Areit Bidder Returns an Evaluation of Public and Private Targets and Method of Payment

We examine the wealth effects of fifty-six Australian Real Estate Investment Trusts (A-REITs) acquirers around the announcement date of a merger and acquisition over the period of 1996 to 2010. Utilising event study methodology we find that bidding A-REITs earn positive and significant cumulative excess returns (CARs) of +0.966% around the three-day announcement period [-1,+1]. Analysis also indicates bidding firms earn higher CARs when the acquisition is financed by scrip and/or a combination of scrip and cash. Consistent with prior REIT research, event study results show that A-REIT acquirers earn higher excess returns when the target is private as compared to a public target, +2.834% and +0.457% respectively. Further investigation, employing regression analysis, shows book-to-market ratio has a negative impact on bidding firms CARs, suggesting low (high) book-to-market ratio firms are overvalued (undervalued). We also find that specialisation by property type has a positive and significant influence on bidder excess returns. Finally, our results show support for the method of payment findings in the event study, with method of payment returning a negative and significant impact on bidder CARs.