REIT Legal Expert Sees Challenging IPO Market

The REIT market has seen just a single initial public offering (IPO) this year, and signs are pointing to a dearth of activity for the remainder of 2019, according to Justin Salon, REIT practice co-chair at law firm Morrison & Foerster LLP.

“Typically, you have a handful. To have just one as we sit here almost at June is certainly a downturn in the market,” Salon said. While Morrison & Foerster currently has two IPOs in registration, generally “we’re not seeing a whole lot…we may see a couple this year,” he added.

Postal Realty Trust, Inc. (NYSE: PSTL), a REIT that owns and manages properties leased to the United States Postal Service (USPS), listed on the New York Stock Exchange on May 15.

One of the factors behind the scarcity of deals, Salon said, is the disconnect between public and private market valuations and the fact that private market liquidity offers sponsors “a pretty good sense of what they can get.” The IPO market, on the other hand, puts sponsors “at the whims of the market,” with no clear idea as to where pricing might head.

“There’s a lot less certainty if you go down the path of an IPO, [especially] if there is a robust market on the private side,” Salon said.

At the same time, smaller deals are not going to get the same type of attention unless they have a really differentiating story, Salon noted. REIT dedicated investors, if they are interested, often choose to sit on the sidelines for the IPO and wait for the eventual follow-on offerings to take a position in the company.

To help companies considering the IPO path, Morrison & Foerster has released an updated guide to REIT IPOs, working with a cross-practice group of attorneys to share a practical look at how to prepare and carry out the IPO, as well as compliance, tax, financial reporting, and accounting matters.

While acknowledging that conditions in the REIT IPO market are challenging, “if you can get it done, you should try,” Salon said.