Going Public as a REIT REITs become public companies in the same way as non REITs, although REITs have additional disclosure obligations and may need to undertake a more significant reorganization in connection with an IPO. See “UpREITs and Roll-Ups.” In addition, most public REITs are formed in Maryland as corporations under the Maryland General Corporation Law (“MGCL”) or as real estate investment trusts under the Maryland REIT law, as a result of Maryland’s well-developed history as a REIT-focused jurisdiction. This contrasts with other types of operating companies, which typically incorporate in Delaware if they are preparing for an IPO. In recent years, a limited number of companies have chosen to do direct listings rather than a traditional IPO. Although a direct listing will be less costly to pursue and offers existing investors quicker liquidity (no lockups), it also does not have the benefit of underwriters’ (and related equity research analysts’) input into valuation (unless accompanied by a capital raise) and disclosure or access to the underwriters’ balance sheets, research, or stabilization support offered by the syndicate in an IPO. Generally, direct listings are not accompanied by a capital raise that many IPO companies need to buy out existing holders, pursue acquisitions, or recapitalize their balance sheet, although recent stock exchange rules do permit companies to raise capital in connection with direct listings, subject to certain conditions. This often results in a much less active and less liquid trading market. Benefits of Going Public There are a variety of reasons why sponsors and management teams may decide to pursue an IPO. Some of the key benefits of an IPO often include: ■ Enhanced liquidity for owners of real estate assets; ■ Access to the public debt and equity capital markets to fund future growth, often on more favorable terms than are achievable as a private real estate company; ■ Ability to use OP Units and shares as acquisition currency (see “UpREITs and Roll-Ups”); ■ Enhancement of public profile and reputation; and ■ Greater ability to recruit and retain senior management, directors, and employees. Downsides and Challenges of Going Public Not with standing the potentially significant benefits of going public, there are a variety of reasons why private real estate companies and their sponsors may decide not to pursue an IPO. Some of the key downsides and challenges of an IPO often include: ■ The requirement to devote significant resources (both money and time) without certainty that a transaction can be executed on attractive terms, on the anticipated timeline, or at all; ■ The need to replace existing members of management, or hire new or additional members of management, with public company or other specialized expertise in line with expectations of IPO investors; 3 | 2024 Guide to REIT IPOs and Listing Transactions
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