Valuation effects of REIT mergers and the role of diversification
John C. Alexander and
Thomas M. Springer
Managerial Finance, 2018, vol. 44, issue 4, 424-438
Purpose - Merging two real estate investment trusts (REITs) consolidates two real estate portfolios. The purpose of this paper is to provide further evidence on the market’s valuation of property type and geographic diversification of REITs by looking at the diversification impact of mergers involving domestic REITs in the Modern REIT era (post 1992). Design/methodology/approach - The authors classify equity REIT mergers according to whether they maintain portfolio focus or alter their focus with respect to the geography and property type distribution of the underlying real estate. Then, using a domestic REIT index, the authors examine abnormal returns around the merger announcement to ascertain how portfolio changes affect value. Findings - Although the results show no abnormal returns to the combined REIT for the 126 mergers in the sample, mergers that maintain geographic focus and alter the property focus contribute positively to the abnormal returns. Acquiring REITs show negative abnormal returns for mergers that either diversify geography or maintain property focus. Target REITs earn positive abnormal returns no matter the diversification impact of the merger. Research limitations/implications - The results suggest that changes to the composition of the REIT’s property portfolio have valuation implications. The results suggest that during the modern REIT Era, property diversification created positive wealth effects for the acquirer. Originality/value - This research adds to the evidence on how REIT investors value changes in the diversification of the underlying properties, and implies that the investor perception of portfolio effects from mergers may vary over time as the REIT industry expands and consolidates.
Keywords: Diversification; Mergers; REITs; Market reaction (search for similar items in EconPapers)
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://www.emeraldinsight.com/10.1108/MF-10-2017-0 ... RePEc&WT.mc_id=RePEc (text/html)
Access to full text is restricted to subscribers
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eme:mfipps:mf-10-2017-0412
Ordering information: This journal article can be ordered from
Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
http://emeraldgroupp ... s/journals.htm?id=mf
Access Statistics for this article
Managerial Finance is currently edited by Professor Don T Johnson
More articles in Managerial Finance from Emerald Group Publishing
Bibliographic data for series maintained by Virginia Chapman ().