Corporate Exit Strategies: Evidence from Real Estate Investment Trusts (REITs)

This study examines a cohort of 195 public Equity REITs that are NAREIT members in 1998, and measures changes in corporate status 1998-2002. Sixty five firms, a full one third of the cohort group, exit from NAREIT membership during the four-year period of study. The most commonly used vehicle for exit is public-public merger, but many REITs exit by merging private or by liquidation. Abnormal returns to shareholders are measured around the announcement of the exit event. Returns are positive for announcements of exits of all types, but not significantly so for the case of liquidations. ARs of +3% in public-public mergers are consistent with previous literature. ARs are best when firms merge private, at +11%. Logistic analysis of the conditional probability of each exit type produces evidence that traditionally-structured REITs are significantly more likely to exit by merging public, and less likely to exit by merging private, than UPREITs are. Also, Diversified REITs are less likely to exit by merger of any sort, and more likely to liquidate, than are REITs with specialized property portfolios.