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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
It has been a rough ride for investors in US real estate investment trusts since interest rates started rising more than two years ago.
The FTSE Nareit All REITs index — the broadest US Reit index, with a market capitalisation of $1.3tn — had generated a total return, including dividends, of negative 21 per cent since the start of 2022, compared with a 20 per cent gain for the S&P 500 net total return index.
Worse, US Reits are now trading at a median 15.5 per cent discount to the value of their underlying assets, according to S&P Global Market Intelligence. In other words, investors can buy a dollar’s worth of assets for just 84.5 cents.
All this makes for an awkward time for a Reit to go public. It hasn’t deterred Lineage Logistics. The cold storage Reit is looking to raise up to $3.8bn with the sale of 47mn shares at between $70 and $82 each. The proposed sale, which would value Lineage at as much as $19.2bn, would be the year’s biggest IPO to date, topping the $1.57bn raised by Wilson tennis racquets maker Amer Sports in January.
Not all Reits are equal. Those focused on data centres are benefiting from the AI spending boom and are the only Reits sector trading at a premium to its NAV.
Michigan-based Lineage does not fall into that category. The company provides refrigerated warehousing for food and beverage companies. Its global portfolio of 482 warehouses, with 3bn cubic feet of capacity, makes it the biggest player in the sector. The company pulled in $5.3bn in revenue last year, an 8 per cent increase from 2022. But it booked a net loss of $96.2mn.
This industry is grappling with a slowdown in demand as inflation-pinched consumers cut their spending. Both economic and physical occupancy fell during the first quarter of 2024 compared with the previous year period as customer inventory levels declined.
Net debt stood at $10.9bn at the end of March — or about 9.5 times 2023’s ebitda. The IPO proceeds will be used to pay off debt. But that is expected to bring the net debt to ebitda ratio down only to about 6.7 times.
Then there is the ownership structure to consider. Private equity firm Bay Grove Capital will continue to hold most of the voting power in Lineage after the listing. All in all, Lineage isn’t made of the Reit stuff to lead the market’s IPO revival.
