Michael Kessler, partner at Alston & Bird LLP, said he sees the potential for more innovative REIT bond products this year, in addition to the issuance of preferred stock.
In a video interview at Nareit’s Washington, D.C. office, Kessler said that despite headwinds to bond issuance that emerged in the second quarter of 2022, there is still a lot of demand. As a result, “I think we’ll see innovation in the terms of bonds to narrow the bid-ask between what investors look for and what companies are willing to provide,” Kessler said.
Kessler said he expects REITs will also look at other products, such as preferred stock, as a way to raise capital because common stock is still considered by some companies to be trading below its true value.
Turning to the landscape for mergers and acquisitions, Kessler said it appears to be “robust” at this early stage of the year.
“I’d like to think we’re in kind of a Goldilocks environment for M&A…there’s enough turmoil in the market to bring a good volume of sellers to the table but there’s enough stability in the equity market and stock valuations where there’s a balanced supply of buyers, or excess buyers, so we’re seeing good conditions for M&A,” he said.
While stock valuations are still a bit off from where they were some years ago, he added, they are high enough to get deals done. The solid volume of M&A seen over the past year is likely to continue, he said.
Meanwhile, on governance matters, Kessler said many REITs are taking a wait-and-see approach ahead of anticipated SEC rulemakings.