An investigation into the drivers of Australian REIT merger and acquisition announcements

Abstract

Purpose

The purpose of this paper is to use Australian Real Estate Investment Trust (A‐REIT) data to empirically examine potential influencing factors on A‐REITs becoming a bidder or a target in the mergers and acquisitions (M&A) area.

Design/methodology/approach

This study uses logistic regression analysis to investigate the odds of publically traded A‐REITs being either a bidder or a target as a function of a number of financial and corporate governance variables.

Findings

Prior research in the US REIT M&A area has shown that target size is inversely related to takeover likelihood; in contrast, the authors' Australian results show that size has a positive impact. Prior research on share price and asset performance has shown that underperformance increases the odds of an entity becoming a target, but this paper's results further support these findings and provide confirmation of the inefficient management hypothesis. For acquirers it was found that leverage, cash balances, management structure, the level of shares held by related parties and the global financial crisis have an important impact on bidder likelihood.

Practical implications

Given that the literature suggests that investors can earn significant positive abnormal returns by owning targets, but incur significant abnormal losses by owning bidders, at announcement, this study will be useful to fund managers and other investors in A‐REITs by investigating the characteristics of those firms that become targets and bidders.

Originality/value

This paper adds to the recent US REIT M&A literature by examining the second biggest REIT market in the world and reporting a number of factors that might influence A‐REITs to become targets or bidders.

Citation

Ratcliffe, C. and Dimovski, B. (2013), "An investigation into the drivers of Australian REIT merger and acquisition announcements", Journal of Property Investment & Finance, Vol. 31 No. 5, pp. 441-461. https://doi.org/10.1108/JPIF-02-2013-0012