The Financial Performance of REITs Following Initial Public Offerings

Abstract

This study examines changes in operating performance among real estate investment trusts following an initial public offering (IPO). The purpose is to determine whether there is an enhancement in the value of the underlying asset that is related to the IPO. We separately analyze equity, mortgage and diversified REITs. We also compare the operating performance of recent IPOs to those of earlier years to address the impact of the 1993 Revenue Reconciliation Act on institutional investors’ demand for REIT stock. Unlike previous analyses of industrial firms, REITs were found to have significant increases in Return on Assets and selected measures of financial performance. The post-IPO cumulative stock price decline and recovery is illustrated.

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