By Susan Persin
Senior director of research
The REIT IPO window opened back up in October, as four REITs completed IPOs.
These four REITs represent one-fourth of the total 16 companies that have gone public so far in October.
To date, 18 REITs have gone public during 2013, which marks the year as a particularly strong one for REIT IPO activity.
It is the greatest number of IPOs since 2004, when 29 REITs went public. 2013 ranks fifth so far in the modern REIT era for IPO activity.
October’s IPOs were the first REIT IPOs since mid-August. IPO activity dried up over the summer because of concerns that the Federal Reserve would taper its bond-buying program, which would lead to higher interest rates.
REITs, which pay most of their income as dividends, depend on borrowed money to grow, and higher interest rates affect their borrowing costs.
Higher interest rates also make REIT yields less attractive compared to other investments, which could cause investors to pull money out of the sector. Strengthening REIT returns in September and October spurred the renewed IPO activity.
Year-to-date, seven new Mortgage REITs have gone public, raising more than $800 million.
October’s REIT IPOs include two mortgage REITs. Cherry Hill Mortgage (CHMI) raised $130 million on October 3 by selling 6.5 million shares for $20 per share. The company is currently trading down about 10%.
Stonegate Mortgage (SGM) raised $114 million with its October 9 IPO. The company sold 7.1 million shares at $16 per share, below the range of $20 to $22 per share, but is currently trading up about 10% from its IPO price.
The diversified REIT sector includes many specialized REITs and has been the source of significant recent IPO activity.
Six companies in this sector have gone public during 2013, raising more than $2 billion. Specialized REITs that have gone public during 2013 include two single family rental REITs, as well as two data center REITs.
On October 8, QTS Realty Trust (QTS), a data center REIT, raised $257 million by selling 12.3 million shares for $21 per share, a price that was well below the expected range of $27 to $30. QTS operates 10 facilities across 7 states.
2013 IPOs also include three office/industrial REITs. Most notably, Empire State Realty Trust (ESRT) debuted on October 1. The company raised $929.5 million with the sale of 71.5 million shares at $13 per share. Like many other recent REIT IPOs, the IPO price was at the bottom of the expected range. ESRT is current trading about 5% above its IPO price.
Many recent REITs have priced at the low end of their expected ranges, or even below the range, reflecting the uncertainty that continues to characterize the market.
Several companies have filed for REIT IPOs that could add to the 2013 or 2014 totals. Most notably, Hilton Worldwide Holdings filed for an IPO of up to $1.25 billion in September. It is expected that the IPO will occur in 2014.
In July, Blackstone Group’s Brixmor Property Group (BRX) filed for an IPO. The company plans to sell 37.5 million shares for $19 to $21 each to raise $787.5 million. It is one of the nation’s largest shopping center landlords, with about 600 properties in 39 states totaling more than 94 million square feet of gross leasable area.
Georgia-based CatchMark Timber Trust (CTT) also filed for an IPO in September, with plans to raise $172.5 million. The company owned interests in approximately 282,000 acres of timberland in Alabama and Georgia as of mid-year 2013.
REIT IPO activity has increased in September, driving 2013 to be the strongest year for such activity since 2004. Four companies have taken advantage of the opportune timing presented by a rebound in REIT performance to go public in October, bringing the year-to-date total to 18.
Despite this recent activity, the REIT sector remains volatile, influenced by interest rates and both domestic and international economic trends. A number of additional companies have filed plans for future IPOs, but because of recent trends, their timing is uncertain.