REIT Deals Stay Hot
But Shares May Peak
A spate of recent real-estate deal news, including two rare unsolicited offers, has bankers and analysts worried that shares in real-estate investment trusts may have peaked.
The three-day, 7% swoon suffered by REIT stocks on the Dow Jones REIT Equity Index beginning last Thursday added to concerns that rising interest rates would end investors' love affair with real-estate companies.
"You tend to see a lot of merger activity at the tops and bottoms of market cycles," says Ross Nussbaum, a Banc of America Securities REIT analyst.
So far this year there have been $8.6 billion in announced REIT deals, compared to $6.7 billion at this time last year, which ended up being a record year, according to SNL Financial, a Charlottesville, Va., research firm. Analysts predict that there may be more deals by the year's end.
The biggest unsolicited offer was Public Storage Inc.'s $2.5 billion unsolicited bid for rival Shurgard Storage Centers Inc. Shurgard hasn't responded to that offer, but may tip its hand when it announces earnings today.
The other unsolicited takeover effort ended almost before it began. Last Thursday, strip-mall owner Equity One Inc. made a $379 million bid for rival shopping-center owner Cedar Shopping Centers Inc. Equity One withdrew its bid Monday when Cedar failed to respond by the deadline it imposed.
These deals follow a handful of other mergers: The $3.6 billion purchase of industrial REIT Catellus Development Corp. by rival ProLogis and the acquisition by private equity firm ING Clarion Partners of upscale apartment group Gables Residential Trust for $2.8 billion.
Industry experts say that these shopping sprees recall investors' last infatuation. "It's been a little bit like what happened in the 1990s in the tech boom," says Peter Baccile, global head of J.P. Morgan Chase & Co.'s real-estate investment banking group "There was a lot of money that wanted to get invested and values started to take off."
The vast amount of capital chasing real estate is the key driver behind the REIT deals. For private firms that invest for pension funds, endowments and high-net-worth individuals, buying a REIT is the most efficient way to quickly build a real-estate portfolio.
Analysts also say that this recent activity may point to a peak in pricing for REIT stocks. The Dow Jones REIT Equity Index, which hit a record last Tuesday, dropped 6.8% from last Thursday through Monday's close. Yesterday with the overall market up, the REIT Equity Index rose 0.85%.
Email your comments to rjeditor@dowjones.com.