The IPO Buzz: Un-Real Estate

The good news is the Dow Jones Equity All REIT Index (REI) has outperformed all the major stock indexes this year.
But the bad news is cruel indeed: This year’s crop of REIT IPOs has not, repeat not, done better than the market.
The Dow Jones Equity All REIT Index closed on Friday, Aug. 13, 2010, at 200.06 — UP 9.76 percent for the year.
In contrast, the Dow Jones Industrial Average (.DJI) closed on Friday at 10,303.15 — DOWN 1.20 percent for 2010 so far. The Nasdaq Composite Index (.IXIC) closed on Friday at 2,173.48 — DOWN 4.22 percent for the year –- while the S&P 500 (.INX) ended Friday the 13th at 1,079.25 — DOWN 3.22 percent for the year to date.
Some Unlucky Numbers
Six REIT IPOs have been priced this year, according to the U.S. Securities and Exchange Commission’s filings. On their first day of trading, three closed higher, while three finished lower. The six had an average loss of 1 percent.
Fast forward to Friday the 13th, when all six closed below their IPO prices with an average loss of 13.7 percent.
However, it is not a complete loss. All expect to pay dividends. REITs pay dividends from cash generated from their operations, or Funds From Operations (FFO) as it is known in the industry. On the other hand, industrial companies pay dividends from net income.
A Little Seniority
Legacy Healthcare Properties Trust (LRP – proposed): “Legacy Healthcare Properties Trust may one day tout its own legacy as a successful owner of senior housing facilities. The self-advised real estate company focuses on acquiring and owning market-leading senior housing facilities that generate mainly private-pay revenues. It generally targets independent and assisted living facilities that are situated in or near metropolitan areas, and as an asset manager, it aims to work with facility operators to improve operational performance. The company, which is seeking REIT status, filed a $250 million initial public offering in April 2010. When that’s complete, it expects to buy six senior housing facilities in Florida, Illinois, New Jersey, New York, and Virginia.” Attribution: Hoover’s
For the six months ended June 30, 2010, Legacy Health reported FFO of $4.5 million, and for the year ended Dec. 31, 2009, it reported FFO of $8.9 million.
Legacy plans to price 8.75 million shares on Thursday night at $20 each to raise $175 million. The IPO is expected to start trading on Friday, Aug. 20.
Coming Attraction
Whitestone REIT (WSR – proposed): “Whitestone REIT is out to make a name for itself in real estate. The self-managed REIT (real estate investment trust) owns and operates 35 retail, office, and warehouse properties in (mostly) Texas, Illinois, and Arizona totaling more than 3 million square feet. The company focuses on what it calls Community Centered Properties, high visibility properties in established or developing culturally diverse neighborhoods. It recruits retail, grocery, financial services, and other tenants to create Whitestone-branded commercial centers. Major customers include the U.S. Census Bureau, grocer Kroger, and sporting goods retailer Sports Authority. Whitestone was formed in 1998 and filed to go public in 2009.” Attribution: Hoover’s
For the six months ended June 30, 2010, Whitestone REIT Health reported FFO of $3.9 million, and for the year ended Dec. 31, 2009, it reported FFO of $8.6 million.
Whitestone REIT plans to price 3.33 million shares at $14 to $16 each to raise $50 million. The IPO is expected to be priced sometime during the week of Aug. 23.
Note to Subscribers: We will not be publishing the week of Aug. 23, but we will be back in print for the week of Aug. 30. And we will have some interesting numbers for you then.
Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.