Tag: Asset sales

How Wall Street’s REIT giants are reshaping U.S. real estate

U.S real estate investment trusts today manage $4.5 trillion in real estate worldwide. Many groups on Wall Street offer these tax-friendly funds to retail investors.

KKR’s real estate business is one of the big players in the REIT game. The private equity firm manages multiple REIT funds. The KKR Real Estate Select Trust, which currently manages $1.5 billion in assets, paid a dividend of 5.4% to its investors in July 2023.

But the benefits extend beyond returns.

“When you look at the after tax equivalent of that yield, it is very compelling.” said Billy Butcher, CEO of KKR’s global real estate business. “The depreciation from our properties has covered 100% of the income generated by our properties, and there’s no tax on that dividend,” he said in an interview with CNBC.

Larger funds sometimes contain a diversified pool of assets. Categories may include office, student housing, casino, timberlands, radio and cell towers, server farms, self-storage properties, billboards, and much more.

“Back in the 1960s, there were three or four different types [of REITs], said Sher Hafeez, a managing director at Jones Lang LaSalle, a real estate services firm. “Now, I can count at least 20 different types.”

Top performing REIT sub-sectors in recent years include data centers, self-storage properties, residential housing and tower REITs. Residential housing delivered a return of 16% from 2010 to 2020, according to a S&P Global Investments report.

The investor-friendly tax rules can also increase the pace of large-scale development.

“Having REITs there as a potential exit helps the market, and helps the availability of financing,” said Michael Pestronk, CEO and co-founder of Post Brothers, a Philadelphia-based housing developer.

Some funds like Invitation Homes and American Homes 4 Rent were founded in the yearslong slowdown in U.S. home construction. At the time, REITs bought and managed commercial-scale properties, which could include products like master-planned communities or traditional apartment complexes.

In recent years, publicly traded trusts have targeted single-family rental market, and today, these REITs have grown tremendously — enough to build new neighborhoods in their entirety.

Watch the video above to learn the fundamentals of real estate investment trusts.

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September 1, 2023
Lordstown Motors shipping out first batch of electric trucks

LORDSTOWN, Ohio — Commercial electric vehicle startup Lordstown Motors has received approval to ship the first batch of its first model, the Endurance pickup.

The company announced Tuesday that the first units of the initial batch of 500 trucks were leaving the plant after they passed safety tests and hit several key benchmarks needed to be sold. It did not state how many of the pickups have been made.

The trucks were built in an old General Motors small-car assembly plant in Lordstown, Ohio, near Cleveland, that was purchased last year by Taiwan’s Foxconn Technology Group, the world’s largest electronics maker.

“I am very proud of the Lordstown Motors and Foxconn EV Ohio team for their hard work, grit and tenacity in achieving this milestone,” said Edward Hightower, the company’s president and CEO. Production of the vehicles remains slow, though, but the company reiterated that “volume will accelerate as we resolve supply-chain constraints.”

Earlier this year, Lordstown said it expected to produce 3,000 of its flagship Endurance electric trucks before the end of 2023.

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November 30, 2022
Cryptocurrencies slump again amid fallout from FTX sale

NEW YORK — Bitcoin slumped to a two-year low and other digital assets sold off following the sudden collapse of crypto exchange FTX Trading, which has been forced to sell itself to larger rival Binance.

Bitcoin traded around $17,645, and overnight fell to its lowest level since December 2020. Just a year ago, bitcoin hit an all-time high of $68,990. Ethereum, the second most actively traded digital currency, fell 10%.

FTX agreed to sell itself to Binance after experiencing the cryptocurrency equivalent of a bank run. Customers fled the exchange after becoming concerned about whether FTX had sufficient capital.

The sudden sale was a shocking turn of events for FTX CEO and founder Sam Bankman-Fried, who was hailed as somewhat of a savior earlier this year when he helped shore up a number of cryptocurrency companies that ran into financial trouble.

Shares of publicly traded companies with heavy exposure to crypto were also down in early trading after falling sharply on Tuesday.

Online trading platform Robinhood Markets fell more than 6% after sinking 19% Tuesday. Bankman-Fried’s holding company Emergent Fidelity Technology had a 7.5% stake in Robinhood as of Tuesday. Coinbase, the second-largest cryptocurrency exchange behind Binance, was down 6% in early trading.

FTX is the latest cryptocurrency company this year to come under financial pressure as crypto assets have collapsed in value. Other failures include Celsius, a bank-like company that took in crypto deposits in exchange for yield, as well as an Asia-based hedge fund known as Three Arrows Capital.

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November 9, 2022
Germany may block sale of chip factory to Chinese-owned firm

BERLIN — The German government may decide this week to block the sale of a chip factory to a Swedish subsidiary of a Chinese company, following a recent compromise over a Chinese shipping firm’s investment in a German container terminal.

German company Elmos said late Monday that it was informed by the Economy Ministry that the sale of its factory in Dortmund to Silex Microsystems AB “will most likely be prohibited in the upcoming cabinet session.” The ministry previously “had indicated to the parties that the transaction most likely will be approved,” Elmos added.

Silex is owned by Sai Microelectronics of China, according to German media. The planned 85 million-euro (dollar) sale was announced in December.

The change comes as Germany struggles with the extent it should allow Chinese companies to invest in Europe’s biggest economy.

The Cabinet, which will hold its weekly meeting Wednesday, reached a compromise late last month after officials argued over whether to allow China’s COSCO to take a 35% stake in a container terminal at the Hamburg port.

Members of two junior parties in the governing coalition opposed that deal while Chancellor Olaf Scholz, a former Hamburg mayor, downplayed its significance.

COSCO was cleared to take a stake below 25%, with a threshold above that allowing an investor can block a company’s decisions.

Scholz traveled to Beijing last week, becoming the first leader from the Group of Seven leading industrialized nations to meet President Xi Jinping since the start of the COVID-19 pandemic. The visit, coming shortly after Xi further cemented his authoritarian rule at home, drew some criticism at home.

Scholz is encouraging companies to diversify but not discouraging business with China. He said before the trip that “we don’t want decoupling from China” but that “we will reduce one-sided dependencies in the spirit of smart diversification.”

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November 8, 2022
Judge: ITG is liable for Florida tobacco settlement payments

DOVER, Del. — Cigarette manufacturer ITG Brands assumed liability for tobacco settlement payments to the state of Florida when it acquired four brands from Reynolds American in 2015, a Delaware judge has ruled.

Vice Chancellor Lori Will ruled Friday that, as a result, ITG must compensate Reynolds American for losses due, granting summary judgment in favor of Reynolds.

Reynolds sold the Kool, Winston, Salem and Maverick brands to ITG in 2014 to gain federal regulators’ approval of its acquisition of Lorillard Inc.

Before the sale closed, Reynolds American affiliate R.J. Reynolds Tobacco Co. was making payments under a preexisting settlement agreement with Florida for reimbursement of smoking-related health care costs. After closing, Reynolds stopped making payments for the four brands it no longer owned.

The asset purchase agreement required ITG to use reasonable best efforts to join the Florida settlement and make annual payments to Florida for sales of the brands it acquired from Reynolds. ITG has yet to join the settlement agreement with Florida or make any payments.

Florida sued Reynolds and ITG and obtained a judgment requiring Reynolds to continue making payments based on ITG’s brands, unless and until ITG joined the Florida settlement agreement.

“That judgment on Reynolds amounts to over $170 million to date and tens of millions of dollars more each year into perpetuity,” Will noted. The “unambiguous terms” of the asset purchase agreement support Reynold’s arguments that ITG agreed to assume the liability imposed by the Florida judgment and must indemnify Reynolds, she concluded.

The ruling comes in a long-running legal battle between Reynolds and ITG, both based in North Carolina. In 2017, a different Court of Chancery judge concluded that ITG’s obligation to use its best efforts to try to reach a tobacco settlement agreement with Florida did not end when the sale closed.

Last year, Reynolds asked ITG to compensate Reynolds Tobacco for what it had paid and will pay due to the Florida judgment, but ITG refused. In subsequent litigation, ITG argued unsuccessfully that it had fulfilled its reasonable best efforts obligation and was not required to indemnify Reynolds for the payment liability to Florida.

Last year, in the settlement of a lawsuit brought by the state of Minnesota, ITG agreed that it had assumed obligations under that state’s tobacco settlement agreement to make payments for sales of the four brands it acquired from Reynolds. ITG agreed to make payments to Minnesota for 2021 and all future years, while payment liabilities for the period from 2015 to 2020 were split between ITG and Reynolds.

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October 3, 2022