Financial performance of timber real estate investments trusts after announcements of major structural changes

Abstract

Several timber real estate investments trusts (REITs) had significant structural changes in the past two years. Weyerhaeuser (WY) and Rayonier (RYN) began spinning off their non-timberland assets and became more focused on timberland management. WY and Plum Creek (PCL) proposed to merge to create a $23 billion timber behemoth. In this study, the short-term financial performance of timber REITs after these major structural changes is assessed. Event study and generalized autoregressive conditional heteroscedasticity (GARCH) model are employed to evaluate event-induced abnormal returns, volatility, and volume dynamics. The divestiture announcements had no significant impact on returns, while the merger announcement generated abnormal returns. In most cases, these events also increased asset volatility. There exists a positive correlation between the conditional variance of stock returns and trading volumes for all firms, signaling that they are influenced by the same underlying information flow.