All questions
Overview of the market
The covid-19 pandemic that started in 2020 had a profound impression on the industrial actual property business, together with REITs and actual property non-public fairness. On the whole, corporations with property that service the digital economic system – cell towers, logistics and industrial properties, and information centres – benefited from the pandemic’s acceleration of the digital economic system. Conversely, a number of conventional sectors confronted tough points involving liquidity, hire assortment, dividend payouts, disclosure and steerage, in addition to navigating the unsure and typically shifting steerage from regulatory authorities concerning the timeline of reopening. Nonetheless, with the introduction and distribution of vaccines in america, a strong, if uneven, restoration took maintain throughout the industrial actual property business. As reopening efforts mushroomed throughout the nation, REITs loved a profitable 2021, with many conventional sectors suffering from social distancing necessities in 2020 bouncing again and the digital economic system sectors persevering with to flourish. REITs posted positive aspects of roughly 43 per cent in 2021 with sturdy efficiency throughout sectors,2 and as of Could 2022, REIT inventory complete returns because the onset of the pandemic have been roughly 15 per cent.3 As all the time, strategic planning and threat administration have been, and nonetheless can be, crucial as a way to regulate to altering occasions, to adapt to the ensuing acceleration of technological change in the actual property business and past. In 2021, REITs additionally capitalised on very low prices of capital and tapped pleasant debt and fairness markets, stimulating substantial transaction exercise and property acquisitions. 2021 was a document yr for M&A normally, with the deal market coming roaring again from the canine days of covid in 2020. REIT M&A was no completely different, with offers getting finished throughout a wide range of sectors, together with information centres, procuring centres, gaming and lodging, and web lease areas. Whereas 2022 has introduced some storm clouds, with warfare in Europe, rising rates of interest and inflation working at multi-decade highs, alternatives inside actual property are unlikely to dry up, though there could also be elevated volatility within the close to time period, and the complicated macroeconomic backdrop will seemingly have disparate impacts on completely different subsectors throughout the business.
Stepping again from latest occasions, the REIT sector in america has expanded dramatically over the previous quarter century. Till the ‘REIT revolution’ of the Nineties, non-public sources of capital dominated the US industrial actual property business, and publicly traded actual property autos comparable to REITs performed a comparatively small position. The tables have now turned, and public REITs are dominant in a lot of sectors and present each signal of continuous to develop.
US REITs immediately personal roughly US$3.5 trillion of economic actual property, and the business’s fairness market capitalisation is roughly US$1.6 trillion.4 There at the moment are roughly 125 REITs in america with a market capitalisation of over US$1 billion, and 36 of these are over US$10 billion.5 Evaluate this to 1995, when all the market capitalisation of the US REIT business was simply US$57.5 billion, and there have been solely six REITs with a market capitalisation over US$1 billion.6
Along with rising in measurement, US REITs have broadened their attain by way of asset lessons and have begun to broaden geographically outdoors of america. Whereas REITs historically owned workplace, multifamily, retail, industrial and lodging property, immediately REITs lengthen throughout an array of non-traditional sectors, together with telecommunications, healthcare, timber, information storage, outside promoting and gaming.
Together with REITs, non-public fairness (PE) funds have additionally grow to be dominant institutional gamers in US industrial actual property over the previous 20 years. In 2008, actual property PE funds raised over US$130 billion,7 and PE funds have continued to lift massive quantities of capital (reaching over US$170 billion in 2021),8 and have been the architects of a few of the largest latest M&A offers in the actual property sector. Whereas worldwide institutional traders have had publicity to the US actual property sector for a few years, sovereign wealth funds and different sources of worldwide capital have demonstrated elevated curiosity within the US actual property sector, together with by way of joint ventures with US-based REITs and PE funds. Moreover, if the latest inventory market turmoil continues, actual property PE funds might proceed to gobble up further market share in the actual property M&A market.
As famous earlier, the market dislocation brought on by the unfold of covid-19, in addition to the numerous modifications in the way in which that we work together with actual property and the lingering questions on which of these modifications will grow to be everlasting or semi-permanent, had a major impression on REITs. This dislocation, notably in these subsectors that have been hit the toughest, introduced openings for opportunistic traders and strategic consumers to accumulate prime quality property at important reductions. Activists and opportunists might proceed to attempt to capitalise on the state of affairs, notably if, as the brand new regular takes maintain, their targets lag behind others.
Even previous to the pandemic, technological change was driving important exercise for REITs and actual property PE funds, and it stays to be seen whether or not the occasions of 2020–2022, the battle in Europe and the evolving method during which individuals use and work together with varied types of actual property, will additional and extra completely speed up this development. REITs that harness the technological momentum or present the infrastructure for the brand new economic system, together with information centres, cell towers and logistics services, are prone to proceed to develop quickly. Nonetheless, conventional retail REITs and REITs in different disrupted sectors might want to work exhausting to regulate to the brand new surroundings by way of restructurings, redevelopment and different modifications. Already, 4 of the ten largest REITs are tech REITs, and the development exhibits no signal of slowing, though rising rates of interest and tighter financial coverage might portend storm clouds for the tech sector the likes of which haven’t been seen for many years.
Current market exercise
i M&A transactions
Current M&A exercise has been targeted totally on PE funds’ acquisitions of public REITs (public-to-private transactions) and mixtures of REITs (public-to-public offers), with REIT spin-offs and restructurings to unlock the worth of company actual property additionally taking part in a job. Take-private transactions have been pushed largely by PE corporations’ perception that their goal REITs are buying and selling at a reduction to the worth of their property, thus offering a chance to revenue from the arbitrage. Public merger transactions, nonetheless, have been a perform of the persevering with consolidation within the varied REIT sectors to create scale, profit from synergies and perform strategic progress plans, amongst different causes. 2021 was a blockbuster yr for REIT M&A throughout a wide range of sectors following two comparatively quiet years. After depressed exercise in 2020 that was actually pandemic-related, deal move got here roaring again in 2021, with greater than double the whole worth of actual property offers in 2021 as in comparison with 2020.
ii Non-public fairness transactions
PE corporations have been more and more lively in actual property M&A, pushed by massive swimming pools of capital-seeking offers. Apparently, whereas a lot of the increase within the general M&A market in 2021 stemmed from non-public fairness funds deploying a few of their huge ocean of dry powder, there was not as a lot non-public fairness exercise within the REIT sector in 2021 as one may need anticipated. Nonetheless, components comparable to increased valuations within the non-public actual property markets than within the public REIT markets, cheap and plentiful debt (at the least till Russia’s February 2022 invasion of Ukraine and the market dislocations that adopted), and extremely liquid non-public markets that facilitate exit alternatives, have continued to drive a lot of REIT privatisations, together with the next transactions:
- Blackstone introduced it will purchase PS Enterprise Parks, a REIT that acquires, develops, owns and operates industrial properties, predominantly multi-tenant industrial, industrial-flex and low-rise suburban workplace area, in April 2022 in an all-cash transaction valued at roughly US$7.6 billion. The worth represents a premium of roughly 15 per cent to the goal’s inventory value, and the settlement has a break payment of US$220 million and a reverse break payment of US$735 million.
- Blackstone introduced that it will purchase American Campus Communities, the most important developer, proprietor and supervisor of high-quality scholar housing communities within the US, in April 2022 in an all-cash transaction valued at roughly US$12.8 billion, together with the idea of debt. The worth represents a premium of 30 per cent to the goal’s inventory value, and the settlement has a break payment of US$278 million and a reverse break payment of US$832 million.
- KKR and World Infrastructure Companions (GIP) acquired CyrusOne, a worldwide information centre REIT, in March 2022 in an all-cash transaction valued at roughly US$15 billion, together with the idea of debt, the most important M&A deal in information centre business historical past. The worth represented a premium of roughly 25 per cent to the goal’s inventory value, and the settlement had a break payment of US$319.5 million and a reverse break payment of US$813.5 million.
- Cerberus Capital Administration and Highgate acquired CorePoint Lodging, a pure play select-service resort proprietor, in March 2022 in an all-cash transaction valued at US$1.5 billion, together with debt. The worth represented a premium of roughly 42 per cent to the goal’s inventory, and the settlement had a break payment of US$29 million and a reverse break payment of US$58 million.
- Blackstone introduced it will purchase Bluerock Residential Progress REIT, an house REIT, in December 2021 in an all-cash transaction valued at US$3.6 billion. Previous to the acquisition, Bluerock Residential intends to spin off its single-family rental enterprise. The worth, excluding the worth of the spun-off enterprise, represents a premium of roughly 124 per cent over the goal’s inventory value, and the settlement has a break payment of US$60 million and a reverse break payment of US$200 million.
- Pacific Funding Administration Firm (PIMCO) acquired Columbia Property Belief, an proprietor, operator and developer of workplace area, in December 2021 in an all-cash transaction valued at US$3.9 billion, together with debt. The worth represented a premium of roughly 27 per cent to the goal’s inventory, and the settlement had a break payment of US$86 million and a reverse break payment of US$196 million.
- Blackstone bought QTS Realty Belief, a knowledge centre REIT, in August 2021 in an all-cash transaction valued at roughly US$10 billion, together with debt. The worth represented a 21 per cent premium to the goal’s inventory, and the settlement had a break payment of US$220 and a reverse break payment of US$805.
- Brookfield Asset Administration acquired Forest Metropolis Realty, which owned house buildings, procuring centres and different property, in an all-cash transaction valued at roughly US$11.4 billion in December 2018. The worth represented a 26.6 per cent premium for the goal’s inventory, and the settlement had a break payment of US$261 million and a reverse break payment of US$488 million. The acquisition adopted years of strain from activist traders at Forest Metropolis, in the end resulting in the elimination of the corporate’s twin class voting construction, which diminished the founding household’s management over the corporate and paved the way in which for an acquisition.
- Blackstone bought Gramercy Property Belief, an proprietor and supervisor of commercial industrial actual property, in October 2018 in an all-cash transaction valued at US$7.6 billion. The worth represented a 15 per cent premium for the goal’s inventory, and the settlement had a break payment of US$138 million (or US$46 million below sure circumstances) and a reverse break payment of US$414 million. Moreover, whereas not a take-private of a public REIT, in September 2019 Blackstone accomplished its buy of property comprising roughly 179 million sq. ft of warehouse area from GLP, a Singapore-based developer of logistics properties, for US$18.7 billion in one of many largest-ever non-public actual property transactions globally. The transaction almost doubled the dimensions of Blackstone’s US industrial footprint and is emblematic of its long-term guess on logistics-related areas, which it expects to learn from rising e-commerce demand.
- Greystar Actual Property Companions acquired Schooling Realty Belief (EdR), one of many largest builders, house owners and managers of collegiate housing communities within the US, for US$4.6 billion in money in September 2018. The worth represented a 13.6 per cent premium for the goal’s inventory, and had a break payment of roughly US$118 million and a reverse break payment of US$200 million. In reference to the acquisition, funds related to Blackstone acquired EdR’s scholar housing portfolio for US$1.2 billion in money.
- Brookfield Asset Administration bought GGP Inc, the then second-largest proprietor of mall area within the US, during which Brookfield was a dominant investor, in August 2018 for roughly US$15 billion in money and inventory, a premium of roughly 20 per cent to the value of GGP’s inventory previous to widespread rumours of Brookfield’s curiosity. The settlement had a break payment of US$400 million and a reverse break payment of US$1.2 billion.
- Blackstone bought Excel Belief, which owned procuring centres and different retail property, for about US$2 billion in July 2015. The deal represented a 15 per cent premium for the goal’s inventory, and had a US$25 million break payment (if the goal terminated the transaction to take a superior proposal) and a reverse break payment (payable by the acquirer within the occasion the deal was not accomplished below sure specified circumstances) of US$250 million.
- Lone Star Funds acquired Dwelling Properties, an house REIT, for US$4.4 billion in October 2015. The deal represented a 9 per cent premium for the goal’s inventory, had a US$150 million break payment and had a reverse break payment of US$300 million.
- Blackstone bought Strategic Accommodations and Resorts, an proprietor of luxurious resorts, for roughly US$6 billion in December 2015. The deal represented a 13 per cent premium for the goal’s inventory, and had a US$100 million break payment and a reverse break payment of US$400 million.
- Blackstone additionally acquired BioMed Realty Belief, which targeted on workplace area for pharmaceutical and biotechnology corporations, for US$8 billion in January 2016. The deal represented a 24 per cent premium for the goal’s inventory, and had a US$160 million break payment and a reverse break payment of US$460 million.
iii Public REIT mergers
REIT mergers could also be motivated by some great benefits of scale, together with a probably decrease value of capital, to learn from synergies or to garner different advantages of consolidation. Given the challenges posed by the pandemic, further scale has offered a leg-up to sure market contributors. Main latest public REIT mergers have included:
- VICI Properties’ acquisition of MGM Progress Properties for a mixture of money and inventory that valued MGM Progress Properties at US$17.2 billion, together with the idea of debt, to kind a mixed firm with an enterprise worth of roughly US$44 billion (April 2022);
- Healthcare Realty Belief’s acquisition of Healthcare Belief of America for a mixture of money and inventory to kind a mixed firm with an enterprise worth of US$17.6 billion (February 2022);
- Industrial Logistics Properties Belief’s acquisition of Monmouth Actual Property Funding Company in an all-cash transaction valued at roughly US$4 billion, together with the idea of debt. The transaction got here after a months-long battle for Monmouth during which Monmouth shareholders in the end rejected an all-stock cope with Fairness Commonwealth (which had raised its bid after Starwood Capital Group made a competing proposal for Monmouth) (February 2022);
- American Tower Company’s acquisition of CoreSite Realty Company in an all-cash transaction valued at roughly US$10.1 billion, together with debt (December 2021);
- Independence Realty Belief’s acquisition of Steadfast Residence REIT in a stock-for-stock transaction to kind a mixed firm with an enterprise worth of roughly US$8.3 billion (December 2021);
- Realty Earnings Company’s acquisition of VEREIT, Inc in a stock-for-stock transaction to kind a mixed firm with an enterprise worth of US$50 billion (November 2021);
- Kite Realty’s acquisition of Retail Properties of America in a stock-for-stock transaction to kind a mixed firm with an enterprise worth of roughly US$7.5 billion (October 2021);
- Ventas’ acquisition of New Senior Funding Group in an all-stock transaction valued at roughly US$2.3 billion, together with debt (September 2021);
- Kimco Realty Corp’s acquisition of Weingarten Realty Buyers in a stock-for-stock transaction to kind a mixed firm with an enterprise worth of US$12 billion (August 2021);
- Simon Property Group Inc’s acquisition of Taubman Facilities, Inc and an 80 per cent possession curiosity in The Taubman Realty Group Restricted Partnership in an all-cash transaction valued at US$9.8 billion (December 2020);
- Prologis, Inc’s acquisition of Liberty Property Belief in a stock-for-stock transaction valued at US$13 billion (February 2020);
- Park Accommodations & Resorts, Inc’s acquisition of Chesapeake Lodging Belief for US$2.6 billion in money and inventory (September 2019);
- Cousins Properties’ acquisition of TIER REIT, Inc, a US$7.8 billion money and inventory transaction (June 2019);
- Authorities Properties’ US$1.2 billion all-stock merger with Choose Earnings REIT, with the mixed firm renamed Workplace Properties Earnings Belief (December 2018);
- Pebblebrook Resort Belief’s acquisition of LaSalle Resort Properties for a mixture of money and inventory that valued LaSalle at US$5.4 billion. The acquisition represented the conclusion of Pebblebrook’s nine-month pursuit of LaSalle, which terminated its unique settlement with Blackstone as a way to settle for Pebblebrook’s topping bid (November 2018);
- Taylor Morrison Dwelling Company’s acquisition of AV Properties, a money and inventory transaction valued at roughly US$963 million in enterprise worth (October 2018);
- Annaly Capital Administration’s acquisition of MTGE Funding Corp, a transaction valued at roughly US$900 million in fairness worth (September 2018);
- ProLogis’ acquisition of DCT Industrial Belief, a US$8.4 billion stock-for-stock transaction, together with the idea of debt (August 2018);
- Welltower’s acquisition of High quality Care Properties and High quality Care Properties’ acquisition of HCR ManorCare on the completion of HCR ManorCare’s Chapter 11 chapter course of, a transaction valued at roughly US$3.9 billion (July 2018);
- Penn Nationwide Gaming’s acquisition of Pinnacle Leisure, a transaction valued at roughly US$2.8 billion in enterprise worth (October 2018);
- Kennedy-Wilson Holdings’ acquisition of Kennedy Wilson Europe Actual Property Plc, creating a number one world actual property funding and asset administration platform with a US$8 billion enterprise worth (October 2017);
- Digital Realty Belief’s acquisition of DuPont Fabros Expertise, a transaction valued at roughly US$7.8 billion in enterprise worth (September 2017). DuPont Fabros shareholders obtained shares of Digital Realty within the merger;
- Sabra Well being Care’s acquisition of Care Capital Properties, making a mixed healthcare REIT with a professional forma complete market capitalisation of roughly US$7.4 billion and an fairness market capitalisation of roughly US$4.3 billion (August 2017). Care Capital Properties shareholders obtained shares of Sabra Well being Care within the merger;
- Regency Facilities’ acquisition of Fairness One, making a mixed procuring centre firm with a complete market capitalisation of roughly US$16 billion (March 2017). Fairness One was merged into Regency, and its stockholders obtained shares of Regency within the merger;
- Annaly Capital Administration’s acquisition of Hatteras Monetary Corp, a transaction valued at roughly US$1.5 billion in fairness worth (July 2016). At their election, Hatteras stockholders obtained shares of Annaly widespread inventory or money, or each, within the merger;
- Starwood Waypoint Residential Belief’s acquisition of Colony American Properties and internalisation of its supervisor, making a mixed firm, renamed Colony Starwood Properties, with a mixed asset worth of roughly US$7.7 billion (January 2016). Starwood Waypoint Residential Belief and Colony American Properties shareholders obtained shares of Colony Starwood Properties within the merger;
- Chambers Road Properties’ acquisition of Gramercy Property Belief, creating an industrial and workplace web lease firm with an enterprise worth of roughly US$5.7 billion (December 2015). Gramercy stockholders obtained shares of Chambers Road within the merger; and
- Washington Prime Group’s acquisition of Glimcher Realty Belief, a transaction valued at roughly US$4.3 billion (January 2015). Glimcher shareholders obtained shares of Washington Prime and money within the merger.
iv Separation of actual property property
In conditions the place actual property owned by an working non-real property enterprise would have the next valuation if held in a REIT, or the place separation of the actual property has different benefits, an organization might think about methods to unlock this worth. REIT spin-offs and different separations are complicated, and should or might not make sense relying on a wide range of components. Current transactions of this sort embrace the next:
- Penn Nationwide Gaming separated its on line casino property right into a REIT, Gaming and Leisure Properties, which then leased most of those property again to Penn Nationwide. Shares of the REIT have been distributed to Penn Nationwide shareholders by way of a tax-free spin-off in November 2013.9
- Sears Holdings bought and leased again 235 of its owned retail property to a newly created REIT, Seritage Progress Properties, and distributed rights to accumulate shares of Seritage to Sears’ shareholders in July 2015. The transaction allowed Sears to grasp US$2.7 billion in worth for the property funded by way of the rights providing and financing on the property.
- After Pinnacle Leisure introduced that it was planning a tax-free spin-off of its actual property property, Gaming and Leisure Properties made a proposal for Pinnacle’s actual property property. After changes to the supply and additional negotiations between the events, Pinnacle spun off its working property right into a separate public firm and merged with a subsidiary of Gaming and Leisure Properties in April 2016, and shareholders of Pinnacle obtained shares of each the brand new, spun-off working firm and Gaming and Leisure Properties.
v Spin-offs
The rationale for typical REIT spin-offs is to offer the market with a extra targeted, focused funding alternative by separating parts of the mother or father firm’s property portfolio into a brand new, unbiased REIT. Main latest REIT spin-offs have included the next:
- Simon Property Group’s spin-off of its procuring centre enterprise and smaller malls into Washington Prime Group (Could 2014);
- Vornado’s spin-off of its procuring centre enterprise into City Edge (January 2015);
- Ventas’ spin-off of its expert nursing portfolio into Care Capital Properties (August 2015);
- Vornado’s spin-off of its Washington, DC property into JBG Smith Properties (July 2017); DDR’s spin-off of its lower-quality US strip centres and its Puerto Rico portfolio (December 2017);
- Realty Earnings Company and VEREIT, Inc’s spin-off of considerably all of the workplace properties of each corporations in reference to the merger between the businesses (November 2021); and
- Bluerock Residential Progress REIT’s spin-off of its single-family rental enterprise in reference to its pending acquisition by Blackstone (introduced December 2021).
Actual property corporations and corporations
i Publicly traded REITs – construction and position available in the market
In 1960, the Actual Property Funding Belief Act turned legislation, creating the REIT construction in america. The coverage goal of this laws was to offer small traders the identical tax-advantaged alternatives to put money into actual property that have been accessible to institutional or high-net-worth traders (who might purchase actual property instantly or take part in pooled fund investments in actual property). Underneath the legislation, a enterprise entity can elect to be taxed as a REIT (and keep away from legal responsibility for entity-level US federal revenue tax), however should adjust to an in depth array of restrictions to qualify for this tax-advantaged standing. For instance, normally a REIT should pay dividends to its shareholders of at the least 90 per cent of its taxable revenue, at the least 75 per cent of a REIT’s complete property should encompass actual property property and a REIT should derive at the least 75 per cent of its gross revenue from actual estate-related revenue (comparable to hire from actual property or curiosity on obligations secured by mortgages on actual property).
These tax guidelines affect the construction and governance of REITs. Along with the foundations described above, the Inner Income Code requires {that a} REIT have not more than 50 per cent of its shares held by 5 or fewer people, generally referred to as the ‘5/50 rule’. To make sure that the 5/50 rule is just not violated, REITs usually embrace provisions of their organisational paperwork limiting any shareholder – a person or in any other case – from holding greater than 10 per cent of their shares, with thresholds typically set at a barely decrease proportion comparable to 9.8 per cent. If correctly structured, these possession limits (known as extra share provisions) also can act as a takeover defence.10 The results of violating an extra share provision might be extreme, so it’s important for acquirors of REIT shares to grasp and handle the possession limitations in a goal REIT’s constitution, notably in unsolicited transactions. Extra share provisions usually permit a REIT’s board of administrators to waive the limitation with respect to particular shareholders if the board is happy that such a waiver won’t outcome within the violation of the 5/50 rule (or different related REIT qualification guidelines), permitting negotiated M&A transactions to proceed.
Along with these tax complexities, the construction of REITs can typically differ from that of a typical public firm, since many REITs, known as ‘UPREITs’,11 embrace partnership entities of their company construction. UPREITs are REITs that maintain their property and conduct enterprise by way of an working partnership during which the REIT is the overall associate. Holders of models in a REIT’s working partnership usually have the proper to change their models for REIT shares or money (on the election of the REIT). REITs usually select the UPREIT construction due to the tax benefits that such a construction supplies, as mentioned additional in Part IV.v.
ii Actual property PE corporations – footprint and construction
Actual property PE funds mixture investor capital to generate returns by way of the acquisition, possession and sale of actual property property or pursuits in such property, and are additionally lively within the origination and buying and selling of actual property debt. PE fund managers might select a selected space of geographical focus, property kind or funding technique. Core funds are likely to put money into secure property, comparable to workplace properties with high-credit high quality tenants positioned in main city areas. Opportunistic funds use extra leverage and tackle higher-risk alternatives (comparable to creating new buildings or repositioning distressed or poorly capitalised property). Blackstone, a agency with a number one actual property PE enterprise, describes the technique of its opportunistic funds merely as ‘purchase it, repair it, promote it’12 – indicating how such funds purchase distressed properties or underperforming REITs after which use their asset administration personnel to stabilise these property or corporations previous to sale. Worth-added funds are likely to undertake methods and have threat profiles that fall between core and opportunistic funds, and should deal with geographies outdoors of the most important city areas.13 PE transactions are sometimes pushed by arbitrage alternatives between the private and non-private markets. When REIT valuations are excessive relative to the non-public actual property market, PE funds might deal with aggregating portfolios which are then bought to REITs (or taken public as REITs). When the reverse is true, and REITs are undervalued relative to the non-public actual property market, PE funds may fit to take REITs non-public.
Actual property PE funds are sometimes structured as Delaware restricted legal responsibility corporations or restricted partnerships. Buyers commit to offer a specified quantity of capital to those funds as (and when) wanted to make acquisitions. Usually, fund managers are compensated with administration charges (usually a hard and fast proportion of the fund’s property below administration) and efficiency charges. These efficiency charges are usually structured in a waterfall format, below which traders should obtain a specified minimal return (a hurdle price) earlier than the fund managers earn efficiency charges. As soon as the hurdle price is met, the supervisor usually earns carried curiosity (a proportion of general positive aspects) above the edge. PE payment constructions are complicated, and may contain tiered hurdle charges, reductions for preliminary traders, scaled-back administration charges or clawbacks of extra carried curiosity within the later levels of a fund’s lifecycle.14
Transactions
i Authorized frameworks and deal constructions
REIT M&A transactions are sometimes structured as triangular mergers. In a triangular merger, the buying REIT varieties an entirely owned subsidiary (a ‘merger sub’), and the goal REIT merges with this merger sub. Following the merger, the goal REIT turns into an entirely owned subsidiary of the acquirer, which usually permits the goal’s liabilities to stay on the stage of the subsidiary. If the merger sub is the surviving entity within the transaction, the construction is named a ‘ahead triangular merger’. If the goal REIT is the surviving company, it’s known as a ‘reverse triangular merger’. Whereas reverse triangular mergers have a decrease probability of triggering third-party consent rights in contracts of the goal REIT, because the goal stays in existence following the merger, ahead triangular mergers have been the predominant REIT M&A transaction construction due largely to tax issues. The choice to decide on a ahead or reverse triangular merger construction typically depends upon these contractual issues in addition to tax points.
Whereas asset purchases might be another mechanism of buying a REIT, and are typically thought of, the direct switch of authorized possession of actual property is complicated and time-consuming, leading to appreciable transaction prices (together with switch taxes) and typically requiring lender or different third-party consents.
For REITs structured as UPREITs, events should think about one of the best ways to mix the working partnerships of the merging REITs. The partnerships might be mixed or might be left as separate subsidiaries of the mother or father REIT. Usually, the governing agreements of the working partnership inform the structuring resolution, with key components together with the consent rights of the working partnership unitholders over REIT-level transactions and the redemption and conversion mechanics that may apply to unitholders following a merger.
Within the context of evaluating a merger proposal, REIT administrators owe fiduciary duties to the company and its shareholders in line with normal company legislation ideas. REIT administrators are topic to 2 main fiduciary duties: the responsibility of care and the responsibility of loyalty. To fulfill his or her responsibility of care, a REIT director should make well-informed choices based mostly on acceptable data and recommendation, if essential. To fulfill the responsibility of loyalty, a REIT director should act in good religion and within the pursuits of the shareholders and the REIT (versus his or her private curiosity).
Courts in Delaware, the place many US corporations are included, will evaluation administrators’ compliance with their duties based mostly on requirements that modify based mostly on the state of affairs during which directorial decision-making happens. The enterprise judgement rule is the default customary of judicial evaluation making use of to the actions of administrators, below which the enterprise decision-making of a director usually doesn’t give rise to non-public legal responsibility. Nonetheless, increased judicial requirements apply in conditions when an organization is being bought. Particularly, Revlon duties apply below Delaware legislation within the context of a company change of management. When an organization is engaged in a transaction that will end in a sale, ‘[t]he administrators’ position change[s] from defenders of the company bastion to auctioneers charged with getting the most effective value for the stockholders at a sale of the corporate’. Whereas there isn’t any single blueprint a board should observe in a Revlon context, normally, Revlon duties require that the board work to maximise the sale value of the enterprise. Nonetheless, in Maryland, the place many REITs are included, a director is just not topic to better scrutiny in a change-of-control context, a major divergence from Delaware legislation.15
Any REIT sale course of must be overseen by the corporate’s board, which ought to present administration with path as to any course of or potential course of. In an public sale context, cautious consideration must be given to together with the right combination of potential bidders to maximise worth. Strategic bidders typically can have completely different views of worth than monetary bidders, since they can capitalise on synergies not in any other case accessible to monetary bidders or as a result of an acquisition fulfils a strategic want or, conversely, due to constraints on their capacity to utilise low-cost leverage.
At any time when a purchaser seeks to retain some or all the goal REIT’s senior administration, it will likely be important to make sure that crucial choices – together with the tactic of sale, number of bidders, deal protections, entry to due diligence supplies, negotiation of the value and different deal phrases – totally contain unconflicted administrators. In conditions going past a simple need by the client to retain present senior administration (for example, when a administration workforce or an affiliated stockholder or unitholder seeks out a PE purchaser to submit a joint bid to accumulate an organization, or in different circumstances presenting extra sophisticated or in depth conflicts), one of the best ways to handle the battle could also be to determine a particular committee. In conditions the place administrators are additionally working partnership unitholders, the board ought to think about any attainable differing pursuits as between unitholders and shareholders. When a particular committee is shaped, it must be firmly answerable for the transaction course of, retain the companies of unbiased authorized and monetary advisers, and have a clearly outlined position, the power to barter independently and the ability to say no. The easiest way to handle conflicts will all the time rely upon the circumstances, nonetheless, and care must be taken to not reflexively set up formalistic particular committees or in any other case implement drastic measures that find yourself hurting the sale course of by, for instance, depriving the board and bidders of crucial entry to key executives and their base of data and expertise, or creating the impression of battle the place it doesn’t exist. Usually, a easy recusal or deploying a distinct procedural safeguard is a extra acceptable approach to handle the aforementioned employment negotiations. Such a focused strategy permits the total board to attract on its members’ collective experience to deal with issues for which there are not any conflicts.
As soon as a merger settlement is signed, federal securities legal guidelines impose disclosure necessities with regard to the transaction. A proxy assertion is used to offer stockholders with details about the merger, and this proxy assertion might be mixed with a registration assertion for securities used as consideration within the transaction (if any). The Securities and Change Fee might evaluation this registration assertion and request modifications, a course of that will affect the timing of closing.
ii Acquisition settlement termsConsideration
In a REIT merger, goal stockholders obtain money, securities or a mix of each. When stockholders are receiving inventory, the worth of the consideration might fluctuate based mostly in the marketplace worth of the acquirer’s inventory within the time interval between signing and shutting, relying on the specifics of the change mechanism. Events can use a lot of strategies to handle this threat, together with pricing constructions based mostly on the typical value of the acquirer’s inventory over a time period or termination rights triggered by a decline within the acquirer’s inventory value. Typically, REIT mergers have fastened basket consideration, whether or not money, inventory or a mix of the 2, with the quantity and type of such consideration decided at signing, whereas solely a minority of transactions present for post-signing variation within the quantity and type of the basket.
Representations and warranties
The representations and warranties in REIT merger agreements usually resemble these of different public firm merger agreements (and don’t embrace the very detailed property-level representations which are widespread in actual property asset purchases). As a substitute, an acquirer will typically depend on broad representations and a REIT’s monetary statements and public filings (and can usually get representations referring to their accuracy). The representations and warranties in a REIT merger settlement will function a information for due diligence, as a risk-allocation mechanism and as a set of preconditions for closing. Representations referring to the tax standing of the REIT are notably necessary to make sure that the REIT complies with relevant tax rules (each earlier than and after the transaction).
Covenants
Covenants govern the actions of each the goal and acquirer within the interval between the signing of a merger settlement and the closing of a merger. On the whole, these covenants prohibit the actions of the goal (to stop important modifications within the enterprise being acquired) and commit the events to take the steps essential to shut the transaction.
A goal will usually conform to conduct its enterprise within the unusual course in line with its previous practices. Nonetheless, since this customary might be obscure, a merger settlement usually accommodates a lot of particular restrictions, which might embrace prohibitions on acquisitions, inclinations, materials capital investments or main modifications in compensation insurance policies (amongst different restrictions) except the buying get together consents. The goal may even usually conform to keep away from actions that may compromise its REIT tax standing. The extreme disruptions brought on by covid-19 spotlight the significance of contractual language that establishes the liberty of a goal to function through the interval between signing and shutting, together with with respect as to whether actions taken in response to extraordinary circumstances could also be taken and not using a purchaser’s prior consent.
Along with these restrictions on the goal, each events will conform to covenants that bind them to take sure actions essential to shut the transaction. For instance, the events might conform to coordinate on securities filings related to the transaction, work to accumulate third-party consents and apply for regulatory approvals that could be essential. Not like many public firm mergers, antitrust approval is usually not required for US REIT transactions.
Deal safety, termination and break charges
Merger agreements usually additionally comprise provisions governing stockholder approval, fiduciary responsibility outs and deal protections. A merger settlement would usually require a goal’s board of administrators to conduct a stockholder vote on the transaction, and may additionally require the board of administrators to suggest the transaction to stockholders. As well as, there could also be covenants stopping the goal from soliciting or facilitating competing bids from different events (known as no-shop provisions). Nonetheless, when covenants comparable to these are included, a fiduciary out is widespread, which permits the goal’s board of administrators to vary its suggestion or have interaction with competing bidders ought to such actions be required by the board’s fiduciary duties. Given the significance of those provisions, they’re typically closely negotiated.
A merger settlement will comprise provisions indicating when both get together can stroll away from the deal. These provisions could also be triggered by an incurable breach of the merger settlement, failure to acquire shareholder approval or failure to shut the deal by a specified date. Ought to an settlement be terminated below sure circumstances (comparable to pursuant to a fiduciary out as a way to settle for a superior proposal), the goal might should pay a break-up payment or an expense reimbursement payment to the acquirer. The dimensions of the break-up payment is often closely negotiated and can typically rely partly on the extent of the pre-signing market test performed by the goal’s board. The place a goal has performed a strong pre-signing market test, comparable to an public sale course of, the goal will usually be topic to no-shop obligations coupled with the next break-up payment. Nonetheless, a goal that has not engaged in an in depth pre-signing market test might attempt to negotiate a go-shop provision, permitting it to solicit a greater deal for its shareholders for a hard and fast interval following signing, paired with a decrease break-up payment. One compromise strategy to balancing deal protections whereas preserving a board’s capacity to fulfil its fiduciary duties is to permit for a post-signing market test by coupling a no-shop provision with a two-tiered break payment that’s low for an preliminary fastened interval (e.g., 1–1.5 per cent of the fairness worth of the transaction for a 30 or 45-day interval after signing) and ratchets up thereafter (e.g., 2.5–3.25 per cent). Whereas the bifurcated break-up payment construction nonetheless stays a minority strategy in REIT M&A offers, a lot of latest transactions, together with Realty Earnings’s 2021 acquisition of VEREIT and Blackstone’s 2018 acquisition of Gramercy Property Belief, have included such a assemble. Reverse break-up charges (payable by the client within the occasion of sure termination occasions) are widespread in PE offers, and function very similar to a standard actual property deposit. Current reverse break charges have been asymmetrical, usually exceeding the termination charges payable by the goal.
Closing situations
On the whole, closing situations present an inventory of occasions that should happen (or be waived) earlier than the transaction is consummated. For instance, closing situations might embrace stockholder approval (or the approval of unitholders, if essential) or receipt of essential consents. As well as, one situation might contain a bring-down of sure representations and warranties, requiring that the representations and warranties made at signing are additionally true at closing. Different closing situations might contain the absence of a fabric antagonistic change within the goal. Moreover, the supply of an opinion that the goal qualifies as a REIT is uniformly required, with the client’s tax counsel additionally offering such assurances in a stock-for-stock transaction.
Indemnification
Indemnification provisions handle the rights of every get together to recuperate damages from the opposite get together within the occasion of a breach of the merger settlement. Typically, such provisions usually are not accessible when the goal is public. Nonetheless, they’re widespread when the vendor continues to function after the closing (comparable to within the context of an asset sale). A celebration might conform to indemnify the opposite get together for breaches of the representations, warranties and covenants within the acquisirion settlement that survive post-closing. These indemnification obligations could also be topic to caps (limiting the indemnifying get together’s legal responsibility) or thresholds (below which indemnification obligations usually are not triggered except a legal responsibility reaches a sure measurement).
iii Hostile transactions
Though REITs have a lot of defences at their disposal, they’re nonetheless weak to unsolicited presents. The surplus share provisions of most REITs can and customarily do function a type of takeover defence, and lots of REITs particularly disclose that such provisions could also be used for anti-takeover functions. Nonetheless, extra share provisions are comparatively untested as anti-takeover defences, and could also be weak due to their grounding within the tax legislation or the precise method during which they’re drafted. Extra share provisions – even when designed for anti-takeover functions – are unlikely to be extra highly effective or strong than different widespread takeover defences comparable to a rights plan, and should typically be much less so. Certainly, through the market dislocations brought on by the covid-19 pandemic, a lot of REITs shelved rights plans to have them prepared for fast deployment if and when advisable based mostly on a nuanced evaluation of the menace and the attainable prices. Whereas hostile takeovers usually are not widespread in a REIT context, they’ve occurred. For instance, earlier this yr, Prologis made an unsolicited bid for Duke Realty, which initially resisted the supply, earlier than negotiating and saying a transaction with Prologis a number of weeks later, and in 2006, Public Storage efficiently accomplished a hostile takeover of Shurgard, and interlopers making unsolicited bids designed to high introduced mergers are relatively widespread.
Extra lately, activist traders have efficiently instigated modifications of management at REITs, together with the marketing campaign in opposition to the CommonWealth REIT (now Fairness Commonwealth) in 2014, and the aforementioned occasions at Forest Metropolis Realty. Activists may additionally strain REIT boards to contemplate a sale of an organization, notably if there’s a massive unfold between the market worth of the REIT and the online worth of its property. Alternatively, activists might agitate for gross sales of sure property to seize arguably unrecognised worth, changes to leverage, dismantling of takeover defences or the alternative of administration or administrators.
Whereas activist campaigns in opposition to REITs have traditionally typically stayed below the radar, they’re changing into extra mainstream, notably as well-capitalised, higher-profile and non-REIT-dedicated activists more and more look to the REIT sector. In 2021, 10 new activist campaigns have been launched in opposition to REITs, starting from shareholder proposals to declassify boards or in any other case dismantle.16 In 2021, roughly 4 per cent of all introduced activist campaigns in opposition to US corporations have been in the actual property sector.17 As famous above, through the market dislocations brought on by the covid-19 pandemic, consumers quietly collected positions in a lot of REITs. Activists’ strategy within the coming years could also be to park cash in well-run REITs which are anticipated to have a robust restoration, with out a right away activist thesis, whereas retaining the optionality to shift gears if the restoration doesn’t match expectations.
Extra broadly, US REITs included in Maryland have continued to face strain from traders and proxy advisory corporations to choose out of the Maryland Unsolicited Takeovers Act, which permits boards to take sure actions, together with classifying themselves with out shareholder approval, and to take away prohibitions or restrictions on shareholders’ capacity to amend by-laws.
iv Financing issues
In structuring a transaction (and contemplating the optimum financing technique), REIT acquirers should think about each the implications of a transaction on the debt of the goal in addition to the results on the acquirer’s debt. A transaction might violate change of management provisions or covenants in present debt, or these covenants might create working difficulties (comparable to restrictions on asset transfers after closing). Prepayment prices or different charges triggered by a transaction could also be substantial, and a cautious evaluation of debt paperwork ought to happen along side a deliberate transaction.
For REITs, after closing, financing can happen on the entity stage (within the type of most well-liked inventory or senior or subordinated notes) or on the property stage (usually mortgage loans secured by a REIT’s property, which can embrace issuance of economic mortgage-backed securities). The situations of any financing commitments for a REIT acquisition must be fastidiously scrutinised by each the client and vendor to eradicate any discrepancies between the closing situations within the merger settlement and the financing commitments.
v Tax issues
Given the complexity of the tax guidelines that govern REITs, the tax implications of a transaction are among the many most necessary structuring issues in a REIT M&A deal. Particularly, events should be sure that a transaction doesn’t create any REIT qualification points. Relying on the construction of a transaction, the consideration concerned within the deal could also be wholly or partially taxable to the goal REIT or its shareholders, or it might be tax-free (assuming acceptable regulatory and judicial necessities are happy). Nonetheless, the transaction construction may additionally have an effect on the tax foundation of the goal REIT’s property (particularly, whether or not the tax foundation in such property is stepped up following the transaction).
For transactions involving UPREITs, events should additionally think about the tax penalties on working partnership unitholders (particularly because the pursuits of unitholders and shareholders might be completely different). The UPREIT construction permits REITs to offer property house owners with the power to switch properties to the UPREIT in a tax-deferred method, a major benefit for UPREITs. When property house owners switch a property to the UPREIT and obtain partnership models in change, house owners usually can defer taxation referring to positive aspects realised on the contribution of this appreciated actual property. Because of this, working partnership unitholders typically have tax safety agreements in place (designed to guard a contributing unitholder’s tax deferral by requiring tax gross-ups if the contributed property is bought or if sure different actions are taken that will speed up achieve recognition to the contributing unitholder). This may increasingly affect the transaction construction on the stage of the working partnership, and may frustrate plans to promote some or all the property of an acquired portfolio.
The place an UPREIT is bought by a personal fairness purchaser, there isn’t any surviving publicly held entity, so the flexibleness and protections beforehand accessible by way of the conversion of working partnership models into publicly traded inventory or its money equal typically have to be changed with a safety that satisfies the unitholders’ wants. For instance, unitholders could also be provided an choice to elect to obtain a fixed-return most well-liked safety or a mix of consideration together with a mix of money and most well-liked securities. Points to contemplate when creating the safety embrace the yield, home windows for places and calls and redemption rights, voting rights (if any) and persevering with tax safety preparations.
vi Cross-border problems and options
The Overseas Funding in Actual Property Tax Act of 1980 (FIRPTA) can create challenges for non-US traders contemplating an funding in US actual property. On the whole, FIRPTA can topic non-US house owners of US actual property (or pursuits in sure entities holding US actual property) to taxation on positive aspects recognised on the disposition of such property or pursuits. Whereas inclinations of pursuits in a REIT can implicate FIRPTA, sure necessary exceptions might apply. For instance, ought to a REIT be domestically managed (that’s, with below 50 per cent of the worth of its shares held instantly or not directly by non-US holders), FIRPTA doesn’t apply to the disposition of shares of such REIT by non-US holders. An identical exception applies to inclinations of inventory of a publicly traded REIT by a non-US holder so long as such holder has not owned greater than a specified proportion of the inventory throughout a sure time interval.
Acquisitions of high-profile actual property property could also be politically controversial, notably in conditions the place the acquirer is sponsored by a international authorities entity (comparable to a sovereign wealth fund). Acceptable communications methods and partnerships with native gamers must be thought of as methods to handle political implications. Consequently, worldwide traders in america typically enter into three way partnership agreements with native corporations to facilitate their entry into {the marketplace}. Whereas the structuring of those joint ventures might be complicated, they’ve some great benefits of permitting international traders to leverage the experience of native corporations which are conversant in the native markets.
From a regulatory standpoint, the Committee on Overseas Funding in america (CFIUS) can evaluation acquisitions in america by non-US acquirers (together with actual property acquisitions), however it’s unlikely that CFIUS critiques will have an effect on typical actual property transactions. Nonetheless, the Overseas Funding Threat Assessment Modernisation Act of 2018 represents a big growth of CFIUS’s jurisdictional attain, and should portend better regulatory scrutiny of international funding normally. As well as, a transaction involving a international acquirer might implicate US securities legal guidelines (if, for instance, a international firm is issuing shares as consideration in a transaction), and the disclosure necessities of those legal guidelines and any ongoing compliance prices they might impose must be thought of.
Company actual property
In conditions the place corporate-owned actual property would have the next market worth if transferred outdoors of an organization (whether or not to a REIT or a personal proprietor), or the place an organization’s actual property is underutilised or represents ‘trapped’ worth, an organization might think about a wide range of transactions to unlock the worth of its actual property. Such transactions are complicated and time-consuming, and should or might not make sense relying on the circumstances. They typically have operational implications (notably the place the corporate not has direct management of its actual property), and it’s typically the case that easier transactions, like borrowing in opposition to the actual property, would possibly higher obtain the company function. Widespread methods embrace sale-leasebacks, joint ventures or borrowing in opposition to the worth of the property with mortgage financing.
Tax legislation modifications enacted a number of years in the past have sophisticated these transactions. Previous to such modifications, companies with priceless actual property might switch the property to a newly shaped REIT, spin off the REIT on a tax-free foundation to the company’s stockholders and enter right into a lease settlement with the REIT. Nonetheless, tax-free REIT spin-offs by US companies have been eradicated by 2015 laws (though spin-offs by REITs of REITs are nonetheless permissible). Whereas this transformation eliminated one device used to unlock actual property worth, different strategies are nonetheless accessible: for instance, taxable spin-offs are nonetheless attainable.
Outlook
Because the nation proceeded with its strong if uneven restoration from the covid-19 pandemic, REIT efficiency in 2021 largely rebounded from a tough 2020, pushed by vaccine rollouts and brightening financial prospects, in addition to substantial M&A exercise supported by sturdy capital flows to actual property. REITs raised important debt and fairness in 2021 at very low prices of capital, buoying plentiful transaction exercise and property acquisitions. Nonetheless, even with hopefully the worst of the pandemic behind the nation and the business, we’re unlikely to see a return to a pre-pandemic world, because the pandemic has modified the way in which that we work together with actual property, and compressed a decade or extra of digitisation right into a matter of months, with the brand new regular involving fewer or at the least completely different in-person work or procuring. Whereas a few of these modifications in the way in which we dwell our lives, store, work and do enterprise might fade over time, others are prone to endure.
The accelerating digital shift from ‘bricks’ to ‘clicks’ predates covid-19, with REITs and different companies already shifting or adapting enterprise fashions to account for the brand new, digital world. It’s clear that a few of these enterprise fashions have carried out higher than others throughout this era, and there could also be priceless classes to be discovered.
Even previous to the covid-19 pandemic, REITs have been confronting a quickly altering surroundings, with almost all sectors going through a point of exterior disruption. Technological change will proceed to remodel actual property enterprise fashions, a development that’s prone to speed up additional and grow to be extra pervasive over the following 5 to 10 years (or even perhaps sooner in mild of the disruptive impression on long-term demand that appears to have resulted from the pandemic), creating dangers and alternatives for REITs that can be pressured to both adapt or in some circumstances grow to be out of date. Certainly, with the rollout of 5G expertise, the continued progress of synthetic intelligence-related services and the world-wide starvation for information centres to service a large swath of industries, the expansion and consolidation of technology-focused REITs will seemingly choose up tempo, with these and different groundbreaking applied sciences persevering with to impression REITs and their enterprise fashions in unpredictable methods.
After a difficult 2020, REIT equities got here again with a vengeance in 2021, posting positive aspects of roughly 43 per cent18 and outpacing the S&P 500, which was up roughly 28.71 per cent for the yr.19 Moreover, the worth of property held by REITs continues to develop,20 underscoring the energy of the sector and the benefits that the REIT construction brings to the funding group. Nonetheless, just like the broader market, REIT equities have had a rocky begin to 2022, with the MSCI US REIT Index down roughly 13 per cent by way of Could 2022. Certainly, REITs are going through a lot of headwinds, together with rising rates of interest, inflation and geopolitical uncertainty arising from the battle in Ukraine. Given the macroeconomic backdrop, it’s seemingly that there can be a divergence in returns amongst REIT subsectors, with those who have extra pricing energy and the power to move on rising prices higher positioned to carry out properly.
2021 was a banner yr for REIT M&A exercise throughout a range of subsectors, fuelled by pent up demand, sturdy efficiency throughout most actual property sectors, beneficial prices of capital and strong investor curiosity. REITs and personal fairness sponsors alike have been keen to maneuver ahead with transformational transactions, though there was not fairly as a lot non-public fairness exercise within the REIT sector as one may need anticipated given the PE-fuelled increase that exploded within the M&A market normally in 2021. A handful of sizeable offers have been introduced within the first half of 2022, however the general cloudier financial outlook. Time will inform whether or not these newer deal bulletins are merely the by-product of months-long negotiations wrapping up and a splash to shut earlier than the geopolitical image and financial surroundings worsens, or whether or not M&A exercise will march on at a gentle tempo. Whereas the complicated financial backdrop might constrain deal exercise to a level within the nearer-term, continued M&A exercise is predicted amongst public REITs within the medium to long run, each by way of acquisitions by bigger, stronger sector leaders and spin-offs by REITs of their non-core property. Nonetheless, with the online asset worth hole at many REITs narrowing and even flipping to a premium, take privates might fade in prominence, with solely a small variety of non-public fairness corporations persevering with to dominate the area. This dynamic will proceed to make ‘membership’ bids tough, and would require sellers to watch out and inventive when designing a sale course of. The ensuing complicated bidding processes, coupled with a dearth of massive bidders, will end in extra transactions that permit for a significant post-signing market test.
An more and more vocal group of activists focusing on REITs is prone to proceed to push for M&A exercise. Whereas most of the REIT activists are thinly capitalised and infrequently have a short-term outlook, they’ve typically been profitable garnering the help of institutional traders, additional empowering their initiatives. The development of unlocking company actual property worth by way of transactions utilizing the REIT construction will seemingly proceed, though such exercise has slowed, and is predicted to proceed to gradual, due to restrictions on using tax-free REIT spin-offs enacted a number of years in the past.
Within the brief time period, quickly rising rates of interest, inflation working sizzling, geopolitical uncertainty with the warfare in Ukraine, the continuing restoration from the covid-19 pandemic (and the danger that new variants might deliver setbacks), commerce uncertainty, trans-oceanic regulatory limitations or a downturn within the broader industrial actual property market might complicate the outlook for actual property M&A, with the return of Chinese language capital to the actual property market unlikely given the present regulatory surroundings and complicated relationship. Nonetheless, in the long run, the liquidity and transparency of, and entry to capital in, the general public US actual property market makes the expansion of REITs appear inevitable.
Outlook and conclusions