The No. 2 U.S. shopping-center landlord, owned by Blackstone Group LP, is set to raise as much as $905 million including extra shares for underwriters, potentially surpassing Simon Property Group Inc. as the largest-ever IPO of a retail real estate investment trust. Brixmor is offering 37.5 million shares for $19 to $21 each, with an extra 5.6 million for the overallotment, in a deal scheduled to price today.
Blackstone is taking its first REIT public in what is poised to be a wave of property IPOs by the world’s largest alternative-asset manager, from hotel chain Hilton Worldwide Holdings Inc. to potential sales next year of its IndCor Properties Inc. and Invitation Homes businesses. The U.S. economic recovery, falling commercial real estate vacancies and low interest rates have primed the pump for public offerings, with REIT stocks at close to six-year highs.
“It’s a great time to sell,” said Anthony Breault, senior real estate investment officer for the state of Oregon’s pension fund, which is seeing the most distributions from its private-equity real estate managers this year since the commercial property boom that ended in 2007. “Leasing is back up and there’s a froth of demand for income-producing assets.”
Property-related IPOs, including REITs, real estate operating companies and mortgage trusts, have had their biggest year since 2004 by money raised, according to data compiled by Bloomberg. So far in 2013, real estate IPOs have raised $3.9 billion, compared with $3 billion in all of 2012, the data show. The total was $7 billion in 2004, when the biggest stock sales were BioMed Realty Trust Inc. and CBRE Group Inc.
A Brixmor sale at the top end of the range would exceed the $812 million raised by Malibu, Calif.-based house-rental company American Homes 4 Rent in July, including overallotments. It would follow only the $1.07 billion offering of Empire State Realty Trust Inc., the New York-based owner of Manhattan’s Empire State Building, for deals this year, according to the Bloomberg data. Indianapolis-based Simon, the world’s largest owner of shopping malls, raised $840 million in its 1993 IPO.
Nine of the 14 real estate IPOs this year gained from their initial offering price through yesterday, led by a 29% jump in Re/Max Holdings Inc., a Denver-based residential property broker. The biggest loser is Ellington Residential Mortgage REIT of Old Greenwich, Connecticut, which fell 18% from its May 1 debut.
The Bloomberg REIT index has more than tripled from its 2009 low and in May reached the highest level since 2007. It has trimmed about 10% of those gains since then amid concern interest rates would rise and increase borrowing costs.
Sustained increases in interest rates or flagging economic growth could hurt commercial-property valuations, said Harris Trifon, head of commercial real estate debt research at Deutsche Bank AG in New York.
“We’ve benefited a lot from the return of capital and the financing environment and liquidity and if anything disrupts that, that would cause a major problem,” he said. “We’re not expecting that.”
Blackstone, based in New York, may take Hilton public as soon as December in what could be the year’s biggest real estate IPO, according to a person with knowledge of the firm’s plans who asked not to be named because the details are private. The McLean, Va.-based hotel chain—which will have a traditional corporate structure rather than a tax-saving REIT—has filed to raise as much as $1.25 billion, a placeholder amount.
That sale probably will be preceded by the IPO of Charlotte, N.C.-based Extended Stay America Inc., a budget lodging chain one-third owned by Blackstone that’s looking to raise $500 million, the person said. Peter Rose, a Blackstone spokesman, declined to comment.
Hilton is poised to be the largest hotel IPO ever. The company has increased room count in franchised and managed hotels by 39% since Blackstone bought it for $26 billion in 2007, expanding in Asia and other overseas markets, with plans to develop and build another 268,000 rooms, according to its IPO filing. The company could raise more than the $1.59 billion that Douglas Emmett Inc., a Santa Monica, Calif.-based office and industrial landlord, raised in its 2006 IPO, which was a record for a U.S. REIT.
The pipeline of real estate IPOs from Blackstone alone probably will continue in 2014. IndCor, the firm’s Chicago-based U.S. warehouse unit, and Invitation Homes, the Dallas-based single-family home-rental business with 40,000 properties, are likely to go public in the next year, said Joe Smith, co-chief investment officer of CBRE Clarion Securities in Radnor, Pa.
“Blackstone’s got a lot of equity to sell over the next several years,” said Smith, whose firm manages $25 billion of real estate investments.
Stephen Schwarzman, Blackstone’s chairman and chief executive officer, said this month the firm is moving into a period where the potential “is very high for large amounts of realizations and consequent gains” for its investors.
“The pipeline for realizations is really growing,” Schwarzman said on the company’s third-quarter earnings call on Oct. 17. “Hilton itself, which has shown dramatic improvement along with our type of business plan, is just indicative of the kind of exit that we’ll make over time.”
Blackstone plans to remain a substantial Hilton shareholder for many years, Schwarzman said.
“Greater realization activity is not indicative of a view that markets have peaked,” he said.
Blackstone, which doesn’t plan to sell any shares, will own about 73% of Brixmor’s common stock after the offering, the prospectus shows. The REIT has 522 properties, trailing only New Hyde Park, N.Y.-based Kimco Realty Corp. as the largest U.S. shopping-center landlord.
At the midpoint of its IPO price range, Brixmor would have a market value of about $5.9 billion, behind Kimco, Federal Realty Investment Trust and DDR Corp.
Since the last recession ended, the recovery in commercial real estate has spread from apartments to hotels, offices and industrial properties. Vacancies have declined across all property types, according to Reis Inc., a New York-based real estate research firm.
Multifamily buildings have seen the biggest increase in average rents since the financial crisis, with effective rents, or the amount paid after any concessions, up 11.3%, Reis data show. Office rents are up 5.8% on average from the low, while warehouse rents have gained 3.3% and retail rates climbed 1.6%.