■ Post-IPO SEC reporting obligations can be onerous and require the expenditure of significant resources (both money and time); ■ Access to the public debt and equity capital markets may be limited when the asset class is out of favor or there is significant market dislocation; ■ Enhanced scrutiny by investors, analysts, and plaintiffs’ law firms; ■ Potentially more attractive economic terms from private capital options during certain market cycles; and ■ Failure to meet market expectations can cause significant declines in equity value, credibility, and the ability to access additional capital. Primary and Secondary Offerings An IPO may consist of the sale of newly issued shares by the company (a “primary” offering), a sale of shares owned by existing stockholders (a “secondary” offering), or a combination of both. Underwriters for REIT IPOs typically prefer a primary offering because the company will retain all of the net proceeds that may be used to acquire additional assets, to repay indebtedness, or for other general corporate purposes. In contrast, the company’s existing stockholders would receive all of the net proceeds from an entirely secondary offering and a portion of the net proceeds in an IPO with primary and secondary components. Generally, significant roll-over of existing equity sends a strong signal to potential IPO investors of existing shareholders’ long-term belief and support for the REIT. IPOs may be structured to include both a primary and a secondary offering, either as part of the base offering or as part of the option granted to underwriters to purchase up to an additional 15% of the company’s shares sold in the IPO to cover overallotments (referred to as the “greenshoe”). A company must also consider whether any of its stockholders have registration rights that could require the REIT to register the resale of shares held by existing stockholders, either as part of the IPO or shortly thereafter, which could potentially put downward pressure on the share price in the aftermarket. Providing transparent and rational registration rights to large institutional investors, such as private equity funds who will be seeking liquidity at some point after the IPO, is also important to support the stock price. Public Non-Listed REITs Another alternative to a publicly listed REIT is a public non-listed, or non-traded, REIT, which is a REIT that has offered securities to the public pursuant to registered offerings under the Securities Act and is subject to the ongoing disclosure and other obligations of the Exchange Act, but its securities are not listed on a national securities exchange. Although most non-listed REITs provide some liquidity to their stockholders through share repurchase programs, shares of non-listed REITs are generally considered illiquid due to the lack of an active secondary trading market. This limited liquidity is one factor that may cause a non-listed REIT to pursue a listing of its common stock on a national securities exchange and a concurrent underwritten public offering. Although a non-listed REIT may have completed many registered public offerings, this listing of its common stock and concurrent underwritten public offering is often referred to as its IPO, or its first “listed” public offering. Non-listed REITs considering such an IPO will have to consider many of the same factors that are applicable to a private real estate company considering an IPO, but there are differences, including as a result of a non-listed REIT’s existing public disclosure and large stockholder base of primarily retail investors. 2024 Guide to REIT IPOs and Listing Transactions | 4
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