11/22/2013 | by
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REIT Transaction Wave Not Surprising, Banker Says

Scott Schaevitz, chairman of the Americas real estate investment banking division at Barclays, joined REIT.com for a video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.

Schaevitz discussed the number of mergers and acquisitions that have taken place in the REIT industry in 2013. He said the high volume of activity hasn’t surprised him.

“Coming into 2013, we knew that there were a lot of non-traded REITs that had gone through their investment cycle. There were a lot of portfolios owned by private equity that were in the same situation. So, we felt good about the supply that would be coming out,” Schaevitz said. “On the demand side, REITs were trading at nice premiums to NAV (net asset value), giving companies a good currency to use for acquisitions. Plus, debt was inexpensive and the capital markets were open, so they had the available capital to go after deals.”

Schaevitz was asked about the possibility of more public-to-public mergers in the near future.

“Over history, you’ve seen certain sectors get hot,” he said. “You saw a wave of health care real estate M&A, for example. This year, we were involved in three net lease transactions. However, I like to think of it more as a cost of capital issue versus a sector issue. Across any sector, you can see a company that may have a very high cost of capital, may perennially trade at a discount to its NAV, and because of that, it has trouble competing against other companies in the sector. Those companies may decide over time to sell themselves rather than trying to fight through that cost of capital burden. Those companies can exist in any sector.”

Schaevitz also previewed the possibility of more initial public offerings (IPOs) of REITs.

“On one hand, you have small companies doing primarily retail distribution deals where institutions are not getting involved because the size is so small,” he said. “Those companies tend to have less following after their IPO and tend to have a challenging cost of capital and sometimes difficulty raising additional capital to grow. On the other hand, you’re seeing larger companies come out with this institutional support and the ability to keep growing their companies with sufficient capital going forward. That’s why we’re seeing a real split in that market.”