We analyze lockups for REIT IPOs during the period from 1980 to 2006. Unlike industrial IPO lockups, we find that our sample does not cluster at 180 days and varies over time.
Our sample of equity REIT IPOs show a longer average lockup period than those reported for industrial IPOs. We find no strong support to the signaling explanation for lockup length. As REITs are highly regulated and relatively transparent when compared to industrial firms, REITs may not necessarily use lockups to reduce the level of asymmetric information. The positive relation between offer size and lockup length from the Tobit analysis lends support to the commitment device hypothesis. While a lockup can be used as a commitment device, it is more relevant for self-managed REITs than for externally managed REITs.
In contrast to previous studies, we find no significant negative abnormal returns around the unlock date. This result is consistent with the previous findings that abnormal returns around lockup expiration are limited to corporations with venture backing. As REITs are not backed by venture capitalists, the lack of aggressive sales by venture capitalists may explain our finding.
The lack of negative abnormal returns around lockup expiration can also be explained by other unique characteristics of REITs. REITs are more transparent than industrial companies thus negating the need for urgent sales. A majority of investors of REITs investors are institutional investors, who have a longer investment horizon and are less sensitive to lockup expiration.
Finally, the insiders of REITs do not aggressively sell their holdings when lockups expire, possibly for the diversification benefit of REITs.
Institutional ownership and management style have an impact on price performance
around the unlock date. Negative abnormal returns exist for REITs with low levels of institutional ownership and self-managed REITs. Regression analysis indicates that REITs that invest in lodging and resorts have lower abnormal returns around the unlock date. The behavior of trading volume for our sample of REITs is different from that for industrial IPOs. Although trading volume sometimes jumps abruptly after the unlock date, there is no sign of permanent increase, which is not consistent with previous studies on industrial IPOs.
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Table 1 Number and Market Capitalization of REITs (US$ million)
Source: National Association of Real Estate Investment Trusts
Table 2 Summary Distribution of REITs Sample
Sample size Average Offer Size (US $ million) Distribution of lockup period (days) Year Full sample Lockup No lockup Full sample Lockup No lockup
Average
Table 3 Summary Statistics for REIT IPOs with Lockups Panel A. Full sample
Sample size (n) Average offer size (US$
million) Average lockup period (days) Average institutional ownership
Management type Sample size (n) Average offer size
(US$ million) Average lockup
period (days) Average institutional ownership (%)
Self-managed 90 210.27 348 56.91
Externally managed 27 155.36 258 40.83 Panel E: Property type
Majority property type Sample size (n)
Average offer size
Office/industrial 32 228.20 337 56.87
Lodging/resorts 19 150.12 220 37.87
Others 15 273.45 320 56.95
Table 4 Tobit Analysis
This table reports the results for Tobit analysis. The dependent variable is the logarithm of 1 plus lockup length. TOP6_AUDITOR is a dummy variable with a value of 1 if the auditor is one of the top six auditing firms, and zero otherwise. LNPROCEEDS is the logarithm of offer size, which is the product of the number of IPO shares and the offer price. MSE is the mean square error of the market model; it is used as a proxy for idiosyncratic risk. UNDERWRITER_RANK is a measure of the reputation of the lead underwriter using Carter-Manaster rankings. SELF-MGT is equal to 1 for self-managed REITs, and zero otherwise.
RETAIL, RESIDENTIAL, OFFICE_INDUSTRIAL, and LODGING_RESORT are dummy variables with a value of 1 if the REIT concentrates on the type of property indicated, and zero otherwise. BULL is equal to 1 if there was a bull market over the 12 months before the offering, and zero otherwise. *** and **
indicate significance at the 1% and 5% level, respectively.
Table 5 Cumulative Abnormal Return around the Expiration of the IPO Lockup Period
T-statistics (the Wilcoxon signed rank test) are in parentheses and are used to test whether the mean (median) of abnormal returns is significantly different from zero. ** indicates significance at the 5% level.
Table 6 Cumulative Abnormal Return around the Expiration of the IPO Lockup Period, Classified by Insider Trading
Panel A: REITs with Insider Trading within 10 days before and after the Unlock Date
REITs with insider trading REITs without insider trading
(1) number of observation 24 52
(2) CAR
(-5, +5) 0.28%
(0.38) 0.34%
(0.49)
(-1, +1) 0.51%
(0.85)
-0.14%
(-0.42)
(0, +1) -0.14%
(-0.33) -0.15%
(-0.50)
Panel B: REITs with Insider Sell within10 days before and after the Unlock Date (1) number of observation 3 (2) CAR
(-5, +5) 0.37%
(0.12)
(-1, +1) -1.56%
(-0.50)
(0, +1) -0.35%
(-0.18) Inside parentheses are t-statistics
Table 7 Cumulative Abnormal Return around the Expiration of the IPO Lockup Period – by Subgroups Panel A: Classified by Institutional Ownership
Cumulative abnormal return
Event date Institutional ownership > Median (%) Institutional ownership < Median (%)
Day 0 –0.05
Panel B: Classified by Insider Ownership
Cumulative abnormal return
Event date Insider Ownership > Median (%) Insider Ownership < Median (%)
Day 0 –0.39
Panel C: Classified by Management Types.
Cumulative Abnormal Return
Event date Self–managed (%) Externally managed (%)
Day 0 –0.18
Inside parentheses are t-statistics. ** and * indicate significance at the 5% and 10% level, respectively.
Table 8 Abnormal Trading Volume for Event Window (–25 to +25)
***, **, and * indicate significance at the 1%, 5%, and 10% level, respectively.
Table 9 Regression Analysis
This table reports the results for the regression analysis of the determinants of market responses around the unlock date. The dependent variables are the cumulative abnormal returns for event windows (–5, +5) and (–1, +1) and the abnormal return on the event date. LNPROCEEDS is the logarithm of offer size, which is the product of the number of IPO shares and the offer price. INSTITUTION is equal to 1 for REITs with institutional ownership greater than the sample mean, and zero otherwise. SELF-MGT is equal to 1 for self-managed REITs, and zero otherwise. RETAIL, RESIDENTIAL, OFFICE_INDUSTRIAL, and LODGING_RESORT are dummy variables, which equal 1 if the REIT concentrates on the type of property indicated, and zero otherwise. UNDERWRITER_RANK is a measure of the reputation of the lead underwriter using Carter–Manaster rankings. ATV is the abnormal trading volume for the corresponding event window. INSIDER is the insider ownership six months before the unlock date. White (1980) heteroskedasticity-consistent standard error and covariance are used. Inside parentheses are t-statistics. ***,
** and * indicate significance at the 1%, 5% and 10% level, respectively.
第二年 中文摘要
本文分析不動產投資信託主併公司的宣告效果。結果發現當公開發行的不動產投 資信託購併公開發行的不動產投資信託時，股價呈現負的異常報酬，但是如果被 併者屬於同一集團時，則沒有任何顯著的正或負報酬產生。當公開發行的不動產 投資信託併購未公開交易的私人不動產投資信託時，主併公司產生相當顯著的正 報酬，然而該報酬主要來自於資產的收購而非公司的合併。
關鍵字: 不動產投資公司、 宣告效果、主併公司、被併公司
Second Year Abstract
We examine the announcement effects for acquirers around REIT merger and acquisitions. The result shows that when REITs announce to merge with a publicly traded REIT that belongs to the same conglomerate, no abnormal returns are observed.
However, acquirers have significant negative announcement returns if the target firms are not in the same conglomerate. On the other hand, the market reacts to the announcement significantly positive if the acquires purchase private assets that are not within the same conglomerate.
Keywords: Real Estate Investment Trusts, Announcement Effect, Acquirer, private asset
I. Introduction
Travlo (1987), Campbell, Ghosh, and Sirmans (2001), and Fuller, Netter, and Stegemoller (2002) examine the abnormal returns around the merger announcement for Real Estate Investment Trusts (REITs). Similar to previous studies, they found significant positive abnormal returns for target firms and small positive or non-negative for acquiring firms. Campbell et al. (2001, 2006) studied the returns of bidding firms and found that acquiring firms tend to have negative abnormal returns when merging with publicly traded companies.
The corporate governance issues in REITs are different in several ways. First, REITs are highly regulated in paying out 95% earnings as dividends, not much free cash flows are left in the company. Therefore, there is no reason to takeover REITs.
Second, Campbell et al. (20012, 2006) and Ghosh and Sirmans (2003), argue that the takeover market monitoring mechanism does not functioning as well as that of conventional industries. They argue that only a small number of hostile takeovers exists in REIT industry, the internal corporate governance for REITs becomes more important than other industries.
If external corporate governance is less important, why does the merger wave continue until recently? In is study, we try to re-examine the merger activities of REITs. We further separate our samples into different groups based on whether they are public held or private held firms and on whether the acquirer and target firms belong to the same conglomerate.