Shareholder Activism in REITs

Abstract

Conventional wisdom suggests that shareholder activism in REITs is less prevalent than in other (non-REIT) public firms because of stronger barriers to hostile takeovers and potentially less undervaluation. Our results, however, suggest that the conventional wisdom does not hold. Specifically, we find that in 2006-2015, Equity REITs (EREITs) are as likely to be targeted by shareholder activists as non-EREITs. We also find that shareholder campaign characteristics and determinants, as well as their value consequences, appear similar for EREITs and non-EREITs. Given that this is the first study to examine shareholder activism in REITs, we raise several questions for future research."No recent development has influenced firms' strategic and financial decision-making as profoundly as the surge in shareholder activism following the global financial crisis." 1

The REIT Conversion Puzzle

“…We note that shareholders and the management of individual REITs trading at substantial NAV discounts may find little consolation in the literature's observation that substantial deviations of share prices from NAV tend to be temporary. Consistent with this idea, Downs et al (2019) find that U.S. REITs are more likely to be targeted by activist investor campaigns when their share prices are low relative to NAV.…”

“…We capture any prevailing rules of ownership restrictions using an indicator variable that equals one if country j exhibits certain ownership rules at time t for minimum free-float or block-holding limits. An example from the U.S. is the "five or fewer" rule (see, for example, Downs et al, 2019 andChiang et al (2018)).…”

“…As a result of these common characteristics, REITs have become a globally recognized form of real estate ownership for retail and institutional investors seeking liquid vehicles to invest in high-quality properties (Downs et al, 2019). The literature provides clear evidence in favor of REIT conversions, i.e., REOCs adopting the REIT structure.…”