The wealth effects of real estate transactions: The case of REITs

McIntosh, Willard; Ott, Steven H.; Liang, Youguo

doi:10.1007/bf01096944

Cited by 34 publications

(24 citation statements)

References 7 publications

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“…Lang, Poulsen and Stulz (1995) find that returns in sell-offs by conventional firms are higher when the proceeds are distributed to owners, and they advance the view that the difference reflects the agency cost of managerial discretion when sale proceeds are not paid out. McIntosh, Ott and Liang (1995) find that returns are higher in REIT sell-offs when dividends increase.…”

Section: Research Questionsmentioning

confidence: 92%

Value Creation in REIT Property Sell‐Offs

Campbell

Petrova

Sirmans

2006

Real Estate Economics

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We examine major sales of real property by public U.S. Real Estate Investment Trusts (REITs) 1992-2002. We find that abnormal shareholder returns are significantly positive, a result that is consistent with findings for conventional firms that sell off real estate. Because REITs do not pay taxes, this finding supports the view that abnormal returns in real estate sell-offs by all types of firms are derived largely from asset allocation efficiencies and do not result exclusively from tax benefits. Shareholder returns are lower in sell-offs motivated by a desire to reduce long-term debt, as is consistent with financial theory regarding the information content of leverage decisions. Returns are inversely related to the firm's operating performance prior to the sell-off announcement, further supporting the case that improved asset efficiencies create value in real estate sell-offs.We study a sample of real estate property sell-offs 1992-2002, in which the seller is an Equity Real Estate Investment Trust (EREIT). We define a property sell-off as a transaction in which a Real Estate Investment Trust (REIT) sells one or more properties to the same buyer in the same transaction, when the total price is greater than $20 million. Sell-offs must be distinguished from liquidations or mergers. In a sell-off, the selling REIT continues to exist after the sale, with no clear plans to terminate operations in the foreseeable future.The last decade has been a decade of rapid growth for REITs. As a result, a substantial body of literature has developed analyzing transactions in which REITs obtain real assets. In contrast, the literature regarding transactions in which REITs dispose off property in sell-offs is very thin.We measure abnormal returns for these transactions, finding that announcement window returns are significantly positive. We test for wealth effects created by management's decision to apply sale proceeds to the reduction of longterm debt, and we find significant results different from results reported for conventional firms. We find that abnormal returns are inversely related to the firm's operating performance prior to the announcement. We also find that firms

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Section: Research Questionsmentioning

confidence: 92%

Value Creation in REIT Property Sell‐Offs

Campbell

Petrova

Sirmans

2006

Real Estate Economics

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“…McIntosh, Ott and Liang (1995) study a sample of 54 major property acquisitions during in which all of the acquirers are REITs. Their findings are the same as those for the other studies of similar transactions: Abnormal returns to acquirers are insignificantly different from zero.…”

Section: The Literature On Real Estate Portfolio Transactionsmentioning

confidence: 99%

Wealth Effects of Diversification and Financial Deal Structuring: Evidence from REIT Property Portfolio Acquisitions

Campbell

Petrova

Sirmans

2003

Real Estate Economics

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This study examines the strategic characteristics and shareholder wealth effects of a popular vehicle for Real Estate Investment Trust growth in the 1990s: the acquisition of a portfolio of properties from a single seller. We examine a sample of 209 REIT portfolio acquisitions during 1995-2001. We observe a wide variety of financing strategies and find an array of different categories of sellers. Contrary to results reported in real estate transactions of this sort in the past, we find that announcement-period shareholder returns are significantly positive in the aggregate. We present evidence that excess returns to acquirers result from (1) wealth benefits received when companies reconfirm their geographical focus in the acquisition, (2) positive information conveyed by the use of project-specific private debt and (3) a positive signal sent to the market when transactions are financed by stock privately placed with financial institutions. Copyright 2003 by the American Real Estate and Urban Economics Association

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“…The consensus, as recently elicited by Sirmans (1989, 1991), Elayan andYoung (1993), andMclntosh, Ott, andLiang (1995), is that sellers obtain unexpected returns and that buyers do not. Explanations for this finding rest on differences in the tax treatments for buyers and sellers, and on the number of buyers as opposed to the number of sellers.…”

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confidence: 99%

A reexamination of corporate sell-offs of real estate assets

Booth

Glascock

Sarkar

1996

J Real Estate Finan Econ

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This article reexamines the now generally accepted notion that sell-offs of real estate assets provide positive returns for sellers but not for buyers. Following previous research, we use event study methods, but we modify the conventional market model to permit its residuals (unexpected returns) to be described by a time-varying conditional variance. We also differ from previous work in that our sample contains only sell-offs that can be precisely dated. Although we find substantial evidence of time-varying volatility in the unexpected return series, our economic results confirm the conventional viewpoint.Research on the restructuring of real estate and related firms affected by the purchase or sale of real estate has centered on documenting any unexpected returns associated with such activities and providing explanations for the statistical findings. The consensus, as recently elicited by Sirmans (1989, 1991), Elayan andYoung (1993), andMclntosh, Ott, andLiang (1995), is that sellers obtain unexpected returns and that buyers do not. Explanations for this finding rest on differences in the tax treatments for buyers and sellers, and on the number of buyers as opposed to the number of sellers. This latter explanation finds support in the corporate control literature as illustrated by Bradley, Desal, andKim (1988) and Jarrell, Brickley, andNetter (1988), among others.The purpose of this study is to reexamine the nature of the returns received by buyers and sellers. Two factors motivate this reexamination. First, previous studies rely on event study procedures cum the Ordinary Least Squares (OLS) market model. The OLS market model assumes that unexpected returns are normally distributed. Numerous studies, however, including Morgan and Morgan (1987), Connolly (1989), and Schwert and Sequin (1990), demonstrate that these returns often exhibit significant heteroscedasticity. To account for this possibility, we use a market model that permits unexpected returns to follow a generalized

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The wealth effects of real estate transactions: The case of REITs

Cited by 34 publications

References 7 publications

Value Creation in REIT Property Sell‐Offs

Value Creation in REIT Property Sell‐Offs

Wealth Effects of Diversification and Financial Deal Structuring: Evidence from REIT Property Portfolio Acquisitions

A reexamination of corporate sell-offs of real estate assets

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