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A Deeper Look at CIM Group and SmartStop

September 25, 2019

A Deeper Look at CIM Group and SmartStop

September 25, 2019 | James Sprow | Blue Vault

Blue Vault presented a Performance Series Webinar on Tuesday, September 24, that covered the nontraded REIT programs sponsored by CIM Group and SmartStop.

CIM Group Programs

CIM Group, a vertically-integrated owner and operator of real estate assets based in Los Angeles, has $30.2 billion in AUM and 970 employees in the Americas. CIM acquired Cole Capital Advisors in February 2018. Prior to its acquisition, Cole had sponsored eight nontraded REIT programs since 2005 and had three full-cycle events, with two Cole Credit Property Trusts (II and III) listed on the NYSE in 2013, and a cash merger of Cole Corporate Income Trust with Select Income REIT in 2015. Blue Vault estimates the total annualized returns to early investors in these REITs ranged from 5.31% to 8.25% excluding DRIP, and 5.97% to 8.36% with DRIP participation.

CIM currently has four active nontraded REIT programs with closed offerings, including Cole Credit Property Trusts IV and V that focus on net lease retail assets, and Cole Office & Industrial REITs II and III that invest in office and industrial properties. The two retail REITs have a combined portfolio of 997 properties and have raised a total of $3.4 billion during their offerings, including DRIP proceeds. The two Office & Industrial REITs have a combined portfolio of just 38 properties and have raised $708 million in their offerings. All four of CIM’s closed REITs have paid distributions on A shares of 6.00% to 6.30% annualized, but Cole Credit Property Trust V reduced its distribution rate to 4.72% annualized in Q2 2019.

Cole Credit Property Trust V had impairments posted in Q4 2018 that impacted their MFFO and net income for the quarter, and their MFFO payout ratios in 2018. With the distribution cut, those ratios are improving in 2019. Cole Office & Industrial REIT (CCIT II) sold a portfolio of 18 properties for a gain of $120 million, reducing debt and improving interest coverage. Cole Office & Industrial REIT (CCIT III), with just two properties, is not generating MFFO consistently to cover distributions and Blue Vault anticipates a merger or liquidation of that program, perhaps involving CCIT II.

CIM Income NAV, a continuously offered daily NAV REIT, has raised nearly $800 million since its inception and had a portfolio of 147 properties, diversified across industrial, anchored shopping centers, office and retail. The REIT’s Class D, I and T share classes paid distributions at the annualized rates of 5.54%, 5.53% and 5.35% respectively in Q2 2019, net of applicable fees. The REIT reports annualized returns to Class T shares as of August 31 of 5.62% since the 2013 inception and before sales loads, and 4.94% after sales loads.

CIM Commercial Trust Corporation is a listed REIT that offers nontraded 5.5% Series A Preferred stock and has raised an estimated $27 million YTD through August 2019. Those share units include warrants that allow investors the option to purchase 0.25 shares of common stock per preferred share at a 15% premium to NAV. The preferred shares have cumulative dividends and priority over common share dividends.

SmartStop Programs

SmartStop is a diversified real estate company focused on self storage, student housing and senior housing assets. The company has approximately $1.8 billion of real estate assets under management,

including 127 self storage facilities located throughout the United States and Toronto, Canada. SmartStop’s real estate portfolio also includes five student housing communities as well as four senior housing communities.

SmartStop nontraded REITs have had two successful full-cycle liquidity events, with the all cash merger of Strategic Storage Trust, Inc. with Extra Space Storage in October 2015 for $13.75 per share and the all cash merger of Strategic Storage Growth Trust, Inc. with Strategic Storage Trust II, Inc. in January 2019 for $12.00 per share. The latest merged REIT changed its name to SmartStop Self Storage REIT, Inc. and purchased its sponsor, SmartStop Asset Management, LLC, in July 2019.

SmartStop REIT Advisors, a subsidiary of SmartStop, now serves as the sponsor, advisor, and property manager for one public nontraded REIT, Strategic Storage Trust IV, and one private REIT, Strategic Storage Growth Trust II (“SSGT II”).

SmartStop Self Storage REIT has an estimated NAV per share of $10.66 for both Class A and Class T shares as of Q2 2019. The shares have consistently paid distributions at 6.00% and 5.34% annualized based upon the offering share prices for Class A and Class T shares, respectively.

The merger of Strategic Storage Growth Trust into Strategic Storage Trust II (now SmartStop Self Storage REIT) required additional debt financing. The added interest expense has impacted the REIT’s MFFO and MFFO coverage of distributions, decreasing MFFO by approximately 81% compared to the same period in 2018.

Strategic Storage Trust IV was launched in 2017, had net equity as of June 30, 2019 of approximately $186 million and a portfolio of 17 self storage properties in the US and two properties in Canada. The REIT had an estimated NAV per share of $22.65 as of June 30, 2019, paying distributions at the consistent rates of 6.25%, 5.45% and 6.37% annualized on Class A, Class T and Class W shares, respectively, net of applicable fees. The REIT’s quarterly MFFO has yet to stabilize and cover its cash distributions, but net operating income and return on assets have an upward trend.

SmartStop’s newest REIT, Strategic Student & Senior Housing Trust, focuses its investments on Class A student housing near major universities and Class A senior housing properties. The REIT’s strategy is to invest in assets with stable income that is relatively recession-proof and benefit from demographic trends including increases in university enrollments and increases in the retirement-age population. Both sectors have low concentrations of ownership and SmartStop works with highly qualified operating companies to manage their properties. The Company sees many of the same factors that made SmartStop successful in self storage present in the student housing and senior housing environments.

The Strategic Student & Senior Housing public offering features Class Y and Class Z shares, with the advisor paying the upfront loads on the $9.30 share prices, resulting in $9.30 statement values. Other fees have been dropped, including acquisition and financing fees, with contingent fees paid to the advisor only after shareholders receive a 6.0% non-compounded annualized return on their invested capital.

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Derek Hayes
Blue Vault's Services
April 14, 2016
    

BlueVault saves a lot of time and effort in obtaining good numbers for analysis and provides good insights to compare against my own.