Why would one not LBO a REIT trading at a discount to NAV and then sell off the assets at market value?
Just curious why this isn't something you ever hear about. Certain office/retail REITs are trading at roughly ~20% discount to NAV. Why would a PE company like Blackstone not make a tender offer for all of the tradeable stock and then simply sell the assets one by one at market value (presumably NAV) in order to realize a 20% gain, net the premium to share price they had to pay to close the acquisition?
1) Book NAV is not necessarily indicative of true market values at which the individual asset can be easily disposed
2) Acquisition premiums paid to get public shareholders to agree to this would probably wipe out the entire discount to NAV. Shareholders will be aware there is a discrepancy and demand a higher tender price.
3) Even if both the above were not problems, this would not be an easy undertaking. Taking control of a public reit then selling the assets piecemeal takes time. If it took 2 years to final divestment, that 20% return suddenly is like a 10% IRR
Second both these - 2 and 3 especially. A few companies you could argue cover their public market cap (enterprise) value with 25% of their properties and the rest would be considered gravy. It's more of an argument to scoop up shares rather than buy the company outright for the reasons (s)he mentions above.
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