Tuesday, February 16, 2010

Weekend/Weekly Update on new REITs and IPOs

This and last week saw several IPO's/secondary offerings.

Terreno Realty

Terreno Realty IPO'd with a reduced offering of 8.75 Million shares at $20/sh. I'm not sure how much of the reduction from the original plan was due to general hostility to IPO's vs the specific business that Terreno wanted to persue. On paper, iwning property at a 9% cap rate with 40% leverage won'tgenerate the mid teens IRR's that folks are looking for these days. At the same time, the industrial REITs (especially the big ones like AMB) tend to trade a premium market multiple. So a fully invested TRNO could generate an impressive IRR from multiple expansion vs high cash dividend payouts.

Solar Capital

Solar Capital, a BDC entered the public markets with an offering of 5 million shares at 18.50/sh. This BDC is run by ex-Apollo/AINV folks, which makes it similar to PennantPark Investment Corporation (PNNT). This was a classic take under type IPO in which a company goes public at less than book value. The main purpose of the IPO was to create lqiuidty and stabilize the companies credit facility. The big question with Solar Capital is does the market need another BDC with a 2/20 management fee structure.

Piedmont Office Realty Trust

Piedmont Office Realty Trust, is finally public after years of pre-IPO drama, when it was known as Wells Real Estate Investment Trust. Like most non-traded REITs, Wells REIT became a cancerous monster, endlessly raising capital and buying new assets. After the company internalized management in 2007 it entered a multi-year dead zone while seeking a final liquidity event. During this time, the Lex-Win partnership of LXP + FUR launched a hostile tender offer, to shake things up and accelerate the "liquidity event". That event finally happened on Feb. 9, 2010 with the offering of 12 million shares at 14.50/sh, which was far below NAV. After the IPO, shares have floated upwards towards NAV (>16.50/sh) and if PDM's earnings power was given the same multiple as comparable REITs (BXP, DEI, SLD, CLI) the stock price would be much higher.

Hudson Pacific Properties

Hudson Pacific Properties, has filed an S-11, describing a new REIT intended to be "a full-service, vertically integrated real estate company focused on owning, operating and acquiring high-quality office properties in select growth markets primarily in Northern and Southern California." Senior managenment are ex-Arden Realty folks. Arden was the first of the really big public-to-private transactions when it sold for 4.8 Billion to GE Real Estate. The new REIT is born in the context of formation transactions which involve various funds and people assocated with Farallon Capital Management and Morgan Stanley.

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