But dividends are so sweet until they are cut or “suspended”.
By Wolf Richter for WOLF STREET.
We’ve talked a lot about commercial real estate office debt defaulting and hitting lenders, mostly mortgage-backed securities (CMBS) holders, particularly bond mutual funds, pension funds, and the like. So far the banks have been spared. big hits We talked about the first sale of office towers that will finally take place in the new era of working from home and reducing the office footprint, with huge discounts, some of them at foreclosure sale prices. You can see all this here.
Today, we look at the office real estate investment trusts (REITs) that own some of these towers, and whose shares have been crushed.
Hudson Pacific Properties cut its dividend in half today to 12.5 cents a share to keep about $18 million in cash this quarter.
“We’re a visionary real estate company focused on the epicenters of media and technology innovation,” it ominously describes itself on its website. It specializes in office and studio space in the hardest-hit US markets of Los Angeles, San Francisco, Silicon Valley and Seattle, with office market vacancy rates of 23% and 33%, per Savills.
had previously announced a cut of this magnitude in its earnings report on May 8, when it revealed a decline in revenue and another net loss in a series of quarterly net losses that began in 2020. Just four days ago, it promoted an investor presentation. where it explained how, despite all the problems out there, almost everything was either rough in its corner of commercial real estate or about to turn again.
The stock has collapsed 86% since its February 2020 peak and sits comfortably in my pantheon of Imploded Stocks. A new dividend will be paid to shareholders of record on June 20. At the current share price of $5.20, that pencils in a dividend yield of just under 10%.
Investors who bought the stock over the years to reap fat dividends have been crushed by the share price decline. At $5.20 today, the stock is less than a third of its 2010 IPO price of $17 (data via YCharts);
He is in good company.
Boston Properties shares [BXP]The largest office REIT by market cap has fallen 63% to $54.11 from its February 2020 peak. He owns the Salesforce Tower in San Francisco, where two old office towers just sold for 70% off their original list price, the first two sales in the new era of work-from-home;
Kilroy Realty Corp. shares [KRC]The second-largest office REIT by market cap is down 66% from its February 2020 high to $29.94 currently.
Shares of Cousins Properties [CUZ]The third-largest office REIT by market cap is down 50% from its recent high in February 2020 and 82% from its all-time high in August 2000, while the Dotcom Bust was riding through a sulphurous rally to $21 ,50.
Share of Vornado Realty Trust [VNO]The fourth-largest office REIT by market cap is down 77% from its January 2020 high, 83% from its January 2015 high and 2007 low. Also a member of my pantheon of Imploded Stocks.
Vornado has completely suspended its dividend for 2023. He says he plans to resume paying dividends next year, but perhaps in stock or cash or a combination of the two, it said.
It wants to raise cash by selling some of its office properties. So it’s the second largest office holder in New York. Manhattan has recently seen three sales of office towers that serve as benchmarks for a new era; respectively 50% discount in 2016. With 38% discount on 2020 refinance appraisal, but excluding renovation costs since then; and with a 41% discount in 2020. Rather than try to sell its 26-story tower in Manhattan from the 1950s, PE firm Blackstone walked away from it and the $308 million loan so CMBS holders would worry about selling it. So in this environment, raising cash by selling office towers won’t be fun.
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