Such listings are giving a much-needed
boost to the real estate companies launching IPOs this year—a pipeline that is admittedly not as robust as otherwise might be.
As of April 25, only three US REITs have
gone public for 2014, raising an aggregate
$747.2 million, according to SNL Financial.
The total return spreads, though, show
why: they range from 5. 18 percentage
points to four percentage points.
One of those IPOs was CBS Outdoor
Americas. It wound up raising $644 million,
accounting for more than 86% of the total
value raised by the three REITs. Between
March 27, the date of its IPO, and April 25,
it posted a total return value of 7.18%, besting the SNL US REIT Equity index by four
percentage points—to become the only
company among the three new REITs to
outperformed the index, SNL said.
With the IRS presumably on board with
such non-traditional asset classes taking the
REIT route, it is expected more proposals
Watching the IRS
“Presumably” and “expected” in the pre-
ceding sentence, though, are used with
large measures of hope and faith. Some
background on this issue is necessary, first,
to understand what is at stake.
In June of 2013 the IRS announced it
had formed a Working Group to examine
the legal definition of real estate for the
purposes of forming, or converting to, a
REIT. Iron Mountain, Equiniz and Lamar
Advertising were all reportedly informed
that the IRS plans to study this issue closely
and that it may delay some conversions.
As it turned out, the IRS placed a mora-
torium at the time on such conversions
even though it never said so, according to a
published note in April 2014 by Jonathan
R. Talansky of Mintz Levin Cohn Ferris
Glovsky and Popeo PC.
It confirmed that moratorium retrospec-
tively, Talansky wrote, “by commenting
later in 2013 that it had ‘temporarily placed
pending ruling requests concerning assets
other than land, buildings and structures
traditionally held by REITs on hold to allow
for a thorough review to ensure a uniform
and consistent approach to addressing the
definition of REIT real property based on
The IRS review is expected to be com-
pleted this month; hence the hope that the
favorable ruling for CBS is a precursor of
good news on this front.
If the IRS does approve a more expan-
sive definition of real estate, it will open
new avenues for investors and capital rais-
ing. Last year Deloitte highlighted this
trend of placing non-traditional assets in a
REIT, noting that over five-year, 10-year and
20-year periods, “new-age trusts,” as it called
them, outperformed their more traditional
brethren. From a valuation perspective too,
average price/funds from operations
(FFO) of non-traditional REITs exceeded
the traditional ones in all three periods.
The reason for this performance, it speculated, is likely due to the “distinctive features” of the non-traditional REIT subsec-tors. It noted, as an example, that data
center REITs are posting strong top-line
growth propelled by the increase in adoption of cloud computing and demand for
analytics and data storage.
The growing focus on pure-play REITs is
another variant of this trend. The retail sector in particular has seen a number of these
Again, ARC figures prominently in this
trend: it is separating out its shopping centers into a separate, publicly traded REIT
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