07/17/2013 | by
Article Author(s)
Banker Sees Strength in REIT Valuations

John Perkins, managing director and co-head of U.S. real estate investment banking with RBC Capital Markets, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Perkins was asked about changes in real estate investment banking since he was hired at RBC two years ago.

“I think the markets have really gone through quite a strong change relative to valuations for REIT equities,” he said. “But, then more broadly, the cost of capital across all the securities that REITs have been raising over the two years that I’ve been in this seat have improved remarkably. I think you see an incredible strength in valuations. That has turned what was capital raising in 2011 when I joined RBC for balance sheet repair into capital raising for acquisitions and other more growth-oriented strategies.”

Perkins said he expects to see “continued strength” in mergers and acquisitions among REIT, primarily from private portfolios reaching the public markets. He cited the Archstone sale by the Lehman estate to apartment REITs Equity Residential (NYSE: EQR) and AvalonBay Communities Inc. (NYSE: AVB) as an example.

“I think you’ll see continued interest by private portfolios looking for liquidity,” Perkins said. “Many of them are limited-life capital vehicles that need to find some way of winding up. I think you’ll see the public markets if the valuations stay strong continuing to provide an exit for those larger portfolios and, in some cases, some of the smaller portfolios as well trading into the public markets.”

Perkins discussed the market for REIT initial public offerings.

“There are a number of sectors that have started to look at the public markets again,” he said. “I think industrial is one. There’s a bit of a hole in terms of the capitalization in the public markets for industrial. I think you’ll see renewed interested there.”

Perkins noted that his firm participated in an IPO for an industrial REIT company in Canada.

“I think you’ll see other industrial REITs look at the market given, again, where the market has traveled relative to valuations,” he said. “If this sell-off over the past couple of weeks persists, perhaps that will give a pause to some of those activities.”