Slower REIT M&A activity amid fewer privatizations

Following robust activity over the last two years, mergers and acquisitions involving public US equity real estate investment trusts have mellowed year to date.

As of Sept. 18, there were six REIT merger deal agreements with an aggregate transaction value of $25.71 billion. In comparison, 10 deals were announced year to date in the previous year, with a total transaction value reaching $81.86 billion in aggregate, according to S&P Global Market Intelligence data.

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

2 new REIT deals announced in August

The most recent REIT merger came Aug. 28 with Kimco Realty Corp. agreeing to acquire RPT Realty in an all-stock transaction valued at about $2.00 billion. At the time of the announcement, the deal value represented an 18.5% premium to RPT Realty's closing price the day prior.

Part of the deal was that RPT shareholders are set to receive 0.6049 of a newly issued Kimco share for every RPT share they own, which represents a deal value of $11.34 per share based on the REIT's closing price Aug. 25, the latest trading day prior to the announcement.

Kimco CEO and director Conor Flynn mentioned in an M&A call that the deal transaction will raise the REIT's scale in its targeted coastal and sunbelt markets. Flynn added that the RPT Realty portfolio that will be acquired overlaps in Kimco's key markets and is "highly consistent with our strategy of owning and operating first ring suburban open-air grocery-anchored and mixed-use shopping center[s]."

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Another deal that was announced during the same month was KSL Advisors LLC's proposed all-cash acquisition of hotel and resort REIT Hersha Hospitality Trust, valued at about $1.40 billion.

The largest REIT M&A announcement year to date was Extra Space Storage Inc.'s all-stock acquisition of Life Storage Inc. with a transaction value of approximately $16.04 billion.

Public Storage also completed its acquisition of Simply Storage Management LLC on Sept. 13 from Blackstone REIT Inc. for $2.20 billion. The target of the deal was classified with a primary industry classification of diversified support services, outside the real estate sector, and was thus excluded from the quarterly totals.

Fewer REIT privatizations than in 2022

The public REIT privatizations that kept M&A activity high in the previous year and accounted for almost half of 2022's total deal value have significantly slowed this year, with only two REIT privatizations agreed upon so far. The two public REIT privatizations have an aggregate amount of $2.27 billion in transaction value. In comparison, there were four REIT privatization agreements by the end of the third quarter of 2022, with an aggregate transaction value of $40.20 billion.

Apart from the privatization of Hersha Hospitality Trust, the other REIT privatization reported this year was the acquisition of INDUS Realty Trust Inc., by an investor group comprised of Centerbridge Partners LP and GIC Real Estate, with a transaction value of $868.0 million.

Meanwhile the proportion of deals where a publicly traded REIT acquired or merged with another listed REIT is much higher compared to public REIT privatizations, with a total of $23.44 billion in transaction value.

More all-stock deals than all-cash transactions

Along with slower REIT privatizations due to higher interest rates and the cost of debt, all-cash transactions have also slowed this year. After five deals in 2022, all-cash transactions were trimmed to two as of Sept. 18.

In terms of proportion, there are more all-stock transactions year to date, all of which came from merger deals involving two public REITs.

Dow Jones Equity All REIT index still trades at huge discount to net asset value

As of Sept. 18, the Dow Jones Equity All REIT Index traded at a market-cap-weighted 10.1% discount to net asset value (NAV).

Within the REIT sector, office and hotel REITs traded at the largest median discounts to NAV. On the other hand, the casino segment was the only property sector that traded at a median premium to NAV as of the end of August.