All-stock merger deals predominant as REIT privatizations were costly in 2023

Real estate M&A activity involving publicly traded US equity real estate investment trusts waned in 2023, following two fairly robust years.

There were eight M&A deals including publicly traded REITs announced in 2023, which had a combined transaction value of $39.81 billion. That came to less than half of the $81.86 billion aggregate deal value announced in 2022, according to S&P Global Market Intelligence data.

This analysis included real estate deals where either the buyer or target is an equity REIT that trades on the Nasdaq, NYSE or NYSE American.

More public-to-public REIT mergers, fewer privatizations in 2023

There was a noticeable rise in all-stock merger transactions involving two publicly traded REITs compared to recent years. Out of eight deal agreements reported in 2023, six were all-stock transactions involving two public entities. At roughly 75%, this was the highest proportion of all-stock transactions since 2017. From zero such deals in 2020, all-stock transactions increased to 30.8% of total real estate M&A deals involving a public REIT in 2021 and 40% in 2022.

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The economic environment and high interest rates have made all-cash transactions more costly for potential buyers who rely more on cash and debt. As a result, only two public REIT privatizations primarily used cash in their transactions last year. By comparison, there were four REIT privatization agreements in 2022, with an aggregate transaction value of $40.20 billion.

The two REIT privatizations in 2023 include KSL Advisors LLC's all-cash acquisition of hotel and resort REIT Hersha Hospitality Trust, valued at about $1.40 billion, as well as the acquisition of INDUS Realty Trust Inc. by an investor group comprised of Centerbridge Partners LP and GIC Real Estate, which had a transaction value of $868.0 million.

With the high cost of debt and low valuations across the REIT sector during the year, some public REITs seeking to expand their portfolios looked to merge with or acquire their peers using stock as the main component of consideration. In 2023, deals involving a publicly traded REIT acquiring or merging with another listed REIT totaled $37.54 billion in aggregate, far exceeding the $2.3 billion total for listed REIT privatizations.

REIT deal announcements in October

The two most recent REIT mergers were both announced Oct. 30, 2023. The largest transaction, valued at about $9.30 billion, was single tenant-focused Realty Income Corp.'s all-stock acquisition of fellow single-tenant REIT Spirit Realty Capital Inc.

Realty Income in its deal announcement disclosed that Spirit Realty stockholders are set to receive 0.762 newly issued Realty Income common shares for every Spirit Realty common share they own. At closing, Realty Income and Spirit Realty shareholders are expected to own roughly 87% and 13% of the combined company, respectively.

Realty Income's President and CEO Sumit Roy said the deal is expected to generate swift and meaningful earnings accretion and improve the diversification and depth of the company's real estate portfolio.

The other deal announced on that same day was the all-stock merger of equals between the two healthcare REITs: Healthpeak Properties Inc. and Physicians Realty Trust. The two are set to combine in a deal that has a transaction value of roughly $4.80 billion. At closing, Healthpeak and Physicians Realty Trust shareholders are expected to own around 77% and 23% of the combined company, respectively.

The largest REIT M&A announcement in 2023 was Extra Space Storage Inc.'s all-stock acquisition of Life Storage Inc., which had a transaction value of approximately $16.04 billion.

REIT index finishes 2023 at a slight premium to net asset value

The Dow Jones Equity All REIT Index ended 2023 at a market-cap-weighted 1.0% premium to net asset value (NAV).

Within the REIT sector, datacenter and casino REITs traded at the biggest median premiums to NAV, followed by other retail, healthcare and self-storage REITs. Office REITs continued to trade at the steepest discounts to NAV at the end of 2023.