Cottonwood Cuts Monthly Distribution 8.8%, Closes $175M JPMorgan Facility
Cottonwood Communities Inc., a nontraded real estate investment trust focused on multifamily housing, will reduce its monthly distribution by about 8.8%, to $0.05166667 per share from $0.05666667, beginning with distributions for holders of record on Nov. 30.
The new rate equates to $0.62 a year, or about 5.5% of the REIT’s Sept. 30 net asset value per share of $11.3303, according to the company. The prior $0.68 annual rate equated to about 6% of that NAV.
Cottonwood’s board said the reduced rate places greater emphasis on long-term capital appreciation while continuing to provide current income, and that aligning distributions more closely with earnings “strengthens distribution coverage.” The board said the change is not conditioned on the outcome of the company’s pending merger with entities controlled by Barry Mandel, chairman and chief executive officer of the Mandel Group.
The October distribution, declared Oct. 16 for holders of record on Oct. 31, remains at the prior rate and will be paid in November.
The reduction follows an earlier step-down. Cottonwood paid $0.73 per share annually from January 2023 through July 2025 before phasing the rate down to $0.68 in connection with its merger with RealSource Properties.
The Sept. 30 NAV per share, which applies to all share classes, rose slightly from $11.3277 as of Aug. 31. Total NAV was about $1.1 billion, essentially unchanged from August, and the REIT held $2.8 billion in total assets. In July, AltsWire reported a June 30 NAV of $11.3127 per share.
New Credit Facility
On Oct. 16, Cottonwood’s operating partnership, Cottonwood Residential O.P. LP, entered into a loan agreement with JPMorgan Chase Bank N.A. for a $75 million term loan, of which $38 million was funded at closing, and up to $100 million in revolving credit commitments. The operating partnership may request an increase in the term loan to $150 million, subject to the lender’s approval.
Loans bear interest at the term secured overnight financing rate plus 3.35%. The facility matures Oct. 16, 2029, with two optional 12-month extensions. Cottonwood said it will use term-loan proceeds to finance an acquisition, pay related fees and expenses, and reduce the principal balance of an outstanding loan by $25.4 million.
Covenants include debt yield, fixed-charge coverage, and pledge coverage ratios, as well as a requirement that the operating partnership maintain NAV of at least $750 million. The facility is secured by pledges of ownership interests in certain Cottonwood subsidiaries.
Mandel Merger
On Sept. 2, Cottonwood entered into a series of merger agreements to acquire 12 multifamily properties, primarily in the greater Milwaukee area, from entities controlled by Mandel and his affiliates, along with Mandel’s property management platform, Mandel Property Services. The aggregate purchase price is about $519.9 million, including debt to be assumed or repaid at closing, payable in cash and operating partnership units.
Cash consideration to members of each property-owning entity, other than Mandel and his affiliates, is capped at 50% of that entity’s merger consideration, with any excess cash elections prorated into units. Cottonwood acquired a 13th Mandel property, Park Lafayette Towers in Milwaukee, in July.
The combined Mandel portfolio totals 2,259 units with average occupancy of 96.4% and average rent of $1,926, according to Cottonwood. The mergers require approval by members of the property-owning entities and lender consents, among other conditions, and may be terminated if they have not closed by Dec. 31, 2026, subject to any extension rights. Under a side letter, Mandel will be entitled to serve as a nonvoting observer to Cottonwood’s board for at least three years after closing.
On Oct. 15, the parties amended the merger agreements to correct what Cottonwood described as a scrivener’s error in the escrow calculation. As amended, the escrow, which secures post-closing adjustments and seller indemnification, equals 1.5% of the purchase price inclusive of debt assumed or repaid.
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