Friday, March 23, 2012
Lack of Disclosure?
If a non-traded REIT buys a portfolio of properties
and the portfolio is only 48% physically occupied, should this be disclosed in the filing discussing the acquisition? I think that is definitely a
disclosure item. A non-traded REIT purchased a portfolio of properties
at year-end 2011 at this level of physical occupancy, and did not
disclose it until nearly two months after the transaction. We have to
read what's not in a filing. And remember, when ever you read "physical
occupancy," it means that the actual economic occupancy (tenants paying
rent) is lower.
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11 comments:
Sorry, somehow I find that very hard to believe. Care to share who?
Sorry, same Anonymous here. On a separate note I also forgot to say that your physical occupancy comment is mostly right but still wrong. Tenants vacate space all the time before their lease ends for various reasons, in which case their physical occupancy has left but they'll still finish out the term of their lease, contributing to economic occupancy and percent leased. Lastly, non-traded REITs usually disclose percent leased, not physical occupancy. So I'm highly curious about your comments...
I agree with the comment on physical occupancy. My point, which should have been clearer, is that when you read physical occupancy in a filing, it's usually a buzzword mask a lower economic occupancy. The underlying asset class of the REIT that had the 48% physical occupancy, typically is always running rent specials.
http://www.sec.gov/Archives/edgar/data/1452936/000145293611000035/kbssor8k.htm
You've got to be kidding me, RR. After some serious digging, I came up with KBS Strategic Opportunity REIT's acquisition of what they call the "Richardson Portfolio" in Texas. PLEASE tell me this isn't what you were referring to! It is an opportunistic REIT that's buying severely underperforming/undercapitalized buildings and isn't paying any ongoing dividend! I surely hope this isn't what you meant. They also do disclose occupancy, and it's percent leased (like most REITs report), not physical occupancy, which is altogether different. Your comments need some explanation if this is the acquisition you were referring to....
No, it wasn't a KBS deal and I didn't write this post as a forensic scavenger hunt. The point was that an income REIT needs to disclose a 48% occupied acquisition. If it was an opportunity REIT, than 48% is fine. The point on physical v. economic occupancy was not for the real estate difference, but the wordsmithing to make occupancy look higher than it probably was.
I've failed the scavenger hunt that this post isn't and still find it hard to believe an income REIT would buy a half-vacant property. I dont hold it against you, RR. It's not you, it's me. I'm just damn curious now...
Strategic Storage Trust. discussed acq in 1/3 filing. first discussion of occupancy on 2/23. read the 3/13 filing and footnotes to find further disclosure on occupancy.
Perhaps you should read the January 6 filing which includes a supplement to the prospectus which CLEARLY discloses occupancy numbers. Page 6 of supplement. Bad job of "reporting" and "research".
Last Anonymous,
Thanks for the reference and the anonymous ad hominem put down. I read through the post effective amendment and saw the portfolio data as of August 2011. I should have kept scrolling down to bottom of this 200-plus-page document to read the supplement. But the supplement proves my point! It CLEARLY lists each of the REIT's property's ocupancies individually, but never provides an aggregate occupancy for the year-end acquisition. I guess individual investors are expected to look through 90+ properties, find the most recent acquisitions, add up the occupancies and divide by number of properties to arrive at an average occupancy. A fine example of legal obfuscation, and makes my argument in my original post even stronger.
I still missing the point of why an income REIT - it's paying a 7% distribution and has not generated enough operating cash flow to support this distribution - would buy a 48% occupied portfolio. (For the 3rd quarter, the REIT's operating cash flow was sufficient to pay 17.2% of the REIT's total distribution - page 16 of the January 6, 2012 supplement.)
And I'm sure your thorough "research" saw that the REIT borrowed $84.6 million to purchase the $80 million property, which I calculate at 105.75% leverage ($84.6 million / $80 million). But this is a discussion for another post because the debt was disclosed, albeit in a convoluted manner.
I am not a "reporter" and I'll stand by my original post. Despite the supplement, the 48% occupany was not clearly disclosed.
I'll just have you know I am the original Anonymous and the last jab wasn't me :)
Clearly the last jab was someone from the Strategic Storage Trust.
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