Acquisition of equity REIT IPOs in the aftermarket

Abstract

Purpose

The purpose of this paper is to examine how long a real estate investment trust (REIT) initial public offer (IPO) survives until a merger occurs, and to determine the impact of different firm characteristics that exist at the time of the IPO on that survival in the aftermarket period.

Design/methodology/approach

The authors apply an accelerated failure time (AFT) duration model to determine how long the IPO will survive until merger occurs.

Findings

The results indicate that the time from the IPO to an eventual merger increases with size, the age of the REIT at IPO, and the percentage of institutional ownership. In contrast, the authors find that the time until merger decreases with increased market performance prior to the time of the offering and with the number of additional IPOs occurring at the time of the IPO.

Practical implications

There is a growing body of research that suggests that IPOs might be motivated by subsequent mergers. An understanding of those characteristics that effect the time until a merger occurs these relationships will enable market participants and capital providers to make better decisions about proceeding with, or evaluating, a REIT IPO.

Originality/value

There is a significant body of research on IPOs in general; however, the findings of this research vary depending upon the industry being examined. Further, there are a limited number of papers on IPO aftermarket survival. This is the only paper on REIT IPO aftermarket survival.

Citation

Alexander, J.C., Cheng, P., Rutherford, R.C. and Springer, T.M. (2013), "Acquisition of equity REIT IPOs in the aftermarket", Managerial Finance, Vol. 39 No. 8, pp. 737-755. https://doi.org/10.1108/MF-Jul-2012-0153