Differences in Acquirer Motivations, Announcement Effects, Target Characteristics, and Financing in Private versus Public Acquisitions: The Case of REITs

This paper first identifies the characteristics of publicly-traded REITs associated with an increased probability of being the target of an announced merger or acquisition. Second, conditional on being a target, we examine whether certain target characteristics influence the probability of a bidder being a private versus a public firm. Third, we examine whether the wealth effects that accrue to the shareholders of target REITs in going private deals and public-to-public transactions vary with the characteristics of the target and acquirer firms. Finally, we investigate the extent to which going private transactions differ from “staying public” acquisitions in terms of the type of financing employed and the motivation of the two investor types. We find that REITs more likely to become acquisition targets are smaller, with no umbrella operating partnership, less liquidity, higher dividend yields and greater institutional ownership than non-targets. We also document that targets of private acquirers have lower leverage, interest coverage ratios, and profitability. Although acquisitions by private buyers are always done with cash, there has been a shift toward the use of cash in public-to-public deals. In addition, the factors related to abnormal returns differ in public-to-public and public-to-private deals. We are grateful to the Real Estate Research Institute for providing partial funding for this project. We would like to thank Piet Eichholtz, Jonathan Dombrow, Rebel Cole, Jim Shilling and participants of the DePaul University REIT Symposium for helpful comments and suggestions. *McGurn Professor of Real Estate, Department of Finance, Insurance, and Real Estate, Hough Graduate School of Business Administration, University of Florida, Gainesville, FL 32611-7168, Phone: (352) 392-0153, Fax: (352) 392-0301, Email: [email protected] **Assistant Professor, Department of Finance, Whitman School of Management, Syracuse University, Syracuse, NY 13244, Phone: (315) 443-9631, Email: [email protected]