Regardless of recent advances in securitized real estate, understanding real estate in the context of capital market remains obscure. Due to the lack of sufficient information on their risk characteristics, both corporate and individual investors are uncertain about how far to invest in Real Estate Investment Trusts (REITs). Particularly, the dividend pay-out requirement and restriction on property investment imply market microstructure differences. This is unwanted for REITs who are unable to fund investment activities through internally generated profits. Microstructure differences are likely to result in a heightened liquidity risk, which captures the sensitivity of its stock returns to market liquidity shocks and plays a vitally important role in determining the expected stock return as well as external financing.1 In this paper, we explore how REITs managers use real earnings management to address issues of liquidity risk and cost of capital during seasoned equity offerings. We focus on real earnings management instead of accrual based earnings management2 since the latter, achieved by discretion over accounting policies, does not affect the cash flow of the firm and liquidity risk. Unlike accrual earnings management which may affect firm performance indirectly through distorting accounting information or FFO (Zhu et al. 2010), real earnings manipulation results in direct cash flow consequences, altering the firm’s ratio of the future cash flows to the covariance with all the cash flows in the market, i.e. the liquidity risk. This channel on liquidity risk is supported by Lambert et al. (2007) who demonstrate that the quality of accounting information can influence cost of capital either directly via the firm’s assessed covariance with other firms’ cash flows or indirectly via the firm’s expected future cash flow. Furthermore, Ambrose and Bian (2010)‘s investigation on the information generated from stock market trading implies that real earnings management is utilized to affect equity stock pricing in REITs.