When Do REIT Managers Create Value in Real Estate Property Sell-Offs?

This paper examines major sales of real property by public U.S. Real Estate Investment Trusts (REITs) 1998-2002, and uses event study methodology to measure shareholder returns related to these events. In contrast to results reported for REIT sell-offs prior to 1990, but consistent with findings for conventional firms that sell off real estate, abnormal shareholder returns are found to be significantly positive overall. This result suggests that the finding of zero abnormal returns in previous REIT studies may result from the low degree of visibility of these firms prior to 1994. Further analysis shows that shareholder returns are significantly higher when the transaction is motivated by an expressed intention to increase property type corporate focus, a finding that adds to the literature supporting the view that diversification is negative for shareholder value. Abnormal returns are negatively associated with the seller's intention to use net proceeds to retire debt, but positively associated with the intention to repurchase common stock.