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E-MailAdam Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz focusing primarily on mergers and acquisitions and securities law matters. This post is based on a Wachtell Lipton firm memorandum by Mr. Emmerich and Robin Panovka.
Following a year in which REITs returned more than 30% and were involved in a wide variety of strategic transactions, we are keeping an eye on the following trends:
1. Based on the current pipeline, we expect REIT and real estate M&A and consolidation activity to continue at a steady pace, accelerating in a few sectors and with traditional public-to-public mergers likely to pick up. The potential for privatizations is increasing but we are not yet seeing meaningful action.
2. Unlocking the value of corporate real estate through OpCo-PropCo structures, REIT spins and conversions is set to continue as long as REIT multiples remain robust relative to corporates, but we are not expecting an avalanche—these transactions are complex and time consuming and need to be carefully measured against alternatives.
3. Activist focus on REITs, today mostly aimed at mid- to low-cap companies, but easily expanded to REITs of every size, as has been shown outside the REIT sector, shows no sign of abating, and continues to require careful management and board attention and discipline.
4. More REIT-REIT spinoffs or similar restructurings are likely, to simplify business models, separate disparate business lines, or de-risk or de-lever companies.
5. Expansion of the REIT universe is likely to continue into new frontiers, including utilities, infrastructure and institutional assets.
6. Interest in non-U.S. acquisitions is accelerating across many property sectors, but actual investment levels remain low. We expect an increase in 2015, along with structures to address cross-border governance, taxation and other risks.
7. The dislocation in the non-traded REIT sector could lead to increased deal activity, but may also complicate migration into the public markets.
8. Executive compensation remains a hot issue, as do other governance and risk management matters, including proxy access, board engagement with shareholders and cyber-security.
9. Ripple effects of e-commerce are increasingly evident in a number of sectors, driving up cap rates in some sectors and continuing to drive industrial, data center and cell tower REIT expansion.
10. Other technological developments will continue to impact all property owners, in how properties are managed, and in relationships with tenants and other users, oftentimes in discontinuous and unexpected ways and increasingly requiring board-level attention.
