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By: Daniel P. Adams, Gilbert G. Menna, and Ettore A. Santucci Goodwin Procter LLP
LIKE ALL IPOS, THE FUNDAMENTAL PROCESS FOR A REIT IPO involves the preparation of a registration statement (albeit on a Form S-11 instead of a Form S-1), including a prospectus, and a roadshow to be used to market the offering, as well as numerous corporate governance documents necessary to prepare the company to be a public company and qualify its stock for listing on one of the stock exchanges. However, there are a number of issues that commonly arise in REIT IPOs that are either unique to REITs or less common in non-REIT IPOs. Below are ten practice points that can help you run a REIT IPO like a pro.
Completing a REIT IPO is a complex and timeconsuming process. As a result, it is critical to understand your client's goals when evaluating the benefits of an IPO as compared to other alternatives. Different clients will have different motivations for completing a REIT IPO. These may include obtaining liquidity for themselves or private equity investors, raising equity capital to pay down debt, enhancing the risk-reward balance by rolling up assets into an operating company, or opportunistically accessing the public markets to facilitate future growth. For some clients, running a dualtrack process for a REIT IPO or a sale of the portfolio may make sense. For others, obtaining access to the public equity markets through means other than a traditional IPO (such as through a merger with an existing public company or an entity spun off from an existing public company or through an exchange listing without a concurrent offering) may present more attractive alternatives. The better you understand your client’s goals, the better you will be able to assist with completing a successful transaction, whether that is ultimately a traditional IPO or an alternative transaction.
A REIT IPO will stretch the resources of even the most sophisticated private real estate operator. You should help your client focus on the right tasks at the right time. Initial submissions of the registration statement for the IPO typically have limited or preliminary information on certain topics, including board members, executive compensation, founders’ rights, distribution policy, new credit facilities, technical details of formation transactions, corporate governance documents, and exhibit filings. Other disclosures need to be more fully refined from the beginning, including the primary business discussion, the financial statements and related disclosure, the property tables, and the industry disclosure. Prioritize the right tasks, minimize false deadlines, and establish realistic timelines.
You should understand which companies will be considered peers of your client. Fundamentally, your client is seeking to attract investor dollars that would otherwise be invested (or may already be invested) in peer companies. Having a good understanding of where your client will fit in the existing REIT market is critical in preparing the prospectus for the offering and helping your client make important structuring decisions. Peers are typically determined based on asset class (e.g., office, retail, residential, industrial, hotel, etc.), asset quality, market and sub-market focus, and the expected size of the company. Your client and its underwriters will likely have a good sense of the most relevant peers, but easily accessible public resources can also be helpful to point you in the right direction. These include the lists of REIT index constituents (organized by sector and subsector and market capitalization) and historical REIT IPO listings on the National Association of Real Estate Investment Trusts’ website.
To read the full practice note in Lexis Practice Advisor, follow this link.
Daniel P. Adams is a partner in Goodwin Procter’s Business Law Department, where he is a member of the REITs and Real Estate M&A Group and Capital Markets Group. Mr. Adams focuses primarily on public and private offerings of securities, corporate governance, securities law compliance for public companies, executive compensation, and other matters of general corporate and securities law. Mr. Adams’s experience in corporate finance includes representing public and private companies, including publicly traded REITs, and underwriters in transactions such as IPOs, follow-on and shelf offerings, and 144A offerings of equity and debt securities. Gilbert G. Menna is a co-chair of the firm’s REITs and Real Estate M&A Practice. Mr. Menna also participates in the firm’s Mergers & Acquisitions, Capital Markets, Public Companies, Real Estate Tax, and Private Investment Funds Practices. Mr. Menna represents many of the nation’s leading publicly traded real estate operating companies in connection with their merger and acquisition, corporate finance, and corporate governance matters. In addition to his extensive knowledge of the public REIT industry, he also has significant experience representing a variety of real estate investment managers in connection with their private equity capital, merger and acquisition, and portfolio acquisition transactions. Ettore A. Santucci, a partner in the firm’s Business Law Department, chairs the Capital Markets Group and co-chairs the REITs and Real Estate M&A Group. He focuses primarily on public and private securities offerings, corporate governance, securities law compliance, cross-border transactions, and mergers and acquisitions. Mr. Santucci has extensive experience in equity and debt capital markets transactions. He has special expertise in structuring leveraged transactions for enterprises with complex capitalization strategies seeking to access the capital markets.
For a primer on real estate investment trusts (REITs), see
> BASIC REIT STRUCTURES AND ENTITY TYPES
RESEARCH PATH: Corporate and M&A > Real Estate Investment Trusts > REIT Transactions > Practice Notes
To learn about drafting a REIT transaction, see
> REIT TRANSACTION DRAFTING CONSIDERATIONS
For an outline of factors to consider when setting up a REIT deal, see
> REAL ESTATE INVESTMENT TRUST (REIT) DUE DILIGENCE CHECKLIST
RESEARCH PATH: Corporate and M&A > Real Estate Investment Trusts > REIT Transactions > Checklists
For information on avoiding pitfalls in REIT M&A deals, see
> 5 DO’S AND DON’TS FOR CRAFTING M&A DEALS IN HOT REIT MARKET
RESEARCH PATH: Corporate and M&A > Real Estate Investment Trusts > REIT Transactions > Articles