Wednesday, July 11, 2007

Wells Real Estate Investment Trust, Inc.'s IPO
Wells Real Estate Investment Trust (REIT I) filed for its IPO on May 23, 2007. As part of the IPO process, REIT I did a stock purchase of its advisor for approximately $164 million. (This is 19,546,302 shares at a value of $8.38 per share (REIT I returned $1.62 in capital in 2005).) The advisor was 100% owned by Leo Wells. REIT I has until January 30, 2008 to list on an exchange before, by its charter, it must start liquidating its assets. I am not exactly sure of the IPO process, but I am wondering why it has not been listed yet. My contact at Wells is coy about the listing and keeps referring to the January 30, 2008 deadline. Maybe REIT I is fielding offers from private equity firms that are higher than the anticipated listing price.

The value per share of REIT I, for dividend purposes, is $8.38 per share. This is the $10 initial share price, less the capital returned of $1.62. I don't know what the market value will be when it lists, hopefully higher than the $8.38 per share. REIT prices in general have been in down this year and are substantially off their highs. I think a private equity firm may be willing to pay a higher price than the market would for REIT I. Blackstone agreed to paid a 40% premium to the market price for Hilton last week. REIT I only has $1.2 billion of debt on almost $5 billion of assets. This should be attractive to private equity firms. A private equity firm would be able to capitalize on REIT I's low debt level to an extent that a public listing couldn't and Leo Wells wouldn't.

In today's capital market environment, private equity is willing to pay more for real estate than the market. I hope Leo Wells, or REIT I's high priced bankers, have picked up the phone and called some private equity firms.

It is worth noting that NNN Realty Advisors did a reverse merger, buying a public company, after it filed its S-11 registration statement. Until REIT I is listed, anything can happen.

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