Global REIT sector experiences uplift in M&A activity

Early market cycle dynamics combined with supportive financial conditions in post pandemic recovery has revived interest in REIT-based mergers and acquisitions activity, according to LaSalle Securities managing director, Steve Ralff.

Ralff said the heightened level of institutional interest in the REIT sector has been driven by growing M&A prospects.

“Early cycle dynamics are allowing REITs to be active and acquisition activity in particular is strengthening as a result of this,” he said.

“We’re anticipating the level of interest to continue for some time yet, particularly given the favourable market conditions supporting M&A.

“It’s an opportune time for real estate investors and REITs to grow and progress their business activities.”

Ralff said there were several examples in the US that highlight the growth in REIT M&A. US shopping centre operator Kimco Realty announced its merger with grocery-anchored shopping centre owner Weingarten Realty Investors. Equity Commonwealth, an office REIT, and Monmouth Real Estate Investment Corporation, a logistics REIT, also recently merged.

There has also been an increase in the number of private equity firms bidding for REIT securities directly investing in REITs.

“It seems like every few days a private equity shop is raising billions to invest fresh equity in real estate markets,” Ralff said.

“We’re anticipating the level of interest to continue for some time yet, particularly given the favourable market conditions supporting M&A. It’s an opportune time for real estate investors and REITs to grow and progress their business activities.”

Ralff also credited global COVID vaccine deployment schemes for fuelling strong economic recovery, as vaccine efficacy levels continue to outweigh rises in global cases. The ongoing policy support from the world’s central banks is also crucial, according to Ralff.

“Financial conditions remain supportive and largely better than pre-COVID levels. Central banks have acknowledged the improving economic environment but remain committed to their accommodative stances,” he said.

“Fundamental outlooks continue to improve as the pandemic impact subsides, evidenced by the strength of recent earnings and operating results. For select traditional property sectors, structural headwinds are expected to impact medium and longer-term growth expectations.

“From a valuation perspective, global real estate securities offer attractive valuation compared to alternatives.”