Takeovers among real estate investment trusts are poised to accelerate as shareholder activism increases and executives become more receptive to deals, according to research firm Green Street Advisors.
The number of transactions involving sizable REITs, through mergers of public companies or privatizations, has plunged almost 80% in the past seven years compared with 2000 to mid-2007, when there were 32 deals, Newport Beach, Calif.-based Green Street said in a report. Conditions "now appear ripe" to end the drought, the firm said.
The rise of activist investors in the industry, including hedge-fund manager Jonathan Litt of Land & Buildings Investment Management, is boosting the likelihood of more deals. REITs also may go private amid "insatiable demand" for real estate from buyers such as sovereign-wealth funds, Green Street said. Apartment landlord Associated Estates Realty Corp. and mall owner Pennsylvania Real Estate Investment Trust, both targets of Litt's, are top contenders for takeouts, the firm said.
"The biggest catalyst for revived activity is today's new breed of activist investor," Green Street Chairman Mike Kirby and analyst Peter Rothemund wrote in the report. "The recent activist-induced changing of the guard at Equity Commonwealth (the entire board and management team were replaced) was a bellwether deal for the industry, as decades have passed since activists have been so successful in forcing a change of control that would otherwise not have transpired."
The board of what was then known as CommonWealth REIT was ousted last year after a yearlong campaign by Related Cos. and Corvex Management LP. The investors claimed that the company had conflicts of interest and was making high-priced acquisitions while selling real estate at low prices. The company changed its name to Equity Commonwealth after a new board was installed and elected billionaire investor Sam Zell as chairman.
Litt has been involved in pressuring for change at BRE Properties Inc., which later was taken over by Essex Property Trust Inc. and Mack-Cali Realty Corp., whose chief executive officer eventually resigned. Associated Estates, one of his targets, has about 90% odds of being taken over, while Penn REIT has about a 50% chance, Green Street said.
Associated Estates last month added a former top executive of Equity Residential to its board and said it hired an adviser to review its business as it seeks to fend off a proxy fight with Litt.
"As a matter of policy, AEC does not engage in speculation, nor does the company comment on speculation by others," Andrew Siegel, a spokesman for Associated Estates, said in an email today.
Heather Crowell, a spokeswoman for Philadelphia-based Penn REIT, didn't immediately respond to a voice mail seeking comment on the report.
The aging of company leaders and their firms who went public in the 1990s may lead some to be more open to selling "as a swan song takes on increased appeal," according to the Green Street report. Private-market buyers also may be willing to pay premiums to net asset value, the firm said.
Blackstone Group LP, the largest private-equity real estate investor, may be an indicator of such deals. The company late last year canceled plans to take its IndCor Properties Inc. warehouse unit public as a REIT and instead opted to sell it to investors including Singapore's GIC Pte for $8.1 billion.
