Value Implications of REITing and De-REITing

The Journal of Real Estate Finance and Economics, Forthcoming

41 Pages Posted: 17 Aug 2020

See all articles by David C. Ling

David C. Ling

University of Florida - Hough Graduate School of Business Administration

Sugata Ray

University of Alabama - Department of Economics, Finance and Legal Studies

Alan Tidwell

University of Alabama

Luqi Xu

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: January 10, 2019

Abstract

We explore the determinants and value implications of publicly traded real estate companies converting to real estate investment trusts (REITs), which we term REITing, and publicly-traded REITs giving up their REIT status, termed de-REITing. Non-REIT real estate firms that pay relatively high dividends and have high income tax ratios are more likely to convert to a REIT; while REITs that have lower pretax incomes, dividend adjusted operating cash flows, and higher leverage ratios are significantly more likely to de-REIT. REITing generates significant positive abnormal returns (ARs) around the REITing announcement. These positive ARs are concentrated in firms with higher income tax liabilities and firms paying larger dividends pre REIT-conversion. De-REITing announcements generate significant negative ARs, which are mitigated when the de-REITing firm has low potential tax liabilities, or when the firm is cash flow constrained with respect to its dividend payment. Based on these results, we argue that the degree to which REITing (de-REITing) decisions are value generating (destroying) depends on the magnitude of potential tax and dividend implications. We also examine the longer run valuation effects of REITing and de-REITing decisions and find no evidence of a reversion of the short-run announcement effects.

Keywords: REITing, de-REITing, REIT-conversion, REITs

Suggested Citation

Ling, David C. and Ray, Sugata and Tidwell, Alan and Xu, Luqi, Value Implications of REITing and De-REITing (January 10, 2019). The Journal of Real Estate Finance and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3652425 or http://dx.doi.org/10.2139/ssrn.3652425

David C. Ling (Contact Author)

University of Florida - Hough Graduate School of Business Administration ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States
(352) 392-0153 (Phone)
(352) 392-0301 (Fax)

Sugata Ray

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Alan Tidwell

University of Alabama ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Luqi Xu

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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