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.