A merger wave has swept across the real estate investment trust (REIT) sector this year. According to JLL, REIT mergers and acquisitions (M&A) activity had reached $108 billion by the end of September -- which has already broken the sector's record, set in 2006.
Here's a closer look at some of the notable deals and whether the current wave can continue.
A year of wheeling and dealing
JLL noted there had been widespread M&A activity in the REIT sector this year. And office REITs have helped lead the charge. That group is on pace to complete more than $10 billion of acquisitions this year for the first time in five years. It's also the first time since 2015 that office REITs have seen their share of the overall REIT sector's M&A volume increase.
Several office REITs have made acquisitions this year. Boston Properties (NYSE: BXP) has gone on a shopping spree. It entered the Seattle market by acquiring Safeco Plaza via a joint venture for $465 million and expanded its life science portfolio.
Meanwhile, several office REITs purchased office buildings in fast-growing Sun Belt markets this year. West Coast-focused Kilroy Realty (NYSE: KRC) entered the Austin, Texas, market; while Highwoods Properties (NYSE: HIW) and Cousins Properties (NYSE: CUZ) both made several acquisitions across the Southeast.
And the office sector was far from the only one getting into the M&A game. The retail industry saw several corporate mergers, led by Realty Income's (NYSE: O) acquisition of VEREIT (NYSE: VER). The all-stock deal will create a top-five global REIT with a $50 billion enterprise value while diversifying the retail-focused Realty Income's portfolio.
That was one of several deals involving retail REITs. Others included Kimco (NYSE: KIM) acquiring Weingarten (NYSE: WIR) in a deal valuing the merged company at $20 billion, and Kite (NYSE: KRG) buying Retail Properties of America (NYSE: RPAI) in an all-stock deal valuing the combined company at $7.5 billion.
Another notable corporate merger saw gaming REITs MGM Growth Properties (NYSE: MGP) and VICI Properties (NYSE: VICI) combine in a $17.2 billion all-stock deal.
More deals are likely
REITs appear poised to add to their record year. JLL noted that all major REIT sectors contributed to the M&A bonanza, implying a favorable environment for dealmaking. Further, it pointed out that shares of REITs have rallied this year, making their stocks strong currencies to use for corporate mergers. On top of that, debt is historically cheap, and debt markets are open for business.
Two REITs that could potentially be merger targets are Monmouth Real Estate Investment (NYSE: MNR) and Healthcare Trust of America (NYSE: HTA). Monmouth already had a multi-billion-dollar merger fall through after its shareholders voted against that particular deal. The company is now reviewing its strategic options. Meanwhile, an activist investor is pressing Healthcare Trust to put itself up for sale.
In addition to corporate mergers, REITs will likely remain active acquirers of smaller portfolios and single properties. Most apartment REITs are focused on buying multifamily communities across the fast-growing Sun Belt region.
For example, Equity Residential (NYSE: EQR) has been selling older communities, mainly in high-cost coastal gateway cities, and using the funds to acquire newer ones across inland markets like Atlanta, Denver, and Austin, Texas. The REIT expects to continue increasing its exposure to those new markets in the coming quarters.
That trend of portfolio upgrading stretches across the REIT sector, with companies in each subgroup looking to improve by making acquisitions, which they intend to partially finance by selling noncore properties.
A monster year for REIT M&A
As expected, REIT M&A picked up speed this year. Several REITs made strategic deals to boost their scale and reduce costs. Meanwhile, others took advantage of low interest rates and surging stock prices to acquire smaller portfolios or one-off properties to upgrade their portfolios. These trends will likely continue since the capital markets remain wide open for REITs to raise the money they need to continue wheeling and dealing.