Looming Interest Rate Hikes Will Accelerate REIT Consolidation
This year, there were five mergers in which one REIT acquired another REIT. The unprecedented consolidation of publicly traded REITs is set to accelerate, analysts say.
In his analysis of the recent $11.2 billion merger Healthcare Trust of America and Healthcare Realty Trust, The Motley Fool cited several factors that he believes are setting the stage for more forced marriages between publicly traded REITs.
“Conditions remain ripe for further REIT consolidation, especially given the likelihood of higher interest rates. REITs will likely want to lock in rates on new debt while they are low, which could encourage us to conclude an agreement as soon as possible”, Motley Fool’s analysts said.
According to Motley Fool’s analysis, other factors driving the wave of REITs acquiring REITs are the desire to increase scale, which can reduce the merged entity’s operating costs and cost of capital, and the surge in the values of REITs’ equity over the past year, giving them “precious currency to make acquisitions.
“With more than 200 publicly traded REITs, including more than a dozen healthcare REITs, there is ample room for further consolidation. Given the growing scale of Healthcare Realty in the MOB sector, this could entice some of its rivals to join forces so that they can capture the benefits of scale,” motley fool Noted.
The combination of Healthcare Realty and Healthcare Trust of America is now the largest healthcare REIT focused on medical office properties, with holdings comprising 727 properties encompassing approximately 44 million square feet of MOB space.
Another mega-deal that resulted in a merged entity positioned to grow in size in a targeted industry was announced this week, The acquisition of Blackstone for 12.8 billion dollars American University Communities (ACC).
The student housing REIT acquired by Blackstone includes a portfolio of 166 properties in 71 college markets. ACC CEO Bill Bayless said Blackstone’s access to capital would allow the REIT to quickly expand its footprint, GlobeSt.com reported.
Blackstone REIT (BREIT) completed two other mega-mergers this year involving publicly traded REITs, both focused on the multifamily sector, including a $5.4 billion acquisition of Preferred Apartment Communities and an acquisition of 3, $7 billion from Resource REIT.
If REITs courting other REITs plan to borrow money to finance these acquisitions, it looks like they will have to act quickly on deal closures to secure lower rates on new debt.
Federal Reserve Chairman Jerome Powell on Thursday announced his support for raising interest rates by 50 basis points next month. Powell signaled that the Fed, which announced a 25 basis point hike last month, is moving toward an aggressive “initial charge” of up to seven rate hikes this year to rein in the inflation spiral.
Earlier this week, St. Louis Federal Reserve Chairman James Bullard said the central bank needed to move quickly to raise rates to 3.5% this year and should not rule out rate hikes. rate of 75 basis points.