REIT M&A: Stock, Cash, and Mixed Consideration

Introduction

After price, nothing in a REIT merger matters more than the currency the buyer pays in. The instinct to treat consideration as a simple cash-versus-stock toggle misses what the choice actually encodes: whether the buyer is a strategic peer or a financial sponsor, whether the target's holders walk away with a taxable gain or roll forward tax-deferred, and whether they keep any stake in the combined company at all. When Realty Income absorbed Spirit Realty Capital in January 2024, it paid entirely in stock at a fixed ratio of 0.762 of its own shares per Spirit share, keeping Spirit's holders invested in the larger platform. When Blackstone took AIR Communities private three months later, it paid $10 billion in cash at a 25% premium and the sellers were gone. Same asset class, opposite currencies, and the gap between them was anything but incidental.

Every REIT acquisition pays in one of three forms, and each is a different answer to the same three questions: who is buying, what is the seller's tax exposure, and do the target's holders want to stay invested. All-stock consideration answers that a strategic peer is buying, the seller wants to defer tax, and holders want continued participation. All-cash answers that a financial buyer or cash-rich strategic is buying, the holders want a clean exit, and certainty is worth paying a premium for. Mixed consideration splits the difference, offering some holders cash and others stock.

The currency therefore carries information before a single number is discussed. A stock deal only works if the acquirer's shares are a currency worth holding, which is why a REIT trading at a premium to net asset value can pursue acquisitions its discounted peers cannot. A cash deal only works if the buyer can finance it, which is why all-cash take-privates cluster around sponsors with committed debt and equity behind them. The practical consequence is that the same target can attract structurally different bids at the same time: a strategic peer offering stock at a modest premium and a sponsor offering a richer all-cash number, with the board left to weigh deferral and upside against certainty and a clean exit. Reading which currency a given buyer can credibly offer is often the first thing an adviser works out, because it bounds the entire negotiation before price is even on the table.

Stock is the currency of REIT-to-REIT consolidation. When one public REIT acquires another, the acquirer typically issues its own shares to the target's holders, conserving cash and aligning both shareholder bases behind the combined company. The logic is that two REITs in the same property type understand each other's portfolios and net asset values, see real cost synergies in combining, and would rather merge their equity than have one side cash out. It is no accident that the largest REIT consolidations of recent years, from net lease to healthcare, have been stock deals: scale is the prize, and stock is the only currency that lets two public companies pursue it without either having to raise billions in cash.

The exchange ratio

A stock deal is expressed not as a price but as an exchange ratio: the number of acquirer shares each target share converts into. In a fixed-value deal the ratio falls straight out of the agreed offer price per target share divided by the acquirer's share price:

Realty Income's acquisition of Spirit set that ratio at 0.762, a fixed number locked in regardless of where either stock traded between signing and closing. A fixed ratio leaves target holders exposed to moves in the acquirer's share price, since the dollar value of what they receive floats with the buyer's stock. The alternative is a floating ratio inside a collar, which adjusts the number of shares to hold the dollar value steady within a band, transferring that price risk back toward the buyer.

The difference is far from academic for the target's holders. Under a fixed ratio of 0.762, a Spirit holder received 0.762 Realty Income shares regardless of what those shares were worth at closing, so a 10% slide in Realty Income between signing and close cut the deal's value to Spirit holders by the same 10%. A collar instead anchors a dollar value and floats the share count within a band: set to deliver, say, $45 per target share, it adjusts the ratio as long as the acquirer trades inside an agreed range and only lets holders bear price risk once the stock breaks outside it. Acquirers favor fixed ratios because they lock dilution at signing; targets favor collars because they lock the value received. Which side prevails is itself a read on relative leverage, and in practice the collar is negotiated as hard as the headline ratio, because it decides who absorbs the market's moves during the months a deal takes to close.

Exchange ratio

The fixed or floating number of acquirer shares that a target shareholder receives for each share they hold in an all-stock or mixed-consideration merger. It, not a per-share dollar figure, is the economic term that defines a stock deal.

Accretion, dilution, and the value of the currency

The first screen any acquirer runs on a stock deal is whether it is accretive or dilutive to funds from operations per share. The test rebuilds the acquirer's FFO per share as if the deal had already closed, combining both companies' FFO with any synergies and financing effects over the enlarged share count:

The sign of the deal then comes from comparing that pro forma figure against what the acquirer would have earned on its own, the REIT analogue of EPS accretion/dilution:

A positive result is accretive, easier to defend to the acquirer's own holders, and usually well received; a dilutive deal needs a compelling synergy or strategic rationale to survive. The arithmetic depends heavily on the acquirer's own trading multiple, so where the buyer sits relative to how REITs trade on FFO and AFFO multiples directly determines how much it can afford to pay in paper.

Synergies then layer on top of that base arithmetic, and the figure that feeds the accretion math is the net number, $\text{Net Synergies} = \text{Cost Synergies} + \text{Revenue Synergies} - \text{Integration Costs}$, so the one-time cost of combining the two platforms is netted against the recurring savings before anything flows through to FFO per share. REIT merger synergies are real but narrow, concentrated in eliminated duplicate public-company overhead, redundant corporate staff and listing costs, and a lower blended cost of capital for the larger combined balance sheet, rather than the revenue synergies that drive operating-company deals. In a merger of equals, where neither side is clearly the buyer, those cost savings have to justify the deal on their own, because there is no control premium being paid to anchor the rationale.

The Healthpeak Properties combination with Physicians Realty Trust shows the mechanics. Structured as a merger of equals, it set an exchange ratio of 0.674 Healthpeak shares per Physicians Realty share, worth roughly $11.07 at announcement, and the combined company began trading under the ticker "DOC" in March 2024. A merger of equals leans on stock precisely because neither side is clearly the buyer, so cash would force an artificial winner-and-loser framing that the deal is trying to avoid. In these deals the social terms, board composition split between the two companies, who holds the CEO and chair roles, the surviving name and headquarters, often consume as much negotiating energy as the exchange ratio, because no premium is changing hands to settle the question of who is in charge. Whether such a deal creates value still routes back to the acquirer's net asset value: issuing shares that trade below NAV to buy assets at NAV hands value to the seller.

Tax deferral and Section 368

The reason sellers accept stock at all is tax. A properly structured all-stock REIT merger can qualify as a tax-deferred reorganization under Section 368, typically as a Type A reorganization, so target holders defer their capital-gains tax until they eventually sell the acquirer shares. The constraint is the continuity of interest doctrine: broadly, at least 40% of the total consideration must be acquirer stock for the deal to keep its tax-free status, and any non-stock consideration counts as taxable boot. The same deferral logic underpins why OP units function as a tax-deferred acquisition currency in UPREIT deals, and the legal-step machinery that delivers reorganization treatment is detailed in triangular mergers and tax structures.

REIT mergers also carry a distribution wrinkle that operating-company deals do not. Because a REIT must distribute at least 90% of its taxable income to keep its status, a target frequently has to declare a stub-period dividend covering the portion of the year before closing, and in a deal where the acquirer inherits the target's accumulated earnings and profits, a purging distribution may be needed so the combined entity does not carry forward C-corporation E&P that would jeopardize its own qualification. These distributions are negotiated into the deal terms and affect the net value holders receive, so they are priced into the exchange ratio rather than treated as an afterthought. The interaction with the REIT versus C-corp tax stack is why REIT deal lawyers spend disproportionate time on distribution mechanics.

Cash is the currency of the financial buyer. When a private-equity sponsor acquires a public REIT, the deal is almost always an all-cash take-private, because the sponsor has no public shares to offer and the target's holders are being bought out rather than rolled into a new platform. Cash buyers pay a premium to compensate holders for surrendering future upside, and they accept that the seller takes a taxable gain, because what they are buying in return is certainty: there is no acquirer stock price to move between signing and closing, so the value on offer does not erode.

Blackstone's recent record illustrates the pattern. It acquired AIR Communities for roughly $10 billion at a 25% premium in 2024, and Retail Opportunity Investments Corp for about $4 billion at $17.50 per share, a 34% premium to the undisturbed price, in early 2025. Both were clean all-cash privatizations. The trade-off for the sponsor is that cash must be funded, so the deal carries financing conditionality that a stock deal avoids, and the broader playbook for assembling that financing and clearing the shareholder vote is the subject of the take-private mechanic.

Funding that cash is its own workstream. A sponsor backs an all-cash bid with an equity commitment from its fund alongside committed debt financing, frequently a bridge facility later refinanced into mortgage or corporate debt, and the strength of those commitments is exactly what a target's board scrutinizes when it weighs certainty against price. The market has largely moved away from financing conditions in public deals, so buyers instead provide certainty through a reverse termination fee, a payment the buyer owes the target if it fails to close, while sellers may bargain for specific-performance rights to compel the deal. Those provisions are why a board can rationally accept a lower all-cash bid with airtight financing over a higher one that leaves a financing gap.

Sponsors are not the only cash buyers. A cash-rich strategic acquirer sometimes pays cash precisely to avoid issuing its own undervalued shares, choosing to lever up rather than dilute existing holders at a discount. Either way, the target board running a cash sale operates under heightened fiduciary scrutiny, since holders are losing their investment entirely rather than rolling into a combined company. That scrutiny shapes the deal protections: boards negotiate a fiduciary-out that lets them consider a superior unsolicited proposal, sometimes a go-shop window to actively test the market after signing, and a break fee the target owes if it walks to a better bid. The presence and size of these terms signal how confident the board is that the agreed price is genuinely the best available.

Between the poles sits mixed consideration, where holders receive a blend of cash and stock. A buyer reaches for it to bridge a valuation gap, to give different holders the outcome each prefers, or to deliver some tax deferral while still returning capital to those who want out. The mechanism is often a cash election, where holders choose cash or stock subject to proration: if too many elect cash, the cash pool is rationed pro rata and the balance is paid in stock, so the buyer's total cash outlay stays fixed regardless of how holders vote.

A worked case shows why proration exists. Imagine a buyer offering an even 50/50 cash-and-stock mix but letting each holder elect:

The point is that the buyer commits to a total cash-and-stock split up front, and proration absorbs whatever imbalance the elections produce, so the deal's overall cost and dilution are fixed before a single holder votes.

Mixed deals appear in distinctive situations. NexPoint structured a hybrid tender that paid roughly 20% in cash and 80% in preferred shares, using the blend to provide liquidity while keeping holders aligned. Debt is part of the consideration mix too: City Office REIT's roughly $1.1 billion take-private by Elliott Investment Management and Morning Calm, valued including the assumption of debt and the redemption of preferred stock, is a reminder that what a buyer "pays" includes the liabilities it steps into.

Beyond cash and listed stock, a REIT structured as an UPREIT carries a fourth currency: units in its operating partnership. A selling property owner can take OP units instead of REIT shares or cash, receiving an instrument economically equivalent to a common share and convertible into one after a lock-up, while preserving a tax deferral that a taxable cash sale would forfeit.

Operating partnership (OP) unit

A unit of ownership in the operating partnership beneath an UPREIT, economically equivalent to a common share and convertible into one after a lock-up period. Taking OP units rather than cash lets a property contributor defer capital-gains tax under a Section 721 contribution.

OP units matter most when the seller is a founder or family that assembled a portfolio over decades and sits on a near-zero tax basis. A cash sale would trigger an enormous gain, whereas units defer it, sometimes until a step-up in basis at death erases it altogether. That makes units a decisive tool for pulling private portfolios into a public REIT, even though they rarely appear in public-to-public mergers where holders already own liquid shares. The lock-ups, conversion rights, and contribution mechanics are developed in UPREIT contributions and 721 exchanges as currency.

Pulling the threads together, the consideration decision is a diagnosis rather than a preference. Five variables push toward one currency or another, and a banker advising either side reasons through them in roughly this order: who the buyer is, what the seller's tax basis looks like, how the acquirer's currency is valued, what the financing markets allow, and what the target's holder base actually wants.

The variables interact, and rarely line up cleanly. A strategic acquirer trading at a premium to NAV with a low-basis target and a holder base of long-term institutions points cleanly toward all-stock, the Realty Income and Healthpeak template. A sponsor buyer with committed financing and a holder base that wants out points to all-cash, the Blackstone template. When the signals conflict, a contested holder base, a target with mixed tax positions, or a buyer whose currency is only partly trusted, mixed consideration becomes the structure that lets the deal clear. The hardest cases are where one variable pulls hard against another, such as a low-basis target whose holders would benefit enormously from a stock rollover being courted by a sponsor that can only pay cash; there the adviser's job is to quantify the after-tax gap and decide whether a cash premium can be large enough to outweigh the tax the seller would otherwise defer. The fairness of whatever structure emerges is then tested by the board's advisers, which is why fairness opinions in REIT M&A scrutinize the consideration mix as closely as the price.

The honest summary is that consideration is the second decision in a REIT merger, made jointly with price and never after it, because the two trade against each other directly. A higher all-cash number can be worth less to a low-basis seller than a slightly lower stock offer that defers the tax, and a buyer's willingness to use stock is itself a function of how the market values that stock. That circularity, where the currency available depends on the acquirer's valuation, the valuation depends on the market's read of the combined company, and the combined company depends on which currency funds the deal, is why experienced advisers model price and consideration together rather than settling one and then the other. For the broader map of how these consideration choices sit inside the full set of deal structures, the architecture of real estate M&A lays out where each one fits, and the general synergies in M&A primer covers the cost-saving logic that makes stock-funded consolidation worth pursuing in the first place.