Kirby: Highly Credible REIT IPOs on the Way

An enticing group of REIT initial public offerings appear to be headed for the market, according to Mike Kirby, chairman and director of research with Green Street Advisors.

In a video interview with REIT.com at a Real Estate Luminaries Series event on April 19 at Georgetown University sponsored by NAREIT in conjunction with the McDonough School of Business, Kirby discussed the market for REIT IPOs, share valuations and the recapitalization of the industry. Kirby noted that a group of companies that were taken private prior to the financial crisis are possibly going public again. Additionally, a number of private equity firms are building "interesting platforms" that may go public, according to Kirby.

"I expect to see some highly credible, larger deals run by management teams that we know and respect that may well represent the first crop of REITs in this IPO wave and will be really successful," Kirby said. He also pointed out that a number of publicly registered, non-traded REITs will be holding liquidation events, some of which will be going public.

Kirby also said the current interest rate environment and "not bad" recovery in fundamentals are contributing to strong REIT valuations. Kirby did acknowledge that "the pricing seems a bit rich." However, he said he expects share prices to remain strong.

"When I look at what's going on in the bond market and I look at the yield that REITs throw off, it's quite attractive," Kirby said. "It depends on what you look at, but if bond yields stay this low, I think REIT prices will certainly stay at least this high."

Kirby discouraged investors from trying to time the market. Instead, he said they should expect returns on the order of 7.5 percent in the long term.

"As always, I think investors should just walk into REITs trying to get diversification, as opposed to trying to time the market," he said.

Kirby also praised companies that have kept their leverage ratios low, especially in light of the financial crisis.

"They've delivered high double-digit total returns over a 10- or 15-year period to their shareholders, and they've sort of delivered the promise that REITs have to deliver when they do things well," Kirby said.