There are two answers: (1) the underlying stock market and its industrial sectors and (2) the U.S. Securities and Exchange Commission’s filing window.
The Stock Market
First, you need a bull market for IPOs to flourish. Let’s step back and look at the two most productive back-to-back years the IPO market ever had.
No, it was not 1999 and 2000 of the “insanity dot-com” era when bankers priced 974 IPOs, according to SEC filings.
The record two-year period was 1996 and 1997, when bankers priced 1,496 IPOs: 1996 produced 874 IPOs and 1997 produced 622 IPOs. Can you believe that an “average” IPO month back then was 62.3 deals?
During that two-year period, the Nasdaq Composite Index registered a gain of 48.3 percent. The Nasdaq closed on Dec. 31, 1997, at 1,570.35 — UP from 1,058.65 on Dec. 29, 1995.
Fast forward to the present. The Nasdaq Composite came off its recent closing low at 1,268.64 on March 9, 2009, to run up to end at 1,763.56 on May 4 — a gain of 39 percent. It takes time for the IPO market to recover after the market’s bottom. But for secondary/follow-on offerings, it’s different. There’s no “catching up” period; the secondary calendar can run with the stock market.
The stock market’s recent surge has sparked a very busy secondary/follow-on calendar. Since the start of May, it turned out 75 deals in a three-week period. The busiest sector was financials, with 28 deals. Eleven were REITs.
It may come as a surprise, but the REIT sector had been much stronger than the underlying stock market. The Dow Jones Diversified REITs Index (DJUSDT) closed on April 24 at 52.44, UP 72.6 percent from 30.38, its recent low on March 5. That strength opened the door for the REITs to scramble onto the secondary/follow-on calendar and start spilling into the IPO calendar.
The SEC Filing Window
A pattern started developing last week at the IPO filing window. The activity came from financial specialty companies filing to be treated as real estate investment trusts — REITs.
Government Properties Income Trust (NYSE: GOV – proposed) filed an S-11/A, an updated S-11 (registration statement for securities to be issued by real estate companies) on Wednesday, May 20. It was to offer 10 million shares at $20 to $22 each and it landed on the IPO calendar. The deal is expected to be priced Tuesday, June 2, to trade on Wednesday, June 3.
By the way, at the Memorial Day holiday break, this is the only IPO on the calendar.
There was more REIT action at the SEC’s filing window last week, such as:
- MFResidential Investments (NYSE: MFR – proposed) filed an S-11/A on May 15. It had filed an S-11 to go public on Feb. 12, 2008. The company, formed in 2008, plans to invest mostly on a leveraged basis, in residential mortgage-backed securities, residential mortgage loans and other real estate-related financial assets.
- PennyMac Mortgage Investment Trust (NYSE: PMT – proposed) filed an S-11 to go public to raise $750 million on May 22nd. The company, a newly formed specialty finance company, is planning to invest in residential mortgage loans and mortgage-related assets.
- Sutherland Asset Management (NYSE: SLD – proposed) filed an S-11 to go public to raise $250 million on May 21st. The company, a newly formed specialty finance company, is planning to acquire Non-Agency MBS, Agency MBS, residential mortgage loans, ABS and other financial assets.
Getting the picture?
The REITs are coming to town. And while some may say this sector isn’t as sexy as technology, the recent jump in the DJ Diversified REITs Index offers another point of view. If you dare to be dull, sometimes it pays off.
The Passing Parade
Let’s take at look at last week’s IPO traffic. Two technology deals were priced and traded:
- OpenTable (NASDAQ: OPEN), a restaurant-reservation Web site, priced its IPO of 3 million shares at $20 each on Wednesday evening. That was well above the $12 to $14 per share original filing range and above the $16 to $18 per share increase. During its opening day, the IPO sold as high as $35.50, UP 77.5 percent from its initial offering price, and it closed the week at $28.71 per share.
- SolarWinds (NYSE: SWI), a provider of enterprise-class network management software, priced its IPO of 12.1 million shares at $12.50 each on Tuesday evening. That was above the $9.50 to $11.50 per share filing range. During its opening day, the IPO sold as high as $15.15, UP 21.2 percent from its offering price, and it closed the week at $13.29 per share.
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