The impact of asset location on REIT merger decisions

Theories about the motivation to merge, derived from non-real estate investment trust firms, have been found insufficient to explain real estate investment trust (REIT) mergers. Additionally, previous REIT merger studies neglect asset-specific drivers of mergers. We investigate the impact of location of the partnering firm's assets on the decision to merge, using transaction cost economic theory as theoretical framework. We employ a pair-firm approach that jointly assesses the resources of REITs and their partnering firms. We find evidence that REITs are more likely to merge if targeted assets are (1) in primary real estate markets, (2) in strategically important growth markets or (3) associated with development or management expertise in markets a REIT has substantial investments in. Our findings emphasise the importance of portfolio considerations for REIT mergers that are specific to the REIT industry.