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Running Low on Liquidity, Starwood’s $10 Billion REIT Taps Credit Line

Starwood Real Estate Income Trust Inc. is running low on liquidity as investors pull money amid rising debt costs and fears over real estate valuations, the Financial Times reported this week.

The publicly registered non-traded real estate investment trust sponsored by Starwood Capital Group has borrowed more than $1.3 billion from its $1.55 billion unsecured credit facility since the beginning of 2023 due to high redemption demands. Last year, investors withdrew $2.6 billion from the property fund, according to third-party reporting.

In April 2024, Starwood REIT received repurchase requests totaling approximately $500 million. As per the terms of its share repurchase plan, it honored all repurchase requests for the month on a pro rata basis up to the 2% monthly limitation. As such, approximately 37% of repurchase requests were satisfied. In March 2024 for comparison, Starwood REIT repurchase requests totaled approximately $408 million and approximately 24% of repurchase requests were satisfied.

If Starwood REIT doesn’t borrow more or sell some of its assets, there has been speculation it could run out of its reserves before the year ends.

As of April 30, 2024, the company had $752 million or approximately 8% of April net asset value in liquidity comprised of $446 million of cash, $275 million of an undrawn line of credit, and $31 million of liquid securities. Starwood REIT recently extended its line of credit for three years of additional term. This liquidity level does not include any pending net proceeds from asset sales or any potential future asset sales.

In its latest asset sale and liquidity update, Starwood REIT said it had sold approximately $1.8 billion of multifamily properties, industrial properties, and real estate loans at a $335 million profit – the company’s net gain on sale and cumulative income – and generated a 14% internal rate of return and 1.5x multiple on invested capital. These three asset types made up 85% of the company’s gross asset value as of April 30.

It also announced unaudited same property net operating income for the three months ended March 31, 2024. Same property NOI was $240.8 million at the quarter’s end versus $225.8 million March 31, 2023, a year-over-year increase of approximately $15 million, or 7%.

Its declared monthly NAV per share as of April 30 was as follows:

Class S shares had a NAV per share of $23.06, compared to $23.21 per share the previous month, a 0.65% decrease.

Class T shares had a NAV per share of $23.07, compared to $23.22 per share the previous month, a 0.65% decrease.

Class D shares had a NAV per share of $22.62, compared to $22.77 per share the previous month, a 0.66% decrease.

Class I shares had a NAV per share of $22.87 compared to $23.03 per share the previous month, a 0.695% decrease.

Starwood REIT is currently offering on a continuous basis up to $18 billion in shares of common stock, consisting of up to $16 billion in shares of its primary offering and up to $2 billion in shares pursuant to its distribution reinvestment plan. As of May 15, 2024, Starwood REIT had issued and sold nearly 48.3 million shares of its common stock in the primary offering for total proceeds of approximately $1.3 billion, and approximately 14.5 million shares of its common stock pursuant to its distribution reinvestment plan for a total value of approximately $0.4 billion.

The aggregate NAV for Starwood REIT declined in April 2024, by nearly 1.4% month-over-month, from approximately $10.04 billion at the end of March to approximately $9.9 billion on April 30.

The number of shares outstanding totaled about 431.1 million at the end of April, compared to 434.6 million on the previous month’s close.

Starwood Real Estate Income Trust launched in December 2017 and invests in stabilized real estate across the United States and Europe.

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