Green Street



NREI: REIT IPOs Continue to Face Hurdles

According to NREI:

The REIT market saw few new players added to the roster in 2016. The sedate pace of IPO activity is testament to the challenging pricing market that still exists, and 2017 is shaping up to be another slow year.

The four IPOs that were completed in 2016 are following a downward trend for the industry when compared to five REIT IPOs that came to the market in 2015, seven in 2014 and nine in 2013, according to research firm Green Street Advisors.


In addition, 2016 was a wild ride as it relates to REIT share prices, and that volatility has made it a more challenging environment for IPOs. It is more beneficial for companies to come out with an IPO when REIT share prices are trading above net asset value (NAV) as pricing is in their favor. REIT share prices fell early in the year, bounced back and slid again to where many REIT share prices are once again trading at discounts to their underlying NAV, says Dirk Aulabaugh, managing director of Green Street’s advisory group.

“There are very few traditional sectors in the REIT space that are trading at real premiums to their NAV, but the sectors that are include healthcare, industrial, net lease and manufactured homes,” says Aulabaugh. That being said, healthcare REITs is one sector that has seen their NAV premiums erode dramatically in 2016. One of the reasons that Global Medical REIT was able to get out with its IPO in June is that healthcare REITs were still trading at nice premiums compared to NAV, he says. That same deal might be more challenging today.

The current marketplace does create some buying opportunities for investors. Green Street tracks more than 80 companies domestically. A number of those are extremely high quality REITs with solid balance sheets and good management teams that are trading at double-digit discounts to NAV, notes Aulabaugh.


IPO activity in 2017 could vary widely depending on the individual sector or property type and what happens with the share prices of that sector relative to its NAV. Today, for example, an apartment company would have a hard time doing an IPO based on where its peers are trading, whereas net lease companies’ share prices are still trading above their underlying NAV, says Aulabaugh.


To read the full article from NREI, click here.