The Separation of Real Estate Operations By Spin‐Off

Abstract

In this paper, we consider spin‐offs as a vehicle to separate real estate operations from other real estate and/or non‐real estate operations. For a sample of 33 such spin‐offs announced and completed between 1962 and 1982, we document significantly positive abnormal returns around spin‐off announcements. Using the standard event‐time methodology, we find average excess returns of 5.7% in the two‐day interval surrounding the first Wall Street Journal report of a pending spin‐off. While the gains associated with spin‐offs by real estate firms are positive on average, they are small in comparison to the 9.1% two‐day announcement period abnormal returns surrounding proposals by non‐real estate firms to divest real estate operations.