PErspective in Real Estate - Summer 2016

July 2016

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M&A activity is up in the REIT sector across various segments.

The FTSE NAREIT AII REIT Index is outperforming on a year-to-date basis, although it took a slight dip in April. Some REITs are faring better than others, with apartment REITs in New York City facing challenges because of both an oversupply of units and increased competition from new construction, UrbanLand magazine reports. Building valuations are high, and some buyers are enjoying more profits by purchasing companies rather than their underlying real estate assets, according to REITCafe.

A number of M&A deals were announced in April and May. Mortgage investor Annaly Capital Management, Inc. will buy Hatteras Financial Corp. in a cash-and-stock deal valued at $1.5 billion and expected to close by the end of Q3 2016. Both companies are structured as REITs and have nearly 90 percent of their assets in mortgage-backed securities. The deal will help Annaly diversify and expand its adjustable-rate holdings, The Wall Street Journal reports.

Office REIT Cousins Properties will acquire Parkway Properties in a deal valued at $1.95 billion. The deal will create two independent office REITs with differentiated strategies as their combined Houston assets are spun off into a new publicly traded REIT, HoustonCo, according to a news release.

Earlier this month, Northstar Asset Management Group, Inc., along with its former parent company NorthStar Realty Finance Corp., and Colony Capital Inc. agreed to merge their assets into a single REIT worth about $58 billion. The companies anticipate approximately $115 million in annual cost savings, according to The Wall Street Journal.

Apple Hospitality REIT will merge with public non-listed Apple REIT Ten, Inc. to create one of the largest select-service lodging REITs in the industry in a $1.3 billion deal. The combined portfolio will consist of 234 hotels in 33 U.S. states, including Hilton and Marriott branded select-service hotels—mid-tier hotel properties offering some services and amenities of full-service properties—according to a press release. Apple Hospitality has stayed active over the last year, according to, selling 19 properties and purchasing seven hotels in 2015. Apple Hospitality CEO Justin Knight told that with strong market fundamentals, urgency to merge in the hospitality REIT segment has waned and he described both the buy and sell side as “disciplined” in their search for strategic deals.

The JBG Companies, a Maryland-based real estate firm, is reportedly in talks to acquire New York REIT, a publicly traded firm with a portfolio of Manhattan assets, after New York’s largest office landlord, SL Green Realty Corp., pulled back from a deal last fall. According to the Real Deal, if this goes ahead, it would be the latest in a series of deals involving privately held real estate players acquiring publicly traded REITs.

April also saw the year’s first REIT IPO, with casino resorts investor MGM Growth Properties LLC raising $1.05 billion. According to Dealogic, this offering was the first by a U.S.-listed company to raise more than $1 billion since last October, when First Data raised $2.8 billion—and could signal a thaw in the IPO market, The Wall Street Journal reports.

REIT segments are performing differently in the M&A market, but overall fundamentals seem strong. While no segment is in the midst of a merger frenzy, there are deals to be had in the marketplace for private equity firms with an interest in the space, if they can beat out—or partner with—a strategic investor.

Sources: Dealogic, Forbes, National Real Estate Investor,, REITCafe, UrbanLand, The Wall Street Journal

PErspective in Real Estate is a feature examining the role of private equity in the real estate industry