Value Creation and Governance Structure in REIT Mergers

Posted: 14 Jan 2005

See all articles by Robert D. Campbell

Robert D. Campbell

Hofstra University

Chinmoy Ghosh

University of Connecticut - Department of Finance

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law

Abstract

The Umbrella Partnership REIT (UPREIT) structure has become the dominant form of organization for U.S. REITs. We examine the utility of this corporate structure from a new perspective, finding evidence that convertible securites issued by UPREITs in payment for properties acquired from private sellers often function as instruments of corporate control, aligning the interests of new executives acquired in the transaction with those of the purchasing REITs shareholders. We also find evidence that these financial arrangements are used to signal information regarding the firm's future prospects. We use a sample of 53 public-private mergers 1995-2001, in which the acquirer is a publicly traded REIT. We find that wealth effects from central managerial changes are positively related to the degree to which payment takes the form of convertible equity units of UPREIT subsidiaries, and to the minimum lock-up period for those units prior to conversion. The positive effects of longer lock-ups are evidence that financing structure can be used to reduce agency and information costs related to managerial restructuring in public-private mergers.

Keywords: Asian REITs, REITs, UPREITs, mergers, public-private mergers, corporate control, management incentives, convertible equity, lock-ups, capital gains

Suggested Citation

Campbell, Robert D. and Ghosh, Chinmoy and Sirmans, C. F., Value Creation and Governance Structure in REIT Mergers. Available at SSRN: https://ssrn.com/abstract=648701

Robert D. Campbell (Contact Author)

Hofstra University ( email )

Hempstead, NY 11549
United States

Chinmoy Ghosh

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

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