Pricing Efficiency and Investor Reactions in J-REIT Property Acquisitions: An Analysis of Acquisition Price and Fair Value

Abstract

The Japanese real estate investment trust (J-REIT) market is the second-largest REIT market globally and has played a key role in property acquisitions in Japan over the past two decades. This study examines pricing efficiency in J-REIT acquisitions over a period of 20 years and focuses on whether properties are acquired at underpriced or overpriced amounts relative to fair values and how investors reacted. This study finds that J-REITs acquire the most properties below fair value, with significant variation across types of assets and sellers. Notably, acquisitions from related parties tend to be less underpriced as opposed to those from third parties. This study also assesses investor reactions to underpriced acquisitions by analyzing the cumulative abnormal returns of J-REIT investment unit prices around acquisition announcements with seasoned equity offerings. Our findings indicate that investors are not highly attentive to differences between acquisition prices and fair values, as they do not react to the amount of underpriced acquisitions. This study contributes to understanding valuation dynamics in J-REIT acquisitions and offers insight into investor sentiment regarding pricing efficiency. The work underscores the importance of assessing the fairness and strategic implications of property acquisitions.

View PDF – https://doi.org/10.53383/100413