The sluggish performance of REIT initial public offerings (IPOs) since the start of 2010 may be impacting companies waiting on the sidelines to go public.
While a handful of recent REIT IPOs have posted strong results, most have lagged the broader REIT market since going public. As of early September, of the 18 companies that had held IPOs in that timeframe, only five had outperformed the SNL US REIT Equity Index since the completion of their offerings: CoreSite Realty Corp. (NYSE: COR),Retail Properties of America (NYSE: RPAI), Stag Industrial (NYSE: STAG), American Assets (NYSE: AAT) and Select Income REIT (NYSE: SIR).
Thirteen REITs that have filed for IPOs during that period have yet to hold offerings.
"The performance of the recent IPOs is going to be a big factor on new companies and their ability to become public," says Keven Lindemann, managing director with SNL Financial. "This is not a great track record. Typically, you expect a company when they become public to have growth plans and buy-in from the investment market. You would expect a stronger performance than that if a company feels like there's enough investor interest to successfully execute an IPO."
A number of REITs that investors expect to go public in the near term could help jumpstart the IPO market, according to Lindemann. The success of a "bellwether" IPO could be an incentive to motivate the others to enter the market, he says.
"There are a number of companies that are ready to tap the public markets when the market is ready for them," he said.
In addition to those 13 in the pipeline, Calvin Schnure, NAREIT's vice president of research and industry relations, says REITs are raising record amounts of equity capital through both IPOs and secondary offerings. Additionally, he says REITs are doing so at a time when many other sectors don't have the same access to capital.
"Their primary motivation is that commercial property prices currently appear attractive, especially considering that new construction of most types of buildings is only a bit above the lowest levels in almost 20 years," Schnure says.
According to data from Real Capital Analytics, REITs have bought more than $27 billion in commercial properties since the beginning of 2010.
"REITs are able to buy properties today and will benefit from higher rents and property values as the recovery proceeds," Schnure says. "New IPOs allow new firms to raise capital in public markets to invest in commercial real estate at a beneficial part of the commercial property price cycle, adding to shareholder value of the medium and long term."