This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2021
  4. Preliminary Program
  5. REITs
« Back to Results

REITs

Paper Session

Sunday, Jan. 3, 2021 3:45 PM - 5:45 PM (EST)

Hosted By: American Real Estate and Urban Economics Association
  • Chair: Timothy Riddiough, University of Wisconsin-Madison

How Does Property Location Influence Investment Risk and Return?

Gregg Fisher
,
Quent Capital Investments
Eva Steiner
,
Cornell University
Sheridan Titman
,
University of Texas-Austin
Ashvin Viswanathan
,
Gerstein Fisher

Abstract

A property’s location is often considered to be the ultimate determinant of its investment performance. But how exactly does a property’s location influence its risk and return? We focus on the effects of location density on the risk and return of commercial real estate investments. We do this by studying the geographical characteristics of the property portfolios of U.S. equity REITs. We show that REITs with property holdings in high-density locations experience higher NOI growth and carry higher systematic risk than their otherwise comparable peers in low-density locations. Consistent with higher NOI growth rates, high- density REITs also have lower implied cap rates. Our results suggest that location density is an important determinant of REIT performance outcomes, implying that geographical characteristics can drive investment risk and return across commercial real estate markets.

NAV Ratios and REIT Takeovers: The Role of Public and Private Deal Premiums

Ryan Chacon
,
University of Colorado-Colorado Springs
Thibaut Morillon
,
Elon University

Abstract

We investigate how price-to-NAV ratios impact Equity REITs in the market for corporate control. We find that REITs are more likely to be targeted if they are trading at discounts to NAV. For each acquisition, there is a public deal premium (deal value relative to stock price) and a private deal premium (deal value relative to NAV). REITs trading at discounts to NAV command significantly larger public deal premiums and smaller private deal premiums. Shareholders of targeted REITs respond more favorably to transaction announcements if they are trading at discounts to NAV. The average target 3-day cumulative abnormal return (CAR) at announcement is 11% greater for REITs trading below 0.95 price-to-NAV than for REITs trading above 1.05. The sale of a REIT trading at a discount to NAV appears to be a productive transaction for potential acquirers and target shareholders alike. Buyers acquire the REIT at or near the private market valuation (NAV) and target shareholders exit at a significant premium to the public market valuation (stock price).

The Bank of Japan as a Real Estate Tycoon: Large-Scale REIT Purchases

Jiro Yoshida
,
Pennsylvania State University and University of Tokyo
Takahiro Hattori
,
Hitotsubashi University

Abstract

This is the first study to analyze the Bank of Japan’s (BOJ) purchase of real estate investment trusts (REITs) since 2010 as part of enhanced unconventional monetary policy. The BOJ purchases REIT shares after observing a significantly negative return over the previous night and during the morning market. The BOJ continues daily purchases until the overnight and morning REIT returns become positive. On the day of the BOJ’s purchase, the lunchtime and afternoon returns are more likely to be positive. This counter-cyclical behavior is consistent with the objective of decreasing risk premiums. Our study sheds light on the unique program of a central bank’s equity purchases.
We also present preliminary results about asset pricing after BOJ's REIT and ETF purchases based on CAPM and Consumption CAPM.

Asset Productivity, Local Information Diffusion, and Commercial Real Estate Returns

David Ling
,
University of Florida
Chongyu Wang
,
Concordia University
Tingyu Zhou
,
Florida State University

Abstract

The geography of a firm’s assets is an important determinant of its investment decisions and productivity, which, in turn, drives stock returns. We construct a novel measure of the returns earned by private market investors in the metropolitan areas where each equity REIT owns properties. We then risk-adjust this geographically weighted proxy for each REIT’s property portfolio return (PPR) by regressing it against the sensitivity of the REIT’s returns to systematic risk factors. We find that this risk-adjusted property portfolio return (αPPR) predicts the cross-section of returns in the public REIT market, suggesting a slow
diffusion of asset-level information into stock returns. Our findings also suggest it is the slow diffusion of information about “local” prices changes, not current rental income or local liquidity, that predicts REIT returns. Moreover, the αPPRs associated with REIT allocations to major “gateway” markets are more predictive of REIT returns than the property portfolio returns produced by allocations to secondary and tertiary markets. This study improves our understanding of the extent to which “local” information about the productivity of a firm’s assets is capitalized into stock prices and the speed at which it is capitalized. This study also contributes to the literature on the predictability of REIT returns and the relation between private and public CRE returns using firm-level, instead of index level, returns.
Discussant(s)
David Ling
,
University of Florida
Eva Steiner
,
Cornell University
Calvin Shnure
,
National Association of Real Estate Investment Trusts
Jiro Yoshida
,
Pennsylvania State University
JEL Classifications
  • G1 - Asset Markets and Pricing