Conditions in Place for Continued REIT M&A Activity in 2019

In the latest edition of the Nareit REIT Report podcast, Tim Bodner, U.S. real estate deals leader at PwC, discussed a range of topics, including the outlook for REIT mergers and acquisitions (M&A); the appeal of non-gateway markets; and the performance of non-traditional REIT asset classes.

Last year saw several major REIT M&A deals, with an average value per transaction of $6.4 billion. Two deals exceeded $10 billion, Bodner noted.

“We do believe that conditions are in place for more of the same in 2019,” fueled in part by the “tremendous” amount of private capital available, Bodner said.

Market volatility is another potential catalyst for activity. “Some investors like volatility because it creates opportunistic asset prices,” he noted. Low interest rates and REIT share price discounts to net asset value are additional factors supporting M&A deals, Bodner explained.

Property sectors likely to see M&A activity this year include hospitality and residential REITs, along with data center and tower REITs, according to Bodner.

Meanwhile, Bodner commented on the “dramatic” valuation differences between gateway and non-gateway markets, pointing to the almost 170-basis point gap in cap rates between Charlotte, North Carolina, and Los Angeles industrial property as an example. At the same time, deal competition across both gateway and non-gateway markets remains “quite significant,” Bodner said.