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American Assets Trust (NYSE:AAT) $500mm IPO with a market cap of $1.045 billion is at the price range mid-point of $20. The IPO is scheduled for Thursday January 13, 2011.

Summary
AAT is a REIT with office properties in Southern California, Northern California and Hawaii. Three tenants account for 33% of revenue. California, howver, is not a growth market anymore

Valuation
Compared to recent REIT IPOs, AAT appears to be seeking an IPO premium. For example, compared to six REIT IPOs in the past year, three currently pay more than AAT’s projected 4.2% payout rate, at the price range mid-point of $20. The three include Whitestone (NYSE:WSR) 7.7%; Piedmont Office (NYSE:PDM) 6.2%; Campus Crest (NYSE:CCG) 4.7%. And the three are up from their IPO prices 20%, 38% and 8% respectively.

The remaining three have a lower payout rate and have declined from their IPO price. Compared to all six REITS AAT’s price-to-book value is the highest (lower is better).

AAT Valuation Metrics

Formation transactions not arms length
Post-IPO, Ernest S. Rady and his affiliates, directly or indirectly, will own a 41% beneficial interest in AAT company. AAT did not conduct 'arms length' negotiations with Mr. Rady with respect to the terms of the formation transactions. Also, AAT did not obtain any third-party appraisals of the properties and other assets to be acquired by AAT from the prior investors in connection with the formation transactions

Also trying to price high is Pacific Pacific Office Properties Trust (PCE). It's $352mm offering with a market cap of $428mm is priced at the price midpoint of $8. The IPO is scheduled for the week of January 10, 2011

Note: PCE already trades on the NYSE Amex exchange with a market cap around $10mm, so this ‘IPO’ is really a secondary to facilitate an acquisition.

Distribution policy
A $.36 annual rate, with a 4.5% return at price range mid-point of $8.

Valuation
Compared to recent REIT IPOs, PCE appears to be seeking an IPO premium. For example, compared to six REIT IPOs in the past year, three currently pay more than PCE’s projected 4.5% payout rate, at the price range mid-point of $8. The three include Whitestone (WSR) 7.7%; Piedmont Office (PDM) 6.2%; Campus Crest (CCG) 4.7%. And they are up from their IPO prices 20%, 38% and 8% respectively.

The remaining three have a lower payout rate and have declined from their IPO price. Compared to all six REITS PCE’s price-to-book value is around the median (half higher, high lower)

PCE Valuation Metrics

Business

  • PCE is a publicly traded REIT that owns, acquires and operates primarily institutional-quality office properties principally in selected long-term growth markets in California and Hawaii.

  • PCE currently owns eight office properties comprising approximately 2.3 million rentable square feet in buildings in Honolulu, San Diego, Orange County, certain submarkets of Los Angeles and Phoenix.

  • Upon the completion of the pending acquisition of the GRE portfolio, will expand to the San Francisco Bay Area.

Source: American Assets Trust and Pacific Office Properties Trust: REIT IPOs Asking a Premium