Shareholder Activism in REITs

April 14, 2021 - David Downs, Miroslava Straska, Greg Waller

Citation: Downs, D. H., Straska, M., Waller, H. G. (2019) Shareholder Activism in REITs. Real Estate Economics  

Research Summary: 
Conventionally, commercial real estate firms (i.e., REITs) have been viewed as being considerably less susceptible to shareholder interventions than firms in other industries.  Two features of REITs drive this perception: first, REIT managers enjoy various takeover protections that are not afforded to other firms, and second, a publicly traded REIT’s assets (e.g, properties) trade in parallel private commercial real estate markets.  This second feature, coupled with the transparency of a REIT’s investments, dampens the stock under-valuations that attract activist investors. Our research shows that, contrary to this accepted wisdom, REIT managers are in fact as likely to be “attacked” by activist investors as firms in general. We further show that activist investors get results. Interventions yield both short-term increases in stock prices and board seat reallocations.  Further, targeted firms regularly merge or are acquired.  The key takeaway from our study is that despite seemingly protective regulatory mechanisms, underperforming REIT managers are not shielded from the disciplining forces of the market, and must remain alert to avoid predators.

* This research was made possible, in part, by the generous support of the VCU Presidential Research Quest Fund and The Kornblau Institute at VCU. Funding was provided in order to gather data from the dataset FactSet SharkWatch (formerly SharkRepellent)