By Evelyn Lee, Staff Writer, PERE magazine June 2015 issue:
Most private equity real estate investors aren’t looking to become activists in the REIT space. But that doesn’t mean they aren’t paying more attention to what’s going on in the sector. Indeed, some listed REITs currently are trading at discounts of 40 to 50 percent of their net asset value (NAV), according to Jonathan Morgan, deals analyst at Edge Consulting Group. “There are many publicly traded REITs performing badly for various reasons, including portfolio quality,” he says. “A lot of them are pursuing flawed strategies and holding underperforming assets far longer than required.”
Morgan has observed “a lot more activism” in the REIT sector in the past year – typically taking the form of activist firms going after poorly-managed REITs and pushing for boardroom changes, or pursuing breakups of existing REITs and creating spinoff firms. Through such deals, activists hope to increase a company’s share price to better reflect what the former has determined to be the latter’s true underlying NAV. Fueling the recent activity is the firepower of activist investors, which have raised large amounts of capital and collectively increased their total assets under management by 33 percent to $112 billion from 2010 to 2014, according to Morgan.
A lot of that capital is going into REITs because of the relative ease of determining the underlying NAV of real estate companies as compared to…