(Bloomberg) -- Temperature-controlled storage and logistics giant Lineage Inc. shares rose 3.6% in its debut as a public company after raising about $4.4 billion in the year’s largest initial public offering.
Shares of Novi, Michigan-based Lineage pared early gains to close at $80.78 each on Thursday in New York, above the $78 IPO price.
The trading gives the firm, founded by a pair of former Morgan Stanley investment bankers, a market value of nearly $20 billion, based on the outstanding shares listed in its filings with the US Securities and Exchange Commission.
Lineage’s IPO, which priced toward the top of its marketed range, was the largest since Arm Holdings Plc’s $5.2 billion debut in September, marking a comeback for the beleaguered US IPO market.
Including Lineage, US listing volume has rebounded from a post-pandemic slowdown, with companies raising more than $28 billion according to data compiled by Bloomberg. That’s about double the amount from the corresponding period last year, though well below the figures seen by this point in 2020 and 2021.
The REIT’s debut is a rare sizable listing in the summer months. Aside from a handful in 2020 and 2021 when the pandemic disrupted travel, only three companies in the past decade raised more than $1 billion on US exchanges in July, data compiled by Bloomberg show.
The listing is also a boost to the more than 30 financial institutions named in Lineage’s filings.
Morgan Stanley Bullpen
Lineage traces its roots to a friendship forged in the so-called bullpen at Morgan Stanley in San Francisco in the early 2000s.
Adam Forste and Kevin Marchetti earned their stripes at the financial giant’s investment banking group together, and soon branched out separately into private equity, with Marchetti working for billionaire Ron Burkle’s Yucaipa Cos. and Forste at KKR & Co., according to their IPO filing. They came together again in 2008 in a small office on Battery Street in San Francisco to get their idea off the ground, they wrote in a letter to prospective investors included in the filing.
“We committed to a simple but ambitious vision: to build a company that we would want to own forever,” Forste and Marchetti wrote.
The pair founded Bay Grove Capital in 2007, whose team — consisting of Forste, Marchetti and another of their former Morgan Stanley colleagues, managing director David Brandes — devotes all of its time to Lineage’s growth and success, according to its website.
Forste and Marchetti were expected to beneficially own 79.4% of the common stock and operating partnership units after the IPO, the filing shows.
Norway’s $1.7 trillion sovereign wealth fund had indicated an interest in buying as much as $900 million worth of shares at the IPO price, according to the filing.
Vote of Confidence
REITs could use the vote of confidence that hosting the year’s biggest IPO brings. The sector has been mired in a lengthy slump, as offices and shopping malls failed to rebound from the pandemic as many had hoped, and financing costs soared amid rising rates.
Vehicles backed by private equity firms have been stung by the downturn. Blackstone Inc.’s Blackstone Mortgage Trust Inc. slumped Wednesday after cutting its dividend. Yet Blackstone itself has focused considerable resources on investments in warehouses, betting that the transformation of global supply chains will drive further growth.
The improving outlook for the Federal Reserve to accelerate rate cuts has boosted REIT optimism in recent weeks, with Americold Realty Trust Inc., Lineage’s closest listed competitor, a notable winner. From the consumer price index release on July 11 through Wednesday’s close, the cold storage firm’s shares climbed about 9%, versus a 4.3% increase for the benchmark Bloomberg US 3000 REIT Price Return Index in the same period.
Acquisition Strategy
Lineage, led by Chief Executive Officer Greg Lehmkuhl since 2015, has made acquisitions a cornerstone of its strategy, from the founders acquiring a single warehouse in Seattle in 2008 to the 75 deals the company has cut since 2020.
With 482 warehouses in 19 countries with 3 billion cubic feet of capacity as of March 31, according to Lineage’s IPO filings, the company has roughly twice Americold’s 241 temperature-controlled warehouses and about 1.5 billion cubic feet of storage.
Going forward, Lineage is aiming to spend at least half a billion dollars each year in the development of new facilities and acquisition of peers, according to Chief Financial Officer Rob Crisci.
“We feel excited, we feel empowered and energized,” Lehmkuhl said in an interview, adding that the company has been preparing for an IPO for the past three years. “This is the next chapter for us and it really unlocks the cost of capital, the liquidity, the balance sheet, the access to the debt markets, everything we need to just continue the growth that we’ve seen for the last 16 years.”
The expansion apparently hasn’t come at the expense of performance. Lineage’s net operating income margin of 40.3% is higher than Americold’s 32%, Roth Capital Partners LLC Managing Director Bill Kirk wrote in a note to clients July 17. Growth in the newly public company’s funds from operations would come from debt reduction as a result of the IPO, and estimated 2024 revenue and net operating income would be largely flat year over year, Kirk wrote.
The company had a historical net loss of $96.2 million on revenue of $5.3 billion in 2023, compared with a net loss of $76 million on revenue of $4.9 billion a year earlier, according to the filing.
Lineage is being considered for inclusion in indexes. FTSE Russell said it is considering fast-tracking Lineage for inclusion into the FTSE EPRA Nareit Global Real Estate Index Series of listed real estate equities worldwide. A decision is set to be announced Thursday.
The offering was led by Morgan Stanley, Goldman Sachs Group Inc., Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. KKR was its lead financial adviser. Lineage’s shares trade on the Nasdaq Global Select Market under the symbol LINE.
(Updates with closing price of shares in first three paragraphs.)
©2024 Bloomberg L.P.
