Goodwin on REITs
INSIGHTS
Corporate governance practices in the public REIT sector have evolved significantly over the past decade and, in select areas, compare favorably to broader market benchmarks. Classified boards and pure plurality voting standards are now the exception rather than the rule among public equity REITs. Board diversity practices and disclosures are evolving amid heightened political, regulatory, and legal scrutiny. Governance “best practices” and governance scores do not, standing alone, correlate predictably with REIT performance. Effective governance requires a balanced, company-specific approach rather than a checklist comparison against large-cap indices.
More than 15 years ago, on behalf of an internationally recognized financial services firm, Goodwin created the first open-ended non-traded REIT structure that allowed for regular sales and repurchases at net asset value (NAV REIT). That NAV REIT offering was cleared with federal and state regulators but was unfortunately shelved on the eve of the Great Recession, and it took well over a decade for this structure to become well established. Today, NAV REITs are dominating the non-traded REIT space across both registered and private offerings. While the basic NAV REIT structure has not changed significantly since it was first developed, there is currently some variation in product design in the space, and there is room for more variation and improvement. This alert looks briefly at the history of NAV REITs, some of the features of NAV REITs currently in the market, and potential new features to improve upon the structure that may be implemented in the future, particularly with respect to the liquidity feature that is central to its appeal to a wide range of investors.
The umbrella partnership real estate investment trust (“UPREIT”) structure, a cornerstone of the modern REIT industry, provides REITs with powerful tools for both property acquisitions and executive compensation. This article focuses on the use of long-term incentive partnership units (“LTIP Units”) as compensation currency within UPREIT structures. See our previous article in this series, “Unlocking the UPREIT Structure: OP Unit Transactions for REITs,” for an in-depth discussion of OP unit transactions for real estate acquisitions and UPREIT M&A transactions.
Shareholder activism in the public real estate investment trust (REIT) sector has accelerated in recent years, with over 100 public campaigns and related engagements launched since 2020. As M&A markets regain momentum and interest rates stabilize, activists are increasingly targeting REITs, especially those trading at discounts to net asset value. The sector’s distinctive structural features, which have historically created barriers to significant stake building, unsolicited bids and hostile takeovers, have contributed to an uptick in activist campaigns as a mechanism for prompting change.
In the modern age, public REITs use derivative instruments to manage risk, raise capital and manage their sources and uses of capital based on future commitments. REITs have long used interest rate and foreign exchange (FX) derivatives to hedge or mitigate risks associated with debt obligations or owning and operating properties outside of the U.S. More recently, public REITs have expanded their use of derivatives to raise equity capital with forward share sales, and to protect against dilution in convertible and exchangeable note offerings. In addition, REIT founders and insiders are now able to hedge or monetize their operating partnership (OP) unit holdings with derivative transactions. This article highlights the issues that REITs should consider with respect to derivative transactions, including applicable accounting treatment and tax characterization for purposes of the IRS’ REIT qualification tests.
Senior credit facilities serve a critical role in the capital stack of a public real estate investment trust (REIT). To qualify as a REIT for federal tax purposes, a company must distribute at least 90% of its taxable income to shareholders, a constraint to which most corporate peers are not subject. This unique requirement limits the ability of REITs to retain earnings and maintain capital reserves, which in turn makes third-party financing essential for growth. When used in coordination with equity financing and long-term debt of various types, bank credit facilities provide REITs with the flexibility to fund acquisitions or other capital expenditures “on demand,” while taking a disciplined approach to leverage over the longer term. Unsecured senior credit facilities blend features of corporate debt (i.e., debt borrowed against the REIT’s balance sheet) and property-specific secured financing.
The umbrella partnership real estate investment trust (UPREIT) structure has been a cornerstone of the modern REIT industry since its introduction in 1992. For property owners, the UPREIT structure provides a path to contributing appreciated real estate in tax-deferred transactions to a REIT’s operating partnership in exchange for operating partnership units (OP units), instead of cash or taxable REIT stock.
The take-private real estate investment trust (REIT) and real estate M&A market has remained active throughout the first half of 2025 as increased and persistent volatility in the stock market, coupled with private funds and others having vast amounts of dry powder and seeking higher yield opportunities, has resulted in expanded options for buyers considering privatization transactions. In this article, we highlight our top tips that both buyers and sellers should consider as they review strategies around take-private transactions.
Joint venture structures continue to be an important tool for public real estate investment trusts (REITs), particularly in market environments where traditional capital-raising strategies may be challenging from a funds from operations (FFO) dilution or leverage point of view.
Shareholder activism in the public REIT sector has evolved from a marginal tactic employed by a small number of high-profile hedge funds into a persistent, structural feature of corporate life. The public REIT model, long characterized by relative stability and predictable cash flows, now finds itself operating in an increasingly adversarial environment. Activist campaigns are no longer episodic; they are omnipresent, sophisticated, and often multidimensional.
At-the-market (ATM) offering programs continue to provide public real estate investment trusts (REITs) and other issuers an efficient means of raising capital over time by allowing a listed company to tap into the existing trading market for its shares on an as-needed and when-needed basis.
Analysis of the 15 REIT M&A transactions announce from May 2022 through August 2023.
Analysis of the 30 public REITs launched in 2009 and 2010 that included a blind pool component.
A review of disclosure obligations that may apply to public REITs engaged in real estate transactions.
Analysis of the 42 REIT transactions announced from August 1, 2020 to May 30, 2022.
In February 2022, the SEC proposed amendments designed to modernize the rules governing beneficial ownership reporting. If adopted as proposed, the newly-expanded scope of beneficial ownership could materially disrupt the application of the charter ownership limitation provisions in REIT charters, particularly for those REITs whose charters incorporate the securities laws “group” concept in determining aggregate ownership percentages.
Analysis of the 15 REIT M&A transactions that were announced from January 2019 through March 15, 2021.
On January 7, 2021, the U.S. Treasury Department and IRS released final regulations under Section 1061 of the Internal Revenue Code of 1986. The Final Regulations address the three-year holding period requirement under Section 1061 in order for holders of certain “carried interests” to qualify for preferential capital gains tax rates.
This alert looks briefly at the history of NAV REITs, some of the features of NAV REITs currently in the market, and potential new features to improve upon the structure that may be implemented in the future, particularly with respect to the liquidity feature that is central to its appeal to a wide range of investors.
Contacts
- Yoel Kranz
Yoel Kranz
PartnerCo-Chair of REITs and Real Estate M&A - Mark S. Opper
Mark S. Opper
PartnerCo-Chair of REITs and Real Estate M&A - William T. Goldberg
William T. Goldberg
Partner - John T. Haggerty
John T. Haggerty
Partner - Elena Hera
Elena Hera
Partner - Audrey S. Leigh
Audrey S. Leigh
Partner