Do Nontraded REITs Have Exposure to Bank Branch Closures?
June 5, 2019 | James Sprow | Blue Vault
According to S&P Global Market Intelligence, bank branch closings are continuing to outpace new openings, as customers are using more online and mobile banking services. According to a June 5 article by Chris Hudgins at S&P Global, branch closings reached an all-time annual high of 3,023 in 2018, with new branch openings totaling 1,060. Year-to-date through May 29, 2019, 965 U.S. branches have closed.
Which current nontraded REIT programs have exposure to bank branch leases? Surprisingly, one of the largest retail-focused REITs, Cole Credit Property Trust IV, with its current roster of 890 properties, has no exposure to branch banks that we could identify. The REIT has focused instead on necessity single-tenant retail such as Walgreens and CVS, and other relatively recession-proof retail such as Dollar General, Family Dollar and United Oil gas stations. CIM Group’s latest retail-focused REIT, Cole Credit Property Trust V, has a similar tenant mix within its 140-property portfolio, with no single-tenant leases to bank branches. Walgreens accounted for 13% of the REIT’s Q1 2019 rental income.
InvenTrust Properties lists 73 properties as of March 31, 2019, with no banks among its top tenants. Highlands REIT, which was spun-off from InvenTrust does not show any bank branches in its portfolio. Hartman Short Term Income Properties XX, Inc. lists no banks among its 12 retail and 43 total commercial property top tenants.
Two NTRs that invest in grocery-anchored properties, Phillips Edison & Co. with 300 wholly-owned properties and Inland REIT with 59 wholly-owned properties, do not report any bank tenants in their respective tenant exposures. The financial reports of these two REITs do not reference any bank branch auxiliary tenants at their properties. However, a deeper dive into the tenants within the REITs’ shopping center properties may reveal bank branches. For example, a Phillips Edison & Co. property in Port Orange, Florida, had a Wells Fargo Bank branch as a tenant in a center anchored by Big Lots. Only a property-by-property analysis could give a more detailed view of bank branch tenant exposure in their portfolio of properties.
Notably, the banks with the most branch closings YTD in 2019 are led by BB&T Corp., a combined entity with SunTrust Banks Inc., that has closed 160 branches so far in 2019. A formerly nontraded REIT, according to the report, “American Finance Trust, Inc. reported 135 occupied leases with SunTrust as of March 31, aggregating $20.7 million in annual rental revenue, making it the REIT’s top tenant at roughly 8% of its total rents. American Finance’s lease count with SunTrust has dropped in recent years from 213 leases totaling 17.9% of the REIT’s rental revenue at the end of 2014.” Blue Vault reported on the listing of American Finance Trust (formerly American Realty Capital Trust V, Inc.) on the NASDAQ which met our definition of a full-liquidity event with the listing of the final tranche of 25% of the REIT’s common shares on January 9, 2019. The REIT originally offered shares in its IPO at $25.00 per share, beginning in 2013, and the closing price of those shares as of May 31, 2019, was $10.46. The impact of the number of SunTrust branch closures cannot be overlooked as a factor in the REIT’s poor performance.
Sources: SEC, S&P Global, Blue Vault
The time (at Blue Vault's 2nd Annual Broker Dealer Educational Summit) proved extremely informative.