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BMO Capital Markets eyes role in larger REIT deals amid US expansion

BMO Capital Markets Corp. is seeking to work more with the largest U.S. real estate investment trusts as part of an increased focus on U.S. investment banking, a newly hired managing director said.

Eric Dobi, who previously worked as a managing director at UBS Securities LLC and Deutsche Bank Securities Inc., joined BMO in March with the same title, working out of the Canadian firm's Chicago office. Dobi, who worked to develop Deutsche Bank's client list of large market-cap REITs across property types during his nearly 12-year tenure at the firm, said in an interview that he will focus on similar companies in the new assignment, advising on capital raising and M&A.

"I don't think any deal is too large," he said.

Over the past three years, BMO ranked 15th among advisers for U.S. equity REITs on both M&A transactions and common equity offerings. In an emailed statement, BMO's deputy head of investment banking, Ashi Mathur, praised Dobi's experience and client relationships.

Dobi said there is potential for consolidation in several property types, including retail and office, but argued that data center REITs, which he began covering while at Deutsche Bank, have a unique opportunity.

"It's not just traditional real estate," he said. "It has a technology driver as well, that I think allows companies to be a little bit more nimble in what they'll look for, from an M&A perspective."

He noted that there is roughly $150 billion to $175 billion of total enterprise value in the data center sector. The public data center REIT leaders, Equinix Inc. and Digital Realty Trust Inc., carry market capitalizations of roughly $33.05 billion and $21.63 billion, respectively, according to S&P Global Market Intelligence data. Companies of that size typically require transactions of $1 billion and larger to produce meaningful returns, Dobi said.

Dobi said REITs have focused recently on asset dispositions, select development opportunities and potential share repurchases while share prices have lagged estimated net asset values.

Still, he argued that "best-in-class" REITs will increasingly explore opportunities for transactions, including acquisitions of other public REITs.

"I think you'll see increased M&A and accretive activity that will be financed both in the debt and the equity market, notwithstanding some of the discounts to NAV that are, at least, articulated in the marketplace," Dobi said.

Though some may question whether companies should raise equity while their shares trade below NAV, "I think you'll see companies start to challenge the idea that they shouldn't, to do an accretive transaction that's strategically viable in the long term," Dobi said.

Dobi said he believes REITs will engage in public-to-public M&A, adding: "I think most companies are looking at what their options are in this repricing market."

For data center REITs, potential transactions could involve investments in international markets to meet customer demand, as in CyrusOne Inc.'s acquisition of the European provider Zenium Data Centers.

Dobi said there is still a strong bid for real estate from private investors, as multiple parties, including private equity firms such as Blackstone Group LP, are seeking to expand their real estate platforms. BMO Capital Markets is advising Pure Industrial Real Estate Trust, a Canadian industrial REIT, on its proposed C$3.8 billion acquisition by Blackstone.

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