Q2 2019 “Vault View” NTR & BDC Quarterly Review Summary
September 25, 2019 | James Sprow | Blue Vault
On September 17, Blue Vault presented a webinar summarizing the performance of nontraded REITs and nontraded BDCs in the 2nd Quarter of 2019.
Among the important stories for nontraded REITs in Q2 2019:
• NTR Capital raise increased to $2.792 billion in Q2 from $1.533 billion in Q1 2019, an 82% increase
• Blackstone REIT raised $2.019 billion in Q2 2019, over 72% of NTR capital raise
• JLL raised 6.2% and Black Creek raised 5.2% of all NTR capital raised in Q2 2019
• Starwood broke escrow December 21, and raised $135.5 million in Q2 2019 for a 4.9% share after raising $86 million in Q1 2019
• Phillips Edison Grocery Center REIT III plans to merge with Phillips Edison & Co. in Q4 2019
• Most recent new entrants include InPoint CRE Income, Procaccianti Hotel REIT, Cottonwood Communities and Oaktree REIT
• Blackstone REIT acquired 161 properties for $3.161 billion, 71.5% of total acquisition values
• CNL Healthcare Properties sold 59 properties for $1.344 billion, 49% of total disposition values
On the macroeconomic front, Greenstreet’s Commercial Property Index has been increasing at a 1.6% annual rate over the past 12 months. The strongest sectors among listed REITs have been Industrial (+10%) and Student Housing (+5%) increasing property values over the last 12 months ended August 31.
There have been four full-cycle events among nontraded REITs year-to-date in 2019, with Strategic Storage Growth Trust’s merger with Strategic Storage Trust II at $12.00 cash per share the most recent successful event.
There are eight nontraded REITs that have had continuous offerings over the trailing 12-month period ended June 30, 2019. Estimating the change in NAVs and the distribution yields, the REITs with the highest estimated YTD total returns as of June 30, 2019, were Blackstone REIT (+5.50%) and RREEF Property Trust (+4.43%). From Q2 2018 to Q2 2019, the NTRs with the highest changes in NAVs were Blackstone REIT (+11.0%) and Jones Lang LaSalle Income Property Trust (+7.8%). The REIT with the largest drop in NAV over that same period was Hospitality Investors Trust (-33.6%). KBS Strategic Opportunity REIT made special distributions totaling $6.58 in 2018, making their adjusted NAV per share as of June 30, 2019, $16.47.
Median distribution yields for nontraded REITs that are currently making distributions decreased slightly from Q1 2019 to 5.02% among open NTR offerings and 5.64% for closed NTRs. There were ten closed NTRs that were not paying distributions to shareholders in Q2 2019.
There were 18 NTRs with YTD MFFO Payout Ratios (including DRIP) below 100%, led by Procaccianti Hotel REIT and NorthStar Healthcare Income at 35%. Among the NTRs that were paying distributions and had MFFO payout ratios below 500% or with positive MFFO, there were 18 NTRs with YTD MFFO payout ratios above 100%, with the highest at 316% for Carter Validus Mission Critical REIT and Moody National REIT II at 278%.
Redemption rates for NTRs that had active share repurchase programs during Q2 2019 trended upward to 0.90% of weighted average shares outstanding, reflecting the increased liquidity features of continuous offerings that are now raising most of the capital among effective nontraded REITs.
Nontraded BDC Performance in Q2 2019
Total capital raised by nontraded BDCs in Q2 2019 was $115.9 million, down from $155.3 million in Q1 2019 and $119.5 million in Q2 2018. Most of the capital raised by BDCs was by Owl Rock Capital Corporation II that has raised $246.4 million YTD as of June 30. Other BDCs raising capital YTD in 2019 were CION Investment Corporation ($15.9 million), MacKenzie Realty Capital ($6.9 million) and Guggenheim Credit Income Fund – 2019 ($1.9 million).
The median total return for all nontraded BDCs through the first six months of 2019 was 4.08%, up significantly from the median total return for the same BDCs for all of 2018 of 1.96%. NexPoint Capital, Inc. led all nontraded BDCs for the period with a total return of 7.38%. Only two BDCs had negative returns over the period.
