The Wealth Effects of Yield-Accretive Acquisitions: The Case of Asian REITs

Mergers and acquisitions are important avenues for a firm to grow. Whilst many theories have been advanced to justify why REIT should acquire properties, this paper focuses on the yield-accretive acquisition strategy which is adopted by many REITs in Asia to boost earnings and dividends for their shareholders. We offer some initial evidence on the effect of accretive acquisitions on shareholders wealth by analyzing 172 property acquisitions made by REITs listed in Japan and Singapore between 2002 and 2006. The event-study shows that acquisition announcements convey information useful for the valuation of acquiring REITs. We observe that acquisition announcement enhances the acquiring REIT stock price by 0.50 % over a four-day period. Our regression analysis shows that the magnitude of the abnormal return is dependent on whether the acquisition is yield-accretive or dilutive. The evidence supports the view that the markets in Asia like and reward acquisitions that lead to higher earnings and dividends for the shareholders