The IPO Buzz: Hype vs. Reality

However, some services are reporting there are two deals -– not one — on this week’s IPO calendar. A quick look at the covers of each preliminary prospectus goes a long way toward clearing up the confusion. 

 

The names of the two are: American Assets Trust (AAT – proposed) and Pacific Office Properties Trust (PCE). Both are real estate investment trusts, or REITs.

 

Now let’s turn to the wording in their respective “red herrings,” Wall Street’s jargon for preliminary prospectuses.

 

American Assets Trust states: “This is the initial public offering of American Assets Trust, Inc.” – clear enough?

 

Pacific Office Properties Trust states: “Pacific Office Properties Trust, Inc. is a publicly traded real estate investment trust … (and) Shares of our common stock are currently listed on the NYSE Amex under the symbol “PCE” – clear enough?

 

Yes, Virginia, the IPO Express is leaving town this week. But it’s a train with only one passenger.

 

Last year’s REITs did not score any opening-day moonshots. Bankers priced nine from this industrial sector and their opening-day performances were forgetable. Five finished up, four down and the nine had an average loss of 1.05 percent -– yes, a loss. In comparison, the average opening-day gain for all of 2010’s 153 IPOs was 11.5 percent.

 

But just like the denizens of “Animal Farm,” not all REITs are created equal.

 

Last year’s standouts were the ones specializing in office properties -– like this week’s American Assets Trust. There were three from this sub-sector.

 

By the close on Friday, Jan. 7, 2011, two were up from their initial offering prices: Piedmont Office Realty Trust – PDM up 38 percent and Whitestone REIT – WSR up 22.5 percent) and one was down: Hudson Pacific Properties – HPP down 10.9 percent. The average gain for the three was 14.6 percent. That was not a good showing. The average gain for last year’s 153 IPOs was 29.8 percent.

 

On the other hand, over the last 52 weeks, the office REIT sub-sector slightly outperformed the stock market. Consider the following:

 

And this brings us back to the 2011 IPO curtain raiser.

 

American Assets Trust is a San Diego-based REIT. The company owns, operates, acquires and develops high-quality retail and office properties in attractive, high-barrier-to-entry markets primarily in Southern California, Northern California and Hawaii.

 

The company plans to a quarterly cash distribution of 21 cents per share, or 84 cents annually to yield 4.2 percent.

 

Bankers expect to offer 25 million shares at $19 to $21 each on Wednesday evening to trade Thursday, Jan. 13, 2011.