Yesterday’s press release of the Lamar Advertising acquisition of Verde Outdoor created a new transaction vehicle for the public REIT’s as they announced the first-ever UPREIT transaction in the billboard industry.

Billboard Insider worked with SignValue to better understand how an UPREIT works.  Lamar has been interested in using an UPREIT since 2021. For an UPREIT to make sense, you need a large transaction and a willing seller, so Lamar needed to find the right fit. Billboard Insider hears Verde was not for sale and was approached by Lamar with the UPREIT idea.

So, what are the advantages for a Seller? There are some important benefits (courtesy of our sources and AI):

Seller Benefits

• The Seller has the ability to defer their capital gains at the time of the transaction.
• Since the Seller becomes an Operating Partner, the OP owners can later convert their OP Units into REIT shares (there is a holding period).
• OP Units are essentially equivalent to REIT shares in terms of value and income potential. They represent a proportional ownership in the operating partnership and its diversified portfolio of properties.
• The conversion to REIT shares provides liquidity, allowing investors to sell their shares on the open market, and offers diversification across a larger, professionally managed portfolio.
• Sellers would receive dividends from the equity they hold.
• If the Seller elects to hold the new shares it will track to Lamar’s stock performance, which historically has been steady and attractive.
• Sellers could also borrow against their value as a method to provide liquidity while still deferring taxes.

The Buyer also has significant advantages:

Buyer Benefits

• For Lamar, it is a benefit for them to showcase this novel transaction structure.
• Lamar preserves liquidity and debt capacity for additional growth.

How about the impact an UPREIT transaction of this size can have on Lamar’s overall equity?  Looking at the stock’s closing market value today, it shows the transaction had little effect with a closing price of $123.58.

SignValue Take: We have many clients who are concerned longer term about how to manage capital gains from a sale.  An UPREIT adds a new and valuable consideration for the larger companies.

If you have questions, contact one of SignValue’s experienced analysts for a free and confidential consultation at info@signvalue.com or call 480-657-8400.

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