So far, REIT merger and acquisitions activity is on track to pass the previous high of $103 billion set in 2006.
As companies emerge from the pandemic, M&A activity has clocked in at $70 billion year-to-date. According to JLL Capital Markets’ M&A and Corporate Advisory group’s latest M&A and Strategic Transactions Monitor report, positive activity in the public capital markets space is helping fuel this M&A surge. Overall, REITS are up almost 22% in 2021, according to Steve Hentschel, head of JLL M&A and Corporate Advisory.
While retail, office and hospitality underperformed REIT sectors like industrial, data centers and life sciences by 24 percent during 2020, the trend changed in November 2020. Retail jumped 46% yearly in 2021, while office rose 16 percent and hospitality increased 17 percent. Additionally, JLL says multi-housing, hotels, malls, offices, shopping centers and gaming REITS outperformed the previously in-favor sectors by 14 percent.
“We are seeing this cyclical rotation among the previously out-of-favor sectors, and it’s a positive message to broader real estate that everything is starting to improve,” said JLL Managing Director Sheheryar Hafeez. “The expectations of ‘back to normal’ economic activity is leading investors to bet on these sectors rebounding.”
While most major REIT sectors are trading at a premium to net asset value (NAV), retail and hotel REITs have had the biggest positive change in their cost of capital. Retail, hotel and office have outperformed other sectors in the premium to NAV from February 2020 to June 2021. “A premium to NAV generally implies a green light for REITs to pursue growth opportunities, including M&A,” according to JLL.
Since February 2020, REITs have raised more than $28 billion in equity and over $88 billion in unsecured debt, according to JLL.
JLL isn’t alone in noting an increase in REIT M&A. David Bonser, co-head of Hogan Lovells’ corporate and finance practice in the Americas, thinks there will be more merger-and-acquisition activity and market consolidation in the REIT space coming out of the pandemic.
“I’ve been in this space for almost 30 years now,” Bonser says. “You always think there’s going to be increased activity, and then it often never pans out. But I do think you’re going to see increased activity over the next 12 months.”
Bonser sees different motivations for M&A than JLL. In the retail space, he thinks some companies trying to turn around their sagging fortunes may decide it’s not worth the time or money. Then they’ll decide to sell and have another company handle the reclamation project
“I do think you’re going to see a little bit more of a separation of the haves and have nots,” Bonser says. “That does tend to lead to price dislocation, which then leads to potential M&A opportunities. So I’ll be really surprised if we don’t see increased M&A activity over the next 12 months.”