Retail, Hotels Led October REIT Rebound

Most REIT property sectors surged back into positive territory in October after a gloomy September, with hotel and retail REITs leading the way, NAREIT reports.

The three REITs that specialize in regional malls posted average positive returns of 22.2% in October, leading all sectors, followed by the fourteen hotel REITs, which yielded an average of 19.6%.

The 18 shopping center REITs posted solid gains of 13.9% and the 11 industrial REITs averaged a solid 8.1%, a huge turnaround from the negative 16.4 recorded in September.

On the negative side, residential REITs slipped into the red, with the 15 multifamily REITs averaging negative 3.1%. Infrastructure REITs also retreated with a negative 4.7%.

YTD numbers in all sectors are in double-digit negative territory, compared to the booming results of YTD 2021.

Conditions remain ripe for REIT consolidation. The unprecedented pace of mergers and consolidation of publicly traded REITs has continued throughout 2022.

In an April analysis of the $11.2B merger Healthcare Trust of America and Healthcare Realty Trust, Motley Fool cited several factors it believed were setting the stage for more shotgun weddings between publicly traded REITs.

“Conditions remain ripe for additional REIT consolidation, especially given the likelihood that interest rates will rise. REITs will likely want to lock in the rates on new debt while they’re low, which could spur them to complete a deal as soon as possible,” Motley Fool’s analysts said.

According to Motley Fool’s analysis, other factors spurring the wave of REITs acquiring REITs is a desire to increase scale, which can reduce the merged entity’s operating costs and cost of capital, and the surge in REIT equity values over the past year, which gives them “a valuable currency to make acquisitions.”

“With more than 200 publicly traded REITs—including more than a dozen healthcare REITs—there’s ample room for additional consolidation. Given Healthcare Realty’s growing scale in the MOB sector, it could spur some of its rivals to join forces so they can reap the benefits of scale advantages,” Motley Fool noted.

This week, GIC, the sovereign wealth fund of Singapore, and Dream Industrial REIT formed a joint venture to buy Summit Industrial Income REIT in a transaction valued at $3.3B, including assumed debt.

Summit holds a portfolio of light industrial properties across Canada.

According to the agreement, GIC and Dream will pay $23.50 per unit in cash for the REIT, which closed at $17.93 per unit on the Toronto Stock Exchange, in Canadian dollars, which are trading for about 75 cents US.

Dream Industrial, which owns and operates a portfolio of 258 industrial assets, will hold a 10% stake in the joint venture, while GIC will own 90%. Dream Asset Management will be the property manager for the venture.

Net lease REIT STORE Capital Corp. announced this month it is being acquired by a partnership between global institutional investor GIC and Oak Street, a division of net lease investor Blue Owl, in an all-cash deal worth $14 billion, GlobeSt. reported.

The transaction, which was unanimously approved by the STORE Capital Board of Directors, is expected to close in the first quarter of 2023.