Lineage is seeking to raise up to US$3.85bn from a Nasdaq IPO this week, a sizeable undertaking for a corporate but mammoth for a REIT.
While it is structured as a real estate investment trust, a structure that typically attracts a relatively narrow group of investors, the cold-storage facility operator is pitching itself as a play on global infrastructure in a sub-sector with plenty of room for growth.
“Lineage is a very mature company that operates like a tier-one asset,” said one banker involved in the offering. “Every type of investor is looking at this deal. In addition to REIT-dedicated investors, Lineage could appeal to value, event-driven and even tech investors.”
Joint bookrunners Morgan Stanley, Goldman Sachs, Bank of America, JP Morgan and Wells Fargo launched marketing on Tuesday for the sale of 47m shares at US$70–$82 per share, an unusually wide range for a deal that was heavily premarketed.
Sovereign fund Norges Bank Investment Management signed on as a cornerstone investor with a US$900m commitment, one of the largest single cheques ever written on an IPO.
Lineage is on target to be the largest US REIT IPO, easily topping the US$2.64bn raised by office tower owner Paramount in its NYSE IPO in 2014.
The might of Wall Street and beyond is being put to work with 27 investment banks in the underwriting syndicate, including a group of minority-owned firms and four independent advisers led by KKR Capital Markets.
In addition to being large and heavily banked, the cold storage REIT is expensive.
Out with the old...
Lineage is going public at an estimated market cap of US$16.7bn–$19.5bn, valuing it about 20 times forecast 2025 funds from operations at the mid-point of the marketing range.
That multiple is a premium to cold-storage REIT AmeriCold Realty Trust at 17 times and in line with industrial property REIT ProLogis and data centre REIT Equinix, according to estimates used in the marketing and LSEG data.
Lineage is seeking a full valuation out of the gate.
One reason is that Lineage has raised US$8.8bn privately, including the most recent US$2.2bn round in 2022 at US$70.24 per share, according to the IPO prospectus and IFR calculations. The range has been set in an effort to avoid the IPO being a "down round".
...in with the cold
With real estate spanning the globe, Lineage is a trophy asset that has grown organically as well as by using its stock as currency for acquisitions. Its 463 temperature-controlled warehouses encompassing 2.9bn cubic feet of capacity give it an 11.8% market share and nearly one-third of the North American market.
Lineage last year generated US$789.3m of funds from operations and revenue grew by 8.4% to US$5.3bn, fuelled by a 15.3% growth in same-warehouse sales. But the company is coming to market having cooled a touch with second-quarter preliminary results expected to see the top-line decrease by 1% to US$1.33bn and same-warehouse sales decline by 2.25%.
“The offering is about getting the balance sheet right-sized and making it big enough for investors,” said a second banker. “We want to ensure there is strong liquidity in the aftermarket.”
Lineage is using proceeds to repay a US$2.4bn term loan and about US$920m of US$2.5bn drawn under its revolving credit facility, cutting net leverage to 4.7 times' Ebitda.
One rub on REITs is that concentrated, long-only ownership historically has resulted in limited trading liquidity. Another is that REITs are obliged to pay out 90% of taxable income, crimping growth. While not announced, Lineage is expected to pay a mid-2% dividend yield.
But time has shown that REIT investors love new sub-asset classes, whether it be casinos with MGM Growth Properties and VICI Properties, or single-family home landlords such as Invitation Homes and American Homes 4 Rent, and it appears they are beginning to warm to cold storage.
