The Long-Run Performance of REIT IPOs

Abstract

Real estate and real estate investment trust performance has been examined in a number of papers. In general, there has been little evidence that real estate investment trusts (REITs) have earned significant positive abnormal returns based on REIT indices such as NAREIT and Wilshire. There is, however, empirical evidence that REITs exhibit positive abnormal returns in the case of initial public offerings (IPOs). While short-run REIT IPO behavior has been examined, the long-run behavior of REIT IPOs has not been examined within the context of a factor-based asset pricing model. We find that REIT IPOs generate long-run positive abnormal returns based on a sample of REIT IPOs. This sample period coincides with a period of two initial public offering waves for the REIT industry. We find that (using a Fama and French (1993) type four factor model for long-run IPO behavior) REIT IPOs generated significant and positive abnormal returns in the 1990s but not the 1980s. In comparison, the NAREIT and Wilshire Indices did not generate positive and significant abnormal returns over the same period.