What is an UPREIT? -

A common operating structure for publicly traded equity REITs is the umbrella partnership real estate investment trust (“UPREIT”) structure. In a typical UPREIT structure, the REIT holds substantially all of its assets, and conducts substantially all of its operations, through a single operating partnership subsidiary (the “Operating Partnership”). In most cases, the REIT or a wholly owned subsidiary of the REIT serves as the sole general partner of the Operating Partnership and, as a result, the REIT has the exclusive power and authority to manage the Operating Partnership’s business, subject to certain limited rights maintained by holders of units of limited partnership interest (“OP Units”) in the Operating Partnership pursuant to the partnership agreement of the Operating Partnership (the “Partnership Agreement”).

In addition to controlling the Operating Partnership, the REIT typically owns a majority of the outstanding OP Units. These OP Units were obtained by the REIT in exchange for the contribution by the REIT of the net cash proceeds from the REIT’s IPO or other equity capital raise. The remaining OP Units are ordinarily held by outside limited partners (“OP Unitholders”) who received their OP Units by contributing real estate assets that were previously owned by them (or their interests in the entities that previously owned such real estate assets) to the Operating Partnership in exchange for the OP Units. Determining the value of the contributed assets and the allocation of the OP Units being issued as consideration to the property contributors often involves significant analysis and negotiation and, in certain instances, may involve third-party valuation firms.