Paired Shares

Paired shares are the stock of two separate companies that are under the management or supervision of a single corporation. Paired shares are traded as if they are one stock and are sold as one unit. The stock of both companies typically appears on one stock certificate, with each stock printed on one side of the stock certificate. In general, one stock yields a higher dividend, while the other has a greater potential for growth. A share of stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

Also called "Siamese Shares" and "Stapled Stock."

For example, Carnival Corp. and plc (known previously as P&O Princess Cruises plc), completed a dual listed company transaction in April 2003. Shares of Carnival Corp. common stock were paired with trust shares of beneficial interest in the P&O Princess Special Voting Trust. These new shares were referred to as the "trust shares" or "paired shares." Another example is the paired share of Extended Stay America, Inc. and ESH Hospitality, Inc. One share of Extended Stay America common stock, with a par value of $0.01, together with one share of ESH REIT class B common stock, par value of $0.01, are attached and trade as a single unit.

The paired-share structure was popular in the REIT industry until the IRS Restructuring and Reform Act of 1998 (IRS Bill), enacted by the Clinton Administration, ended the corporate tax advantage that REITs enjoyed with this structure. In the 1980s, paired-share REITs could own their properties while an attached traditional corporation operated them, with the two companies trading as a single entity. Through this structure, the REIT avoided taxes because the operating company could transfer the majority of its revenues to the REIT via rents. By 1984, however, Congress prohibited the formation of new paired-share REITs, but allowed a few existing paired-share REITs to be grandfathered in, including Starwood Hotels & Resorts, Patriot American Hospitality, MediTrust and First Union Real Estate. However, when Starwood purchased ITT Corp. for $14.6 billion in 1998, the Treasury Department and Congress began to ratify legislation to end the structure. Following the IRS Bill’s enactment in July 1998, Starwood changed from a REIT to a traditional corporation, effectively ending the paired-share structure.