Lineage Logistics hopes a thaw in the IPO market will enable it to cash in on a big-time IPO.
Lineage Logistics reportedly plans to launch its initial public offering (IPO) next year. The cold storage and logistics giant could fetch a valuation of more than $30 billion. That could enable some of its existing investors to cash in on their stakes.
Real estate giant W. P. Carey (WPC 0.27%) is one of those investors that could cash in on Lineage Logistics' IPO. It would allow the diversified real estate investment trust (REIT) to monetize its stake, which it could reinvest in income-producing real estate. That could help it more quickly rebuild its dividend, which it plans to cut from its current level of around 7%, following its abrupt exit from the office sector.
Seeking to cash in on the thaw
The IPO market has been in a deep freeze over the past couple of years. However, it has started to thaw in 2023. That has a growing number of private companies contemplating completing an IPO.
Lineage Logistics has reportedly hired advisors to explore the potential of going public in the first half of next year. The company is seeking a valuation of more than $30 billion in its IPO.
Lineage is the biggest player in the cold storage sector. It operates over 400 temperature-controlled storage facilities in North America, Asia, and Europe, with more than 2 billion cubic feet of capacity. That's a bigger position than rival Americold Realty Trust.
The industrial REIT operates about 240 facilities with 1.5 billion cubic feet of storage space. Americold currently has an enterprise value approaching $11 billion.
An IPO would enable existing investors in Lineage Logistics to start monetizing their positions. They could sell their shares as part of the IPO or later in the secondary market.
Eagerly awaiting the opportunity to monetize its stake
W. P. Carey holds a stake in Lineage Logistics. CEO Jason Fox commented on the company's investment in the cold storage operator on its second-quarter conference call. He stated:
We also continue to hold a large investment in Lineage Logistics, currently on our balance sheet at a fair value of around $400 million, which is presently not paying a dividend. This is a noncore holding that we expect to sell sometime after Lineage becomes a public company, allowing us to reinvest the proceeds highly accretively. While we do not have any visibility into timing, it has the potential to be another meaningful source of capital over the next few years.
As Fox points out, W. P. Carey has an equity stake in Lineage that's not currently generating any income for the REIT. Because of that, an IPO of Lineage would be a major catalyst.
W. P. Carey could sell its interest and use that cash to invest in income-producing real estate. That would give it more cash flow to invest in additional income-producing properties and pay dividends.
The company's cash flow will take a hit following its recent decision to accelerate its exit from the office sector. It spun off some of its office portfolio to shareholders by creating office REIT Net Lease Office Properties. Meanwhile, it's selling its remaining properties, which should close by early next year. As a result, W. P. Carey expects to reset its dividend by cutting it by 20% to reflect its lower income level (and allow it to retain more cash to fund acquisitions).
The company plans to recycle the proceeds from the office properties it sells into new properties with higher growth potential, like warehouses and industrial. That should increase its rental income, allowing it to grow the dividend from its reset base.
Meanwhile, the eventual monetization of its Lineage Logistics position would give it more cash to invest in income-producing real estate with above-average growth potential. That could further bolster its ability to increase its reset dividend in the future. W. P. Carey intends to grow its payout by around the same rate as its adjusted funds from operations (FFO).
A potentially meaningful catalyst
W. P. Carey has patiently waited to cash in on its stake in Lineage Logistics. That could come sooner than expected, given the company's plans to complete a blockbuster IPO early next year.
This event would open the door for W. P. Carey to cash in on its stake, which it could reinvest in income-producing real estate. The increased income from those new investments could enable the company to grow its reset dividend faster. That makes the potential Lineage Logistics IPO something W. P. Carey investors should watch closely.
Matthew DiLallo has positions in Net Lease Office Properties and W. P. Carey. The Motley Fool recommends W. P. Carey. The Motley Fool has a disclosure policy.
