While the REIT IPO market got off to a strong start in 2013, analysts say recent developments will likely discourage companies from holding initial public offerings in the second half of the year.
The five REIT IPOs that have taken place since the beginning of the year generated $1.2 billion. With the total returns of the broader market this year now nearly doubling those of equity REITs, Jason Lail, senior industry analyst with SNL Financial, expressed skepticism about the chances that the number of companies going public in the next six months will match the first six, calling the idea “a reach.”
Through June 17, the S&P 500 had total returns of 16.1 percent for the year, compared to 8 percent from the FTSE NAREIT Equity REITs Index.
Marty Cicco, senior managing director with Evercore Partners, noted that the recent sell-off in the REIT market may discourage some companies from going ahead with plans to hold initial public offerings. For example, while the Empire State Realty Trust Inc. continues to forge ahead towards an IPO, Colony American Homes, a single-family rental home company, postponed its IPO this month.
Gil Menna, a partner with Goodwin Procter and specialist in REIT transactions, said the decision by Colony to hold back was the right call. “It’s always good for markets to take a time out and see what happens,” he said.
In the last 10 years, the highest amount of IPO activity occurred in 2004, according to a report from SNL Financial. Seventeen REITs completed IPOs that year and raised $4.5 billion.
“The year 2004 was a banner year for equity REIT IPOs,” Lail noted. “This is the highest one-year total for REIT IPOs over the last decade in terms of both volume and aggregate proceeds and is indicative of the general strength of the REIT market during that time.”
Lail said the strong REIT returns of almost 40 percent in 2003 played a role in the large number of REITs deciding to pursue IPOs in 2004. In fact, 2003 witnessed the second-highest aggregate amount raised by REIT IPOs in the last decade. Six IPOs raised a total of more than $2.4 billion that year, according to SNL.