets in late 2017 and early 2018 and paying a $3.00 partial liquidating distribution, the nontraded REIT currently owns 61 healthcare properties with 2.4 million square rentable square feet. On September 27, 2018, the estimated NAV per share was stated at $5.33 as of June 30, 2018.

Carter Validus Mission Critical REIT II (“CVMC REIT II”) raised $1.4 billion in its offering beginning in 2014. The REIT has a portfolio made up of 56 healthcare properties and 29 data centers. A merger of the two Carter Validus REITs has been proposed that would pay shareholders of Carter Validus Mission Critical REIT $1.00 in cash and grant them 0.4681 of common shares in Carter Validus Mission Critical REIT II, the surviving REIT. The sponsor expects the merger to result in cost savings, increased operating efficiencies, as well as providing size, scale and improved diversification of tenancy and geography. The sponsor outlines several future liquidity options for the merged REIT including listing, liquidation of the two portfolio types separately, listing the two portfolio types separately, or a combination of listing and liquidation.

The combined merger consideration to be paid to shareholders of CVMC REIT are based upon the estimated NAVs for both REITs as of June 30, 2018. The $1.00 in cash is intended to preserve the strength of the merged REIT’s balance sheet, and based upon the June 30, 2018 relative estimated NAVs, the 0.4681 shares at $9.25 per share for CVMC REIT II results in a total estimated value of $5.33 per common share of CVMC REIT, exactly the estimated NAV of CVMC REIT as of June 30, 2018.

CVMC REIT has reduced its distributions after the sale of the data center portfolio and recently was paying at a rate of 4.57% based upon the adjusted shareholder investment of $7.00 per share after the partial liquidating distribution. 

Blue Vault examined the pro forma portfolio of the merged REIT and considered the eventual liquidity options for shareholders and suggested that liquidation of one asset category (likely the remaining data center assets) makes sense prior to a listing.

Griffin Capital

Griffin Capital Company sponsors two Interval Funds that give individual investors access to institutional real estate investment funds via Griffin Institutional Access Real Estate Fund and a variety of debt securities via Griffin Institutional Access Credit Fund. 

Griffin Institutional Access Real Estate Fund had raised $4.2 billion as of June 30, 2019. Its Class A shareholders have an annualized total return since inception of 7.17% as of that date, without the maximum sales load. The Fund is currently raising an average of $140 million per month YTD in 2019. It has invested about 70% of its portfolio in private real estate equity and debt, that asset group that would not otherwise be investable by individual investors. Its top ten investments, all private investment funds, make up 50% of its portfolio, but it also has publicly traded real estate equity securities and debt securities.

Griffin Institutional Access Credit Fund had raised $324 million as of June 30, 2019 and was averaging about $15 million in capital raise per month YTD thru June 2019. Its investment portfolio was about 50% in bank loans, 30% in high yield bonds, 13.6% in direct lending, 6.5% in structured credit and 0.84% in nonperforming loans as of June 30, 2019. First lien senior secured loans made up over 54% of its portfolio. The Fund’s Class A shares have a 5.61% annualized return since the fund’s inception in April 2017. With the maximum sales charge that annualized return was 2.85% since inception. The Class C shares with no upfront load have an annualized return of 5.63% since inception and 4.21% for the six months ended August 5, 2019. 

Griffin Capital Company sponsors three active nontraded REITs. Griffin Capital Essential Asset REIT is now a continuous offering daily NAV REIT after the merger of Griffin Capital Essential Asset REITs I and II in May 2019. It has a portfolio of 101 properties and 27.2 million square feet of GLA, consisting of 83.2% office and 16.8% industrial properties. Its tenants span more than 14 industry types.  The REIT’s four common share classes D, I, S and T, have distribution yields, after fees, of 5.43%, 5.68%, 4.67% and 4.66% as of Q1 2019, respectively. Having internalized its management with the merger, the REIT boasts of lower fees, including no acquisition, asset management, performance fees or disposition fees, and a lower total G&A as a percentage of NAV than the average of other NAV nontraded REITs.

Griffin-American Healthcare REIT III closed its public offering in 2015 after raising $1.86 billion. Its 102 buildings and 113 integrated senior health campuses have a GLA totaling 13.4 million square feet and were 93.1% leased as of March 31, 2019. The REIT has consistently paid a 6.00% distribution yield based upon its original offering price of $10.00 per share, and has an NAV per share of $9.37 calculated as of June 30, 2018. The REIT has an MFFO payout ratio for total distributions of 116% for Q1 2019, but using cash-only distributions, the ratio was just 60%, indicating safe coverage of cash distributions.

Griffin-American Healthcare REIT IV closed its public offering in February 2019 after raising $785 million including DRIP proceeds. Its most recent NAV per share as of April 4, 2019, was $9.54 for both Class T and Class I shares.  Distribution yields are 6.00% and 6.51% for Class T and Class I shares, respectively. The REIT’s 71 buildings with 3.9 million square feet of GLA were 95.8% leased with an average lease term of 9.1 years. The portfolio consists of 51.7% medical office buildings, 18.4% Senior Housing – RIDEA, 14.0% Skilled Nursing Facilities, and 15.9% Senior Housing. Based upon the aggregate contract purchase price, the portfolio totaled $839.3 million as of Q1 2019. The REIT had an MFFO payout ratio using total distributions of 149% for Q1 2019 but using cash-only distributions this ratio was 66%, indicating safe coverage of cash distributions.

The PowerPoint presentation of the August 6 Performance Webinar is available to subscribers on the Blue Vault website at www.bluevaultpartners.com.