Structuring REIT Mergers and Acquisitions: Due Diligence, Preserving REIT Status, Tax Concerns, Closing Conditions

Addressing Unitholder Rights in UPREITs, Coordinating Dividend Payments, Deal Protection Provisions

Note: CPE credit is not offered on this program

Recording of a 90-minute premium CLE webinar with Q&A


Conducted on Thursday, September 19, 2019

Recorded event now available

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Program Materials

This CLE webinar will examine legal and tax issues particular to REIT mergers and acquisitions. The panel will discuss due diligence, valuation and structuring, as well as shareholder litigation concerns in REIT and UPREIT transactions.

Description

Recent years have witnessed an unprecedented deal volume in REIT M&A transactions, and the trend is expected to continue in 2019. Counsel must be conversant with the unique issues presented in REIT transactions, from upfront due diligence and valuation to structuring and closing the deal.

A critical requirement is that the target, in fact, qualifies as a REIT for tax purposes. If not, the buyer could inherit contingent tax liabilities from pre-closing years, incur corporate level tax on the appreciation of the target's assets, and be subject to a "sting tax" on the subsequent sale of target assets. Due diligence and delivery of unqualified REIT opinions from target's counsel should be required.

Acquisitions involving UPREITs present additional challenges. Tax protection agreements and unitholder voting, notice or consent rights must be taken into account. REITs are generally required to pay out shareholders at 90% of their annual income. In all-cash deals, the ability to pay partial or pro-rated dividends must be agreed to by the parties. In stock-for-stock transactions, dividends for the buyer and seller must be coordinated so that each set of shareholders receives its scheduled dividend.

REIT merger agreements typically include the same kinds of deal protection provisions as those found in M&A agreements generally. Because the underlying asset is real estate, REIT M&A closing conditions may consist of additional closing conditions like third-party consents from JV partners or ground lessors, payment of transfer taxes, and resolution of other property-level matters.

Listen as our authoritative panel examines these and other issues with REIT mergers and acquisitions. The panel will also discuss management transition, shareholder litigation and other concerns.

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Outline

  1. REIT M&A transaction structures
    1. General preference for forward mergers
    2. All cash vs. stock for stock
  2. Confirming REIT qualification, avoiding sting tax
  3. UPREITs and DownREITs
  4. Dividends
  5. Deal protection provisions
  6. Closing conditions--property-level issues
  7. Preparing for and responding to shareholder actions

Benefits

The panel will review these and other relevant issues:

  • What upfront due diligence should be done before considering a transaction with a REIT target?
  • What are the key tax considerations in a REIT M&A deal?
  • How should dividends be treated during the interim period from contract to closing?
  • What deal protections are typically included in a REIT merger agreement?

Faculty

Davidson, James
James V. Davidson

Partner
Hunton Andrews Kurth

Mr. Davidson's practice focuses on all aspects of capital markets, mergers and acquisitions, corporate finance, and...  |  Read More

Sibley, Kendal
Kendal A. Sibley

Partner
Hunton Andrews Kurth

Ms. Sibley focuses on federal income tax issues related to real estate investment trusts (REITs), investment funds, and...  |  Read More

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