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Dealmaking Environment Propels REIT M&A to New Heights

VICI Properties acquiring MGM Growth Properties. Columbia Property Trust being acquired by PIMCO. Kite Realty  Group Trust merging with Retail Properties of America. Ventas buying up New Senior Investment Group. These are just a few of the transactions underpinning what has been a record year for REIT M&A activity, reaching $108 billion as of Sept. 30, JLL Capital Markets says in a new report.  

“REIT M&A volume has broken a 15-year record that was set back in 2006,” said Steve Hentschel, head of the M&A and Corporate Advisory Group with JLL Capital Markets. “All major sectors contributed to the record, which implies a very favorable dealmaking environment for our sector. Confidence has returned, most REITs have strong currencies to use in strategic mergers, debt is historically cheap and debt markets are liquid.”  

REITs have shown strong earnings growth in 2021, with 63% of REITs beating consensus estimates on funds from operations for the second quarter. This has contributed to REITs outperforming the S&P 500 by 1,100 basis points year to date, and REITs are among the best performing of the closely followed 11 Global Industry Classification Standard (GICS) sectors.  

Additionally, all major REIT sectors are in the green, with significant gains in sectors like retail (56% gain), office (15% gain) and hospitality (15% gain) that were on the ropes amid the pandemic, while still showing positive performance in multifamily and industrial. This has led to significant activity across both REIT M&A as well as broader commercial real estate transactions volume for the REIT universe, which is on pace to reach 2019 level of approximately $80 billion. 

Even as the rising tide has lifted all boats, though, JLL notes that the alternative sectors – cold storage, data center, life sciences, manufactured housing communities, medical office buildings, self-storage, seniors housing, single-family rental, skilled nursing facilities, gaming and student housing – are outpacing the traditional asset classes. With more than 60% of the REIT sector’s equity market capitalization, the alternative classes comprise most of the U.S. REIT universe today, says JLL. As a result, some of the largest domestic and international capital sources have made scaling alternative asset class holdings a priority.  

The report notes that appeal for the asset classes is broadly tied to the ability to generate higher average risk adjusted returns, given benefits of attractive in-place yield, lower capex requirements and higher long-term NOI growth outlook. Accordingly, alternative sectors comprise approximately 10% of 2021 year-to-date transaction volume compared to approximately 6% in 2016. 

“There is a significant demand and supply imbalance in the alternative asset classes, with high-quality platforms and assets generating strong interest from a wide array of investors,” said JLL managing director Sheheryar Hafeez. “We expect the trend to continue in 2021 and beyond, as fewer and fewer attractive opportunities are left to execute on.”

Pictured: The MGM Grand in Las Vegas, part of VICI Properties’ $17-billion acquisition of MGM Growth Properties. 

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Inside The Story

JLL's HentschelJLL's Hafeez

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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