WLS Welsh Property Trust Common Stock

When Weyerhaeuser Co. (WY) first disclosed it would become a real-estate investment trust last year, it looked like the forest-products provider would have lots of company.

Lured by strong gains in REIT stocks last year--the Dow Jones Equity All REIT index rose 31%, compared with a 24% rise in the S&P 500-stock index--a number of companies assembled plans to become a REIT. On Monday, Weyerhaeuser said it will distribute $5.6 billion in retained earnings and profits to its shareholders in the form of a special dividend, a required step toward becoming a REIT.

But with the stock market experiencing bouts of volatility, some companies that had planned to become REITs are getting cold feet, especially private companies that were planning to become REITs via initial public offerings of stock.

"It's unlikely all of them will go public unless we see a more stable market," said Ron Sturzenegger, managing director and global head of real estate, gaming and lodging investment banking for Bank of America Merrill Lynch.

While Weyerhaeuser is a public company converting to a REIT, there are eight other companies, all private, that have filed this year for REIT status via an IPO, looking to raise a total of about $3 billion, according to data provider Dealogic. That is roughly the same number of companies during the REIT craze in the mid-1990s. Some of the larger planned REITs in the pipeline include Younan Properties Inc., an office-property company seeking to raise $575 million, and DLC Realty Trust, a shopping-center operator that also plans to raise $575 million.

"For a REIT to do an IPO, it needs at least two weeks of steady market conditions," said Mr. Sturzenegger. Bank Of America is also an underwriter on those two deals.

Bank of America underwrote the IPO for Hudson Pacific Properties (HPP), a Los Angeles office-property landlord that was one of three private companies that have tapped the market this year. Three other "blind-pool" REITs, or companies that have no assets but raise money to buy buildings or debt, also priced deals.

But it wasn't without their share of pitfalls. Shopping-center landlord Excel Trust Inc. (EXL) and Piedmont Office Realty Trust Inc. (PDM) both had to cut their prices to lure investors to their initial offerings in April and February, respectively.

Others just fizzled, including Americold Realty Trust (ACRE), a company focusing on temperature-controlled warehouses, owned by billionaire investor Ron Burkle. That deal was postponed in May. It had sought to raise $660 million. Welsh Property Trust Inc. (WLS), an industrial and office operator, withdrew its planned IPO this month, even after cutting its price twice. Welsh had projected to raise $345 million.

Both companies cited adverse market conditions, but analysts and investors said the primary turnoff was that the deals were too ambitiously priced and their growth stories not that compelling.

"Welsh had the makings of a pretty good REIT, but the deal was woefully mispriced and poorly managed from the get-go," said Mike Kirby, director of research for Green Street Advisors. He said competition from existing REITs also is pressuring the IPO candidates.

The book runners for Welsh Property were UBS Securities and J.P. Morgan Chase & Co. Representatives for both companies declined to comment.

Mr. Kirby said the average REIT trades at a premium to the value of underlying assets of about 5% or 10%. "That means if you are the new kid on the block, you need to price the deal at a discount to where your peers are traded. You'll suffer some, but there is still room to get a deal done," he said.

Nearly all of the REITs now are trading below their IPO prices, as the REIT market follows the broader stock market lower.

The IPO market, however, hasn't been kind to other companies. Stock-market volatility forced 25 companies to postpone IPOs, said Scott Sweet, senior managing partner at IPOBoutique, an advisory firm for IPOs and secondary offerings. He said the IPO market has been poor in all sectors since December.

"People are not gravitating to IPOs right now," he said. "They are more content, if they like a sector, to go with a competitor that has a proven track record and current analyst coverage."

During the last big REIT IPO wave in the mid-1990s the prevailing motto was: Don't go broke, go public. This time around, most companies aren't driven by bankruptcy concerns, but by the access to capital that public companies have in order to expand.

"Not too many need to get a REIT IPO done to save their company," Mr. Kirby said.

-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com

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