Online real estate investing platform Rich Uncles recently disclosed the brutal impact the COVID-19 shutdown has had on its properties. BRIX REIT, the real estate investment trust (REIT) that owns student housing properties, a 24 Hour Fitness, and a property leased by Starbucks (NASDAQ: SBUX), has seen its rents essentially dry up overnight, and a recent appraisal of its assets has resulted in enormous loss of value.
Independent valuation erases massive value
Initially founded as RW Holdings Student Housing REIT with an initial value of $5 per share, BRIX REIT has struggled in recent months. Most recently, the implications of the coronavirus pandemic on much of its real estate has resulted in enormous loss of value.
On May 19, the board of directors established a net asset value -- NAV -- of $0.32 per share, following an independent valuation by Cushman & Wakefield (NYSE: CWK), conducted in March. According to the company's balance sheet as of March 31, BRIX REIT had $12.04 million in assets and $11.25 million in liabilities.
BRIX REIT owns a 24 Hour Fitness in Fort Worth, Texas, that it paid $12.8 million for. The company has stopped paying rent on all of its gyms that are in properties it leases and is expected to file for bankruptcy. According to BRIX REIT, this will cost the company almost $1.3 million in lost annual rent, and the appraisal of the property was "far less" than the $6.1 million balance on the mortgage.
BRIX REIT's Stadium View student apartment complex near Iowa State University is similarly being burdened by the impact of COVID-19. That property, which BRIX REIT bought for $5.9 million, was appraised at $3 million and is "largely empty" as students have returned to family homes and are unlikely to return to college campuses in large numbers in the fall.
The company also owns a Starbucks near Kansas State University. The property appraised at $1.7 million, only slightly below the $1.9 million purchase price, but the company has asked every one of its landlords for 12 months of rent relief.
Running out of money…and time
As a result, BRIX REIT is now receiving almost no rents from tenants and is facing debt maturities later this year that it almost certainly won't have the cash and may not have the asset value to refinance, and it could struggle to realize enough asset value in a sale to cover its obligations. As of March 31, it had under $500,000 in cash, which, according to CEO Bill Broms, would cover its operations for eight to nine months.
The company has been given some breathing room by the lender on the 24 Hour Fitness property in the form of temporary mortgage relief through September, but it also has a $5 million loan due in October.
As a result, management expects the company's independent auditor to issue a "going concern opinion;" i.e., it anticipates the company can't survive without going through a reorganization of its assets. If this were to happen, shareholders would very likely be entirely wiped out and would realize what until now has just been a paper loss. And since this is a non-traded REIT and the company has no ability to redeem shares, there's not really anything investors in the REIT can do but suck up the losses and hope for the best.
Editor's Note: A previous version of this piece stated that the initial offer price for the RW Holdings Student Housing REIT was $10 per share.