The Journal of Real Estate Finance and Economics

, Volume 31, Issue 2, pp 225–239

Value Creation and Governance Structure in Reit Mergers

  • Robert D. Campbell
  • Chinmoy Ghosh
  • C. F. Sirmans
Article

DOI: 10.1007/s11146-005-1373-x

Cite this article as:
Campbell, R.D., Ghosh, C. & Sirmans, C.F. J Real Estate Finan Econ (2005) 31: 225. doi:10.1007/s11146-005-1373-x

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 securities 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 REIT’s 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.

Key Words

Asian REITsREITsUPREITsmergerspublic–private mergerscorporate controlmanagement incentivesconvertible equitylock-upscapital gains

Copyright information

© Springer Science + Business Media, Inc. 2005

Authors and Affiliations

  • Robert D. Campbell
    • 1
  • Chinmoy Ghosh
    • 2
  • C. F. Sirmans
    • 2
  1. 1.Department of Finance, Frank G. Zarb School of BusinessHofstra UniversityHempsteadUSA
  2. 2.Department of Finance, and Center for Real Estate and Urban Economic Studies (CREUES)University of ConnecticutStorrsUSA