Valuation Differences Could Mean More REIT Deals, Lawyer Says

David Slotkin, partner at Morrison & Foerster, joined REIT.com for a video interview during REITWise 2015: NAREIT’s Law, Accounting and Finance Conference held in Phoenix.

Slotkin discussed recent changes in shareholder activism within the REIT industry.

“What you are seeing now is that the broader shareholder activism in other industries and larger companies is seeping into the REIT space,” Slotkin said. He pointed to various sources of activism, including hedge funds and traditional dedicated investors.

At the same time, Slotkin said he has also seen a mix of activism and hostile takeover-type activity. Slotkin said that while he does expect to see an increase in takeover attempts in future, “I’m not really sure this is hostile takeover territory” for the REIT industry.

He added that “the disconnect between potential public and private values right now is going to further drive “ takeover activity.

Meanwhile, Slotkin said he expects to see more REIT mergers and acquisitions (M&A). As interest rates inevitably creep up, Slotkin said, the cost of capital for some of the smaller REITs may become more expensive. That could make it harder for them to raise the capital necessary to gain scale. As a result, there might be activity among mid-sized and smaller REITs, he observed.

On the other hand, M&A activity in the larger segment may occur as a result of differences in leverage levels for public and private REITs, he added.