Volume 27, Number 3, 2005 of the Journal of Real Estate Research

The Performance of Acquisitions in the Real Estate Investment Trust Industry

Abstract: This study examines the performance of acquisitions in the Real Estate Investment Trust (REIT) industry around the acquisition announcement and in the long-run. The results suggest that the acquiring REITs experience statistically significant negative abnormal returns while the target REITs earn statistically significant positive abnormal returns during the three-day period around the announcement. The long-run performance of the acquiring REITs is analyzed using size benchmark portfolios with the buy-and-hold, cumulative average and mean calendar time abnormal returns, as well as the Fama–French Three Factor Model. None of the other methods detect significant abnormal returns in the long-run with the exception of the buy-and-hold abnormal return. Further analysis shows that the long-run positive buy-and-hold abnormal return is consistent with an unexpected decline in cost of equity after acquisitions.