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Stanger Upgrades Starwood REIT Outlook

Robert A. Stanger & Co., Inc. issued an updated research report on Starwood Real Estate Income Trust Inc., upgrading its rating to “market perform.” SREIT is the second largest net asset value real estate investment trust, with $9.9 billion in aggregate NAV and a portfolio concentrated in residential and industrial properties, supplemented by floating rate credit investments and other property types.

“SREIT has experienced a 17% correction in its share price since its peak in September 2022, yet the operating fundamentals and growth profile remain strong, and Q1 2024 net operating income growth came in better than we expected given issues surrounding absorption of new residential supply in certain Sunbelt markets where SREIT is heavily concentrated,” said David J. Inauen, head of research at Stanger.

“There are still some hiccups in NOI growth that have not yet fully played out, but we remain bullish on the long-term growth prospects. While SREIT employs aggressive leverage, the risk-reward profile has improved since our prior report,” added Inauen.

The new research report comes following SREIT’s decision to lower the capacity limits under its share repurchase plan in May 2024. Monthly redemptions are now limited to 0.33% of NAV, and quarterly redemptions are now limited to 1% of NAV. Share repurchases were previously limited to 2% of NAV monthly and 5% of NAV quarterly. SREIT announced that 20% of its base management fee would be waived while the share repurchase plan operates under reduced capacity. SREIT reported that it expects these changes to the share repurchase plan to be temporary, lasting six to 12 months.

SREIT had been plagued by negative fund flows going back to Q4 2022, when it first began to prorate shareholder redemption requests. In April 2024, SREIT reported that it was only able to satisfy 37% of redemption requests – an increase from the mere 24% SREIT satisfied in March 2024. Stanger estimates that unmet redemption requests totaled $326 million at the end of April, or 3.5% of aggregate stockholder NAV. The decision to lower its SRP capacity comes after SREIT recently reported that its liquidity sleeve totaled $752 million as of the end of April, or just 8% of stockholder NAV.

“The reduced [share repurchase plan] capacity obviously increases the risks of investing in SREIT, and we have reflected that in our recommendation,” Inauen continued. “There will certainly be kneejerk reactions to SREIT’s announcement, and we expect share redemption requests to accelerate. However, when we analyze NAV REITs, we take a long-term view. As analyzed on the fundamentals, SREIT makes a compelling case for inclusion in NAV REIT investors’ portfolios.”

As previously reported by The DI Wire, SREIT 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. Stanger reports that total indebtedness for the REIT exceeds $15 billion.

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

Robert A. Stanger & Co., Inc., founded in 1978, is an investment banking firm specializing in providing investment banking, financial advisory, fairness opinion and asset and securities valuation services to partnerships, real estate investment trusts, and real estate advisory and management companies in support of strategic planning and execution, capital formation and financings, mergers, acquisitions, reorganizations, and consolidations.

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