After a slow two quarters, M&A activity involving public US equity real estate investment trusts picked up in the second quarter with several merger agreements.
While elevated interest rates and an associated higher cost of debt slowed down take-private deals in the REIT sector, all-stock transactions remained prominent.
Four REIT merger deals totaling $24.27 billion in transaction value were announced in the second quarter. Combined with the $868 million privatization of INDUS Realty Trust Inc. announced in the first quarter, M&A transaction value totaled $25.13 billion in the first half of 2023, down 62.4% from a high of $66.86 billion in the same period in 2022, according to S&P Global Market Intelligence data.
The analysis included real estate deals where either the buyer or target is an equity REIT that trades on the Nasdaq, NYSE or NYSE American.
4 all-stock REIT deals in Q2 2023
In the self-storage sector, Extra Space Storage Inc.'s all-stock acquisition of Life Storage Inc. marked the largest REIT M&A announcement year to date, with a transaction value of approximately $16.04 billion. Under the terms of the deal, Life Storage shareholders are set to receive 0.895 shares of Extra Space for each Life Storage share they own, representing a deal value of $145.82 per share based on the REIT's closing price on March 31, the latest trading day prior to the announcement. The deal represented an 11.2% premium over Life Storage's latest closing price at the time of the announcement.
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The most recent REIT merger came in late May with Global Net Lease agreeing to acquire The Necessity Retail REIT Inc. in an all-stock transaction valued at about $4 billion. At the time of the announcement, the deal value represented a 48.3% premium to Necessity Retail REIT's closing price the day prior.
The other two REIT mergers announced during the quarter included Office Properties Income Trust's planned acquisition of Diversified Healthcare Trust and Regency Centers Corp.'s proposed purchase of shopping center peer Urstadt Biddle Properties Inc.
REIT sector continues to trade at large discount to net asset value
The Dow Jones Equity All REIT Index closed the first half of 2023 at a market-cap-weighted 8.1% discount to net asset value (NAV). Within the REIT sector, office and hotel REITs traded at the steepest median discounts to NAV, followed by the regional mall REITs. The casino and datacenter sectors were the sole property sectors to close the first half at a median premium to NAV.