Title

Shareholder returns in mergers and acquisitions: The case of real estate investment trusts

Date of Completion

January 1999

Keywords

Business Administration, General|Economics, Finance

Degree

Ph.D.

Abstract

This study examines a sample of eighty-two mergers and acquisitions during the 1990s in which the acquiring firm is a publicly-traded Equity Real Estate Investment Trust. The sample includes thirty-seven events in which the target firm is also publicly traded, and forty-five in which the target firm is privately held. Standard event study methodology is used to measure abnormal shareholder returns around the event date for all acquirers, and for the thirty-seven public targets. The study finds that REIT mergers exhibit characteristics that are markedly different from those observed in non-REIT mergers with regard to method of financing, and abnormal shareholder returns. These differences are attributed to the legal limitations associated with the institutional environment in which REITs operate. ^ With regard to method of payment, Equity REITs exhibit a strong preference for stock financing as opposed to cash. Only four of the eighty-two transactions studied are cash purchases. In non-REIT mergers, 40%–50% of transactions are cash purchases. ^ Acquiring REIT shareholder abnormal returns in mergers with public targets are negative as are those generally observed in similarly-financed non-REIT mergers, but are much smaller in absolute terms. This finding shows that the merger regime observed by Allen and Sirmans [1987], who observed positive excess returns for acquirers in pre-1990s REIT mergers, is no longer in effect. Abnormal returns for public targets are significantly positive as are those generally observed in similarly-financed non-REIT mergers, but are much smaller in absolute terms. Shareholder abnormal returns when the target is privately held are significantly positive, but smaller than those that Chang [1998] observed in similarly-financed non-REIT private mergers. ^