Paramount Group Rises After Record IPO for a U.S. REIT

By Sonali Basak and Brian Louis  

Paramount Group Inc., an office landlord, climbed in its trading debut after raising $2.3 billion in the largest ever initial public offering for a U.S. real estate investment trust.
The shares climbed 3.9 percent to $18.18 after the company sold them for $17.50 each. The shares are listed on the New York Stock Exchange under PGRE.
Investor demand for property trusts is soaring partly because they offer higher yields than some other securities, such as U.S. Treasury notes. The Bloomberg REIT Index has gained more than 20 percent this year, nearing its highest level since March 2007. The offering by Paramount, which plans to qualify as a REIT, surpasses Douglas Emmett Inc. (DEI)’s IPO in 2006, which raised $1.6 billion including an overallotment, as the biggest in the U.S.
“Pricing at the midpoint of the proposed range appears to
reflect confidence in the company’s high-quality gateway portfolio, established track record and legitimate operating platform,” Green Street Advisors Inc. analysts led by Jed Reagan wrote in a report late yesterday.
Paramount owns or has stakes in 12 office buildings, including One Market Plaza in San Francisco and 1301 Avenue of the Americas in New York. Office rents in the two coastal cities are growing faster than in many other parts of the country as the economy grows and technology companies expand. Tenants include Bank of America Corp. and Barclays Plc.

Possible Acquisitions

The company plans to use proceeds from the offering for debt repayment, capital expenditures and possible acquisitions, regulatory filings show. Paramount has acquired 28 properties with a value of about $11.5 billion since 1995.
In 20 years, the market capitalization of REITs has surged to about $816 billion from $44 billion, and will probably continue rising, according to PricewaterhouseCoopers LLP.
The REIT industry has grown over the years as investor interest in real estate has increased. Investors seeking to diversify their portfolios have included property companies to broaden their holdings.
REITs are required to pay at least 90 percent of their taxable income to shareholders as dividends, and don’t have to pay federal income taxes on those earnings in exchange. Most REITs distribute all of their earnings to get the full deduction.
Paramount’s predecessor company was founded by Werner Otto, who started Germany’s largest mail-order company from a shoe factory in Hamburg. He died in 2011 at the age of 102.
Concurrent with the IPO, Paramount will sell shares in private placements to certain investors, including $51 million to some family members and affiliates of Otto, according to Paramount’s prospectus.
Paramount is led by Albert Behler, its chief executive officer since 1991.
Bank of America, Morgan Stanley and Wells Fargo & Co. managed the sale.