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US REIT IPOs at multiyear low

Publicly traded real estate investment trusts had a good run in 2019, but the REIT initial public offering market barely broke a sweat.

Only two U.S. equity REITs debuted via IPO last year, and neither were in one of the four main commercial groups: multi-tenant office, multifamily, industrial and retail.

Postal Realty Trust Inc., which owns properties leased to the U.S. Postal Service, began trading May 15, 2019, at $17.00 per share after downsizing its IPO from its original forecast. Since going public, Postal Realty Trust's total return is negative 1.1%, 8.8 percentage points below the SNL U.S. REIT Equity index's 7.7% return over the same period. Alpine Income Property Trust Inc., a single-tenant net lease player, began trading Nov. 22, 2019, at $19.00 per share, and has returned 0.3%. BMO Capital Markets Corp. was a book manager for both offerings.

The contrast with previous years is stark. Ten REITs joined the public market in 2018, nine in 2017 and seven in 2016. In 2015, the figure reached 18.

REIT industry observers attributed the dearth of IPOs to factors including the relative appeal of private market pricing, the high costs of going public and a lack of compelling commercial real estate growth avenues. While investors have flocked to the industrial sector as a related e-commerce play, much of the rest of the commercial property market office and retail in particular is grappling with secular changes in consumer and workforce behavior that has negatively impacted investor sentiment.

IPO market experts told S&P Global Market Intelligence in 2019 that any prospective IPO would need a niche focus to succeed. Americold Realty Trust, one of the more successful recent REIT IPOs, specializes in cold storage, a niche industrial segment that some have argued is the next great commercial property play. Priam Properties Inc., a small-scale office landlord operating in secondary and tertiary markets, postponed its IPO in 2019.

The near term could yield a crop of new REITs in unlikely places. Slow legalization is expected to bring more cannabis REITs into the ring, and a favorable recent private letter ruling from the IRS regarding CorEnergy Infrastructure Trust Inc.'s pipeline and storage assets opens the possibility that there will be more midstream energy REITs.

And at least one other prospective new public REIT is in the wings. Generation Income Properties, a small-scale single-tenant player, filed a preliminary prospectus for its IPO on the Nasdaq on Dec. 26, 2019. The company's initial portfolio is small, with just six assets.

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