Shareholder Activism in REITs

We examine shareholder activism - specifically, its determinants, wealth effects, and real consequences - in Real Estate Investment Trusts (REITs). Conventional wisdom suggests that shareholder activism in REITs occurs less frequently than in other publicly-traded firms. This belief is plausible because most REITs are thought to be protected against hostile takeovers and because the potential for undervaluation in REITs is thought to be limited. The potential gains to shareholder activists who advocate for governance, operational, or strategic changes are thus thought to be smaller when targeting REITs. We find, however, that the conventional wisdom does not hold. Specifically, we show that REITs are as likely to be targeted by shareholder activists as other public firms. We also find that the average short-term gains around activist events in REITs are significantly positive and similar to the gains experienced by other public firms. The rest of our results can be summarized as follows. We find that REIT activist targets are more likely to be subsequently taken over than other comparable REITs and that only the activist targets that are ultimately taken over experience significantly positive long-term returns, on average. We do not find evidence of any significant changes in performance, leverage, payout, or investment in the REIT activist targets that are not ultimately taken over. Collectively, our results are best described as consistent with the view that the positive short-term gains to shareholder activism in REITs reflect the expectation of an increased takeover likelihood of activist target firms.