The Case for Private REITs

New York—Public versus private REITs. What is the difference for investors/? Well, for starters, private REITs, of course, are not listed on a major exchange and aren’t subject to most SEC regulatory requirements. Perhaps more meaningfully, private REITs tend to offer superior dividend yields compared to their publicly-traded counterparts plus their lower compliance costs may also produce higher returns, according to Jahn Brodwin, senior managing director of FTI Consulting.

There are variations and overlap between the two, Brodwin tells GlobeSt.com. “We see a lot of REITs privatize, where companies just take it completely private and then some REITS end up selling off interests in specific properties and that’s known as semiprivatization.”

A lot of REITs also transact private deals where they sell non-controlling assets in order to raise monies.

“Some REITs may even raise money and buy back their own shares. This has all been happening for awhile,” says Brodwin.

Mergers are also fairly common among both camps. Oftentimes a REIT will be acquired by a private equity player to take the REIT private but there are also many cases of REIT acquisitions to build scale. For example, Prologis and Liberty Property Trust recently entered into merger agreement by which Prologis will acquire Liberty in an all-stock transaction, valued at approximately $12.6 billion, Brodwin notes.

Advantages of Private REITs

But Brodwin makes the case that for the investor, private REITs might be a better deal. Here’s why.

Private REITs May Pay Higher. “Private REITs usually pay higher dividends than comparable public REITs,” Brodwin says. While private REIT dividend yields are typically in the 7%-8% arena, public REITs usually pay dividend yields within the 5%–6% range.

Infrequent Price Updates. As private REITs only calculate their share prices every quarter, investors do not need to agonize over daily market fluctuations. The infrequent pricing updates of private REITs, as a result, is enticing for some investors.

Minimal Oversight. Subject to only minimal corporate governance rules, private REITs are able to save substantial monies in this area and, as a result, can earn high risk-adjusted returns than public REITs.