REITs: Mergers and Acquisitions

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by David M. Einhorn, Adam O. Emmerich, Robin Panovka

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Since the early 1990s, the market capitalization of REITs has increased from about $10 billion to over $1 trillion, and M&A transactions involving REITs and UPREITs have changed the corporate and real estate landscape. REITs: Mergers and Acquisitions is a new and important guide to this growing area of law.

Covering both fundamental and advanced issues, the authors discuss: structural considerations, directors' duties, documenting the deal, financing, tax considerations, friendly and hostile transactions, defensive techniques and the processes for selling or taking REITs private. REITs: Mergers and Acquisitions provides essential discussion of how the customs of corporate and real estate transactions differ and how conflicts involving letters of intent, due diligence, exclusivity periods and contingencies to the deal can be resolved.

At a time of dynamic deal activity in the REIT industry, corporate and real estate lawyers, REIT CEOs and CFOs, investment bankers, analysts, accountants and other professionals will all benefit from the strategic guidance this new book offers.

Book #00685; looseleaf, one volume, 808 pages; published in 2006, updated as needed; no additional charge for updates during your subscription. Looseleaf print subscribers receive supplements. The online edition is updated automatically. ISBN: 978-1-58852-140-8.

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  • Availability: Available
  • Brand: Law Journal Press
  • Product Type: Books
  • Edition: 0
  • Page Count: 808
  • ISBN: 978-1-58852-140-8
  • Pub#/SKU#: 685
  • Volume(s): 1

Author Image
  • David M. Einhorn
Mr. Einhorn is of counsel at Wachtell, Lipton, Rosen & Katz and had been partner in the Tax Department from 1982 through 2009.  He focuses on the tax aspects of partnerships, bankruptcy reorganizations and mergers and acquisitions (with an emphasis on transactions involving Real Estate Investment Trusts (REITs)). Mr. Einhorn received a J.D. degree from Fordham University in 1976 and an LL.M. from New York University in 1979.  He is admitted to practice in the New York State courts and in the Southern and Eastern Districts of New York, as well as the U.S. Tax Court and U.S. Court of Federal Claims.

Author Image
  • Adam O. Emmerich
Mr. Emmerich practices in Wachtell Lipton's corporate department, focusing primarily on mergers and acquisitions, securities law matters, and corporate governance. His practice has included a broad and varied representation of public and private corporations and other entities in a variety of industries throughout the United States and globally, in connection with mergers and acquisitions, divestitures, spin-offs, joint ventures and financing transactions. He also has extensive experience in takeover defense. Adam is recognized as one of the 500 leading lawyers in America by Lawdragon, as one of the world’s leading lawyers in the field of Mergers and Acquisitions in the Chambers Guide to the World’s Leading Lawyers, as an expert in each of M&A, Corporate Governance and M&A in the real estate field by International Who's Who of Business Lawyers, and as an expert both in M&A and in Corporate Governance by Euromoney Institutional Investor’s Guides, in their World’s Leading Mergers and Acquisitions Lawyers and Best of the Best USA 2012 Corporate Governance. 

Author Image
  • Robin Panovka
Mr. Panovka is a partner in the Corporate Department and Co-Head of Real Estate and REIT M&A at Wachtell Lipton.  He specializes in complex M&A and real estate transactions, including several of the largest REIT mergers, buyouts and restructurings completed in recent years; large-scale private equity transactions and fund formations in the U.S., Europe and Asia; and the redevelopment of the World Trade Center in Manhattan and other major projects. He is active in a wide variety of cross-border transactions across industries, with particular focus on emerging markets. Panovka has been named one of the LawDragon 500 leading lawyers in the U.S., and is consistently ranked as one of the leading REIT and real estate M&A lawyers by Chambers, Legal 500, Who's Who Legal and similar publications.  He has also been featured in a number of publications for his leadership in real estate and M&A, including as an American Lawyer “Dealmaker” for his work on a transformative M&A transaction.


§ 1.01 Introduction—Real Estate Meets M&A
§ 1.02 The REIT Revolution—Background
§ 1.03 Trends
§ 1.04 REIT, UPREIT and DownREIT Basics
§ 1.05 Clashes of Culture, Custom and Deal Structures at the Crest of the Revolution
[1] Cultural Differences
[2] Structural Differences

Structural Considerations in
Consensual REIT M&A Transactions
§ 2.01 Overview
§ 2.02 Transaction Structures
[1] Conventional REIT Combinations
[2] UPREIT Combinations
[3] Mismatch Combinations—Combining a REIT with an UPREIT or Non-REIT Real Estate Operating Company
§ 2.03 Unique Structural Considerations in REIT M&A Transactions
[1] Overview
[2] A REIT Cannot Be Closely Held—The Five/Fifty Rule
[3] A REIT Must Be Owned by 100 or More Persons
[4] Charter Restrictions that Preserve a REIT’s Status as a “Domestically Controlled” REIT
[5] Charter Restrictions that Prevent Related Tenant Rent Income
[6] How Far Can a REIT Go in Limiting Share Ownership?—Transferability Issues
§ 2.04 Gremlins in REIT Transactions
§ 2.05 Issues Relating to Tax Indemnities in Favor of OP Unitholders

Directors’ Duties in REIT and UPREIT
M&A Transactions
§ 3.01 Introduction
§ 3.02 Basic Duties of Directors of Corporate REITs
[1] Traditional Business Judgment Rule
[2] Enhanced or Intermediate Scrutiny
[3] Entire Fairness
[4] Duties in Change of Control Transactions
[5] Fiduciary Duties of LLCs and LPs Under Delaware Law
§ 3.03 Duties to OP Unitholders and Other REIT Complications
[1] Resolving Conflicts of Interests Between REIT Shareholders and Unitholders
[2] Dealing with Potential Internal Board Conflicts Arising from Board Composition in UPREITs and DownREITs
[3] Negotiating with OP Unitholders in Structuring Deals
[4] Potential Anti-Takeover Effects of the Operating Partnership Structure
[5] Fiduciary Duties and Charter Ownership Limitations
§ 3.04 Controlling Shareholders, Conflicts and Special Committees
[1] When Should a Special Committee Be Formed?
[2] Transactions Involving Conflicted Controllers or Differential Consideration
[3] Disinterestedness and Independence of Committee Members
[4] The Committee’s Role and Process
[5] Selection of the Committee’s Advisors
[6] Standard of Review in Squeeze-Out Mergers
[7] Shareholder Approval and Shifting the Standard of Review
§ 3.05 Principles of Good Governance in REITs
[1] General Considerations
[2] Special REIT Considerations

Selling a REIT

§ 4.01 Deciding to Sell
[1] When to Sell
[2] Whom to Consult
[3] Takeover Preparedness
§ 4.02 Legal Considerations
[1] Directors’ Fiduciary Duties
[2] The Importance of Informed, Good-Faith Decision Making
[3] Third-Party Overbids
[4] The Use of a Special Committee
[5] Applicable State Statutory Requirements
[6] Antitrust Laws
[7] Applicable Stock Exchange Requirements
§ 4.03 The Auction Process
[1] Preparing to Sell
[2] Choice of Sale Process: Auctions and Market Checks
[3] Valuing Stock Considerations in Acquisition Proposals
[4] Protecting the Deal
[5] Preemptive Bids and Attempts to Derail a Process
[6] Timing
§ 4.04 Confidentiality
[1] Secrets and Leaks
[2] Duty to Disclose
§ 4.05 The Role of Advisors
[1] Financial Fairness Opinions
[2] Advice of Legal Counsel
§ 4.06 The Art of Running and Winning an Auction

Acquisition Agreements

§ 5.01 Introduction
§ 5.02 Structure and Pricing
[1] Types of Structures; Key Advantages and Disadvantages
[2] Pricing
§ 5.03 Representations and Warranties
§ 5.04 Covenants
[1] Conduct of Business Covenants
[2] Covenants Necessary to Effect Closing
[3] Covenants Relating to Post-Closing Actions
§ 5.05 Closing Conditions
[1] General Closing Conditions
[2] REIT Qualification Opinion
[3] Due Diligence Out
§ 5.06 Indemnification and Termination Provisions
[1] Indemnification
[2] Termination
§ 5.07 Miscellaneous Provisions
[1] Anti-Assignment
[2] Exclusivity, No Shops and Fiduciary Outs
[3] Break-Up Fees
[4] Material Adverse Effect
[5] Transactions in Stock by Affiliates
[6] Management/Stockholder Support Agreements
[7] Confidentiality Agreements

Tax Considerations in REIT
Mergers and Acquisitions
§ 6.01 REITs: Background and Qualification Issues
[1] Asset Requirements
[2] Income Tests
[3] Distribution Requirement
§ 6.02 M&A Tax Considerations—Introduction
§ 6.03 Acquisition Structures—General Considerations
[1] Tax-Free Reorganizations
[2] Transactions that Are Wholly or Partly Taxable
[3] Taxable Acquisitions
[4] Net Operating Losses and Other Carryovers
§ 6.04 UPREIT Mergers and Related Partnership Issues
[1] UPREITs—General Background
[2] Overview of UPREIT Mergers
[3] Disposition of Partnership Properties and Section 704(c) Issues
[4] Debt Pay Down and Reallocation of Partnership Liabilities
[5] Disguised Sales Issues
§ 6.05 Tax Issues If the Target Is a C Corporation

Cross-Border Acquisitions by REITs

§ 6A.01 General Background
[1] Characterization of a Subsidiary as a Taxable REIT Subsidiary
[2] Characterization of a Subsidiary as a Qualified REIT Subsidiary (or Other Disregarded Entity)
§ 6A.02 Acquisition Structures
[1] Taxable Asset Purchase
[2] Taxable Stock Purchase
[3] Tax-Free Reorganizations
§ 6A.03 Post-Acquisition Structure and Operations
[1] Characterization of a Foreign Target Corporation as a Taxable REIT Subsidiary
[2] Characterization of a Foreign Target Corporation as a Qualified REIT Subsidiary
[3] Foreign Tax Credit Considerations

Cross-Border Acquisitions of REITs:
Selected U.S. Federal Income Tax Issues Arising From Foreign Acquisition of REITs or Interests in REITs
§ 6B.01 Introduction
§ 6B.02 Acquisition Structures
[1] Overview of Code Section 367 as Applicable to Stock Transfers
[2] Overview of FIRPTA as Applicable to Nonrecognition Transactions Involving United States Real Property Interests
§ 6B.03 Special Tax Considerations Regarding the Ownership and Disposition of REIT Shares
[1] Overview of the U.S. Federal Income Tax Regimes Applicable to Foreign Persons
[2] Sale of REIT Shares by Foreign Shareholders
[3] Distributions by REITs to Foreign Shareholders

Cross-Border Acquisitions Involving REITs:
Selected Corporate and Regulatory Issues
§ 6C.01 Overview
§ 6C.02 Completing a Cross-Border Deal
[1] Political Considerations
[2] Antitrust/Competition Review
[3] Deal Consideration and Transaction Structures
[4] Takeover Regulation
[5] Litigation
§ 6C.03 Special Considerations Post-Consummation
[1] Securities Laws Applicable to the Surviving Entity
[2] Stock Exchange Listing Requirements
[3] Integration Planning
[4] Deal Techniques and Cross-Border Practice

Special Tax Considerations Regarding the Acquisition, Ownership and Disposition of REIT Shares by Foreign Governments and Their Sovereign Wealth Funds

§ 6D.01 Introduction
§ 6D.02 Sovereign Wealth Funds
§ 6D.03 Overview of the U.S. Federal Income Tax Regime Applicable to Foreign Governments and Their Sovereign Wealth Funds
[1] Advantages of Code Section 892
[2] Foreign Governments
[3] Types of Exempt Income
[4] Commercial Activities Exception
§ 6D.04 Special Structuring Considerations for the Acquisitions of REIT Shares by Foreign Governments and Their Sovereign Wealth Funds
[1] General Structuring Considerations
[2] Special U.S. Real Property Holding Corporation Structuring Considerations
§ 6D.05 Special Tax Considerations Regarding the Ownership and Disposition of REIT Shares by Foreign Governments and Their Sovereign Wealth Funds
[1] Sale of REIT Shares by Foreign Governments
[2] Distributions by REITs to Foreign Governments

Tax Protection Agreements

§ 6E.01 Introduction
§ 6E.02 The Rationale Behind Tax Protection Agreements
§ 6E.03 Preliminary Considerations
[1] Ambiguity
[2] Prospective Acquirors
§ 6E.04 Covered Transactions
[1] Period of Protection
[2] Rollover Interests
[3] Deemed Sales
[4] Debt Guarantees
[5] Amount of Indemnity
[6] Code Section 704(c) Allocations
§ 6E.05 Special Considerations
[1] Private REITs
[2] Troubled REITs
[3] Fiduciary Duties

Contests for Control: Enforcing Ownership Limits and Excess Share Provisions as Defensive Measures

§ 7.01 Introduction
[1] Tender Offers
[2] Proxy Contests
[3] Other Considerations
§ 7.02 Ownership Limitation Provisions and Excess Share Provisions as Defensive Measures
[1] Excess Share Provisions
[2] Waiver as a Defensive Vulnerability
§ 7.03 The Uncertainties Surrounding Enforcement of Ownership Limitation and Excess Share Provisions in REIT Charters as Defensive Measures
§ 7.04 Shareholders’ Rights Plans and Excess Share Provisions Compared
[1] Prevalence of Poison Pills
[2] The Advantages of Poison Pills Over Ownership Limitations and Excess Share Provisions
[3] Tension Between the REIT Rules and the Mechanics of Poison Pills
[4] Case Law Regarding Rights Plans
[5] Rights Plans and Economics
[6] “Dead Hand” Pills and “Shareholder Rights” Bylaws
§ 7.05 UPREIT Takeovers and Governance
[1] UPREIT Structures
[2] Tender Offers
§ 7.06 Empty Voting, Hidden Ownership, and Problems of Disclosure
[1] Empty Voting and Hidden Ownership
[2] Potential Abuses in Disclosing Beneficial Ownership
§ 7.07 Other Advance Takeover Preparedness Measures and Responding to Unsolicited Offers
[1] Other Defensive Charters and Bylaw Provisions
[2] Change-of-Control Employment Arrangements
[3] “Poison Puts”
[4] Defending Against an Unsolicited Offer—“Just Say No”
[5] Active Responses to Unsolicited Offers

Taking REITs Private

§ 8.01 Overview
[1] Why Go Private?
[2] Structuring the Transaction
§ 8.02 Financial Considerations
[1] Pricing
[2] Source of Funds
§ 8.03 Managing Conflicts of Interest
§ 8.04 Other Considerations
[1] Market Checks
[2] Executive Compensation and Retention
[3] Change of Control Employment Arrangements
[4] Club Deals
[5] Reverse Break Fees and Capped Guarantees
[6] Strategic vs. Financial Bidders
§ 8.05 Treatment of Unitholders in UPREIT Going Private Transactions
[1] The Hometown-Chateau Transaction
[2] The Arden-GE-Trizec Transaction
§ 8.06 Implications of the REIT Rules
§ 8.07 Applicable Federal and State Law
[1] Federal Securities Law
[2] State Law

Financing the Deal

§ 9.01 Introduction
§ 9.02 Financing Options
§ 9.03 Due Diligence
§ 9.04 Dealing with Conditionality (The “Financing Contingency”)
§ 9.05 Establishing a Debt Strategy and Making a “Wish List”
§ 9.06 Securing a Commitment Letter
§ 9.07 Closing the Deal

Spin-Offs of REITs by Operating Businesses

§ 10.01 Overview
§ 10.02 Formation of “Linked” REITs
§ 10.03 Addressing Conflicts of Interest
§ 10.04 Tax-Free Spin-Offs of REITs
[1] In General
[2] REIT Specific Spin-Off Issues

Compensation Issues in REIT Mergers and Acquisitions

§ 11.01 In General
§ 11.02 Change of Control Definitions
[1] Triggering Events
[2] Objective Criteria
[3] Impact of Section 409A
[4] Transaction Structure
§ 11.03 "Golden Parachute" Arrangements
[1] Adoption of Golden Parachute Arrangements
[2] Structure of Golden Parachute Arrangements
§ 11.04 Stock-Based and Other Incentive Compensation Plans
[1] Treatment of Equity Awards
[2] Accelerated Vesting
[3] Performance-Based Awards
[4] Annual Bonuses
[5] LTIP Units
§ 11.05 Broad-Based Employee Benefit Plans
[1] “Full-Company” Transactions vs. Asset/Subsidiary Transactions
[2] Employee Treatment Covenants
[3] Qualified Retirement Plans
[4] Deferred Compensation and Other Nonqualified Arrangements
[5] Welfare Plans
[6] Labor Issues
[7] Retention Issues

Antitrust Issues in REIT/REAL Estate Transactions

§ 12.01 Overview
§ 12.02 Procedural Rules: Hart-Scott-Rodino Act
[1] Reportable Transactions and Information Required
[2] Waiting Periods and Second Requests
[3] REIT Exemption
[4] Explicit Exemptions from the HSR Act
[5] Gun Jumping Issues
§ 12.03 Substantive Antitrust Standards
[1] Clayton Act Section 7
[2] State Antitrust Laws

Advantages of Delaware and Maryland as REIT Domiciles

§ 13.01 Introduction
§ 13.02 Maryland’s Advantages as a REIT Domicile
[1] Maryland’s Historical Primacy
[2] Statutory Advantages
[3] Procedural Responsiveness
[4] Continuing Popularity
§ 13.03 Delaware’s Advantages as a REIT Domicile
[1] Structural Advantages
[2] Judicial Expertise
[3] Specialized Court System
[4] Responsiveness
[5] Skilled Bar
[6] Statutory Advantages
[7] Continuing Popularity
§ 13.04 Delaware and Maryland’s Common Advantage: Network Effects
[1] Stock of Precedent and Creation of Future Precedents
[2] Development of Common Business Practices
[3] Larger and More Talented Markets for Legal Services
§ 13.05 Forum Selection and Mandatory Arbitration Provisions
[1] The Multiforum Shareholder Litigation Problem
[2] Forum Selection Provisions
[3] Mandatory Arbitration Provisions
[4] A Note on Provisions Governing Federal Securities Law Claims