Strategic Transactions around REIT Conversions

Abstract

This paper examines conversion-related M&A activity and the post-conversion performance of 80 Real Estate Operating Companies (REOCs) that chose to adopt Real Estate Invest-ment Trust (REIT) status. We observe distinctly higher M&A activity in the years around conversion dates and relatively higher premiums in conversion-related deals. The REIT for-mat attracts equity from investors more readily than the REOC format, which explains the increase in postconversion M&A activity. Overall, converted REITs realize positive excess re-turns. We find that lower (higher) M&A activity pre-conversion translates into superior absolute (risk-adjusted) post-conversion performance, which illustrates the benefits from such strategic company realignments.