Abstract
We study long-horizon shareholder returns in a comprehensive sample of Real Estate Investment Trust (REIT) mergers, to test whether or not the anomaly of post-merger underperformance observed in conventional firms applies to the case of REITs. Constructing synthetic benchmark portfolios controlling for firm size and for book-to-market value ratio, we find that 60-month buy-and-hold abnormal returns for REIT acquirers are significantly negative at approximately −10%, supporting the position that REIT merger acquirers underperform non-merging REITs in the long run. We find no evidence to challenge previous studies reporting positive announcement period returns for acquirers when the target is privately held, but we do find evidence that these positive returns do not persist. The long term performance of acquiring REITs is approximately the same whether the target is public or private.
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Notes
These difficulties might explain why the use of the long-horizon event study methodology in the real estate literature has been rather limited. Giambona et al. (2005) constitute however one notable exception in the context of open-market stock repurchases for REITs.
For an application of winsorizing in the contest of long-horizon event studies applied to mergers see Sudarsanam and Mahate (2003).
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We are grateful to the participants of the 2006 AREUEA-ASSA meeting in Boston for their comments, and to Research Assistant Dao Trung Kien for his substantial contributions. Any errors are our own. This project received support from a Summer Research Grant at the Frank G. Zarb School of Business, Hofstra University.
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Campbell, R.D., Giambona, E. & Sirmans, C.F. The Long-Horizon Performance of REIT Mergers. J Real Estate Finance Econ 38, 105–114 (2009). https://doi.org/10.1007/s11146-007-9085-z
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DOI: https://doi.org/10.1007/s11146-007-9085-z
Keywords
- Real Estate Investment Trusts
- REITs
- EREITs
- Mergers
- Buy-and-hold abnormal returns
- BHARs
- Post-merger performance