With $6.8 billion raised globally in the first half of 2014, real estate investment trust (REIT) IPO has been positive for the sector, stimulating interest in the REIT concept globally, as well as expanding its range of participants.
Today, REIT IPOs dominate the real estate industry market as the REIT brand continues to expand and grow globally, whereas, just five years ago, they were only a small component, according to the EY’s Global Perspectives: 2014 REIT report. REIT IPOs globally exceeded $20 billion in 2013, 55 percent higher than the pre-financial crisis peak in 2005, and more than double the total seen in 2012. REIT IPO volumes account for 72 percent of real estate IPOs, tripling from just 24 percent of all real estate IPOs in 2006-07.
More than 70 percent of capital raised by real estate organisations in the 18 months through 2Q14, was captured within a REIT. Market conditions allowing, further significant activity seems likely during the rest of 2014.
Howard Roth, EY’s Global Real Estate, Hospitality and Construction leader, says: “Monetisation of real estate, liquidity and tax advantages are among the benefits that the REIT model includes. This is why REITs are growing in popularity around the world. It is important to note, however, that the road to success is not simple, and businesses have to consider key steps before going toward this path.”
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The size of REIT IPOs has been remarkably consistent every year since 2009, with transactions averaging approximately $300 million. Large REIT IPOs are still rare in the industry, but getting less so. While there have been only 13 IPOs above $1 billion since 2001, six of these have been in the last year and a half (2013-2Q14), suggesting that investors with an appetite for larger transactions are finding the REIT model increasingly appealling.
Robert Lehman, EY’s Global REIT leader, says: “It is encouraging to see that in recent years the average capital raised per REIT IPO is on par with companies in the financial, energy and power sectors — about $300 million. Going forward, we expect this brand to grow further, although it is likely that investors will remain highly selective regarding which new REIT vehicles to support.”
The report also states that in 2014, REIT IPO activity has shifted significantly to Europe, where Spain is leading the region with more than $3 billion of raised capital.
Concerning this trend, Lehman says: “As more asset types are converted to REITs, chief finanacial officers of real estate-intensive businesses are likely to look closely at the benefits of a potential REIT spin-off for a part of their business. It is a trend that we think will grow and expand globally over the next several years.”
