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Another Big Win For Us, Our 12th REIT Buyout
At High Yield Landlord, our investment strategy is built on buying real estate at a steep discount to fair value through the often mispriced public REIT market.
The goal is simple.
We aim to earn an abnormally high yield while we wait, and then profit further as the discount to fair value gradually closes.
Because of this, it is also quite common for us to benefit from buyouts. When public REITs trade at steep discounts to the value of their underlying real estate, it often attracts larger investment firms that see an opportunity to acquire the entire company at a premium, and still get a good deal.
Over the years, we have now profited from 11 such buyouts.
This includes:
Frontyard Residential
MNR Real Estate
Urstadt Biddle
Hersha Hospitality
STORE Capital
American Campus Communities
PS Business Parks
Tricon Residential
Apartment Income REIT
National Storage REIT
Whitestone REIT
And now, we have another one.
Sila Realty Trust (SILA) has agreed to be acquired by Blue Owl Capital (OWL) in a $2.4 billion transaction at a 25.6% premium to its 30 day volume weighted average price.
This is a big win for us because Sila was the second largest holding in our Core Portfolio, representing 7.3% of it.
We first invested in the company in August 2024 after selling Global Medical REIT, now known as Chiron Real Estate (XRN), and in hindisght, that was a very good decision:
This also marks the third REIT buyout from our portfolio in just over one month.
First, our Australian Top Pick, National Storage REIT (NSA), got bought out by Brookfield (BAM). Then, Whitestone REIT (WSR) got bought by Ares (ARES). And now, Sila is getting bought by Blue Owl.
So what do all of these investments have in common?
They all traded at steep discounts to net asset value, and that eventually caught the attention of major private equity firms that were willing to pay large premiums to acquire them, while still believing that they were buying at attractive valuations.
This is exactly why we remain so bullish on the REIT market today.
It continues to offer patient long-term investors the opportunity to buy high quality real estate at deeply discounted prices. In many cases, we are quite literally buying dollars for 50 cents.
And I think there is a high likelihood that we will see many more similar transactions in the coming months because we currently own a number of positions that could also become buyout targets.
Just looking at our current Core Portfolio:
Caesars Entertainment (CZR) has recently surged on rumors of buyout interest from several different groups.
AH Realty Trust (AHRT) recently announced that it would sell roughly one third of its assets to simplify the business, and we think that it may eventually sell the rest as well if its valuation does not recover.
BSR REIT (HOM.U:CA) also sold a large chunk of its assets last year, and at the same time removed potential share class issues that may previously have complicated a full sale.
Centerspace (CSR) has announced a formal process to review strategic alternatives, including a full sale of the company, and activist investors are pressuring management to close a transaction.
Sun Communities (SUI) recently sold its entire marina business to Blackstone (BX) because the REIT market was not properly valuing those assets, and I would not be surprised if it eventually sold the rest of the company as well. I have no doubt that Blackstone would have interest in such a rare portfolio of highly supply constrained Class A manufactured housing communities.
Clipper Realty (CLPR) is a special situation that we expect to eventually liquidate itself. Its small size no longer justifies the cost of being publicly listed, and since it continues to trade at a steep discount, there is little benefit to remaining public anyway.
SBA Communications (SBAC) was recently approached by private equity players to discuss a potential buyout and has already surged as a result.
Uniti Group (UNIT) was also recently approached by potential buyers and has more than doubled over the past six months.
Macerich (MAC) is now led by the former CEO of Spirit Realty Capital, who previously sold that REIT to Realty Income (O). We think there is a real possibility that he may seek to do something similar with Macerich over time.
First Industrial (FR) is being pressured by a leading REIT activist investment firm to consider strategic alternatives, including a potential sale of the company.
Star Holdings (STHO) is already in liquidation and will eventually be dissolved. This may take 2 to 5 years, but we believe that the eventual proceeds could far exceed the current share price.
What this means is that a very large portion of our Core Portfolio consists of potential near term buyout targets.
These companies trade at discounts to NAV, have typically shareholder friendly management teams, and in many cases have either already received interest from private equity buyers or have shown a clear willingness to sell substantial portions of their assets. If their valuations remain persistently low, further asset sales or full takeovers become increasingly likely.
But let us get back to Sila Realty Trust.
What are we doing with it following the buyout announcement?
Today, we are selling our entire position because it is now trading right in line with the transaction price.
This unlocks $67,800 of capital to reinvest.
We are redeploying $10,000 into more shares of Rayonier (RYN), another $10,000 into more shares of Vail Resorts (MTN), and finally $5,000 into Clipper Realty (CLPR).
These positions have recently underperformed REIT sector indexes and continue to trade at large discounts to our estimate of net asset value. You can read our investment theses below:
The remaining $42,800 will be reinvested at a later date, possibly into a new opportunity that I am currently researching.
Stay tuned, more soon.
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