An Examination of Primary and Secondary Market Returns in Equity REIT IPOs

We examine primary and secondary market returns for real estate investment trust (REIT) initial public offerings (IPOs). Consistent with theories regarding compensation for information production during the roadshow, we find offer-to-open returns are directly related to partial adjustment and are significantly lower for REITs holding assets in a single property type. Matching REIT IPOs to comparable non-REIT IPOs, we also find evidence consistent with demand uncertainty. Specifically, after controlling for issue and firm characteristics, REITs post significantly lower secondary market returns despite similar primary market returns. This indicates that demand uncertainty resolves more quickly for REITs, possibly due to higher relative transparency.