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REITs

Paper Session

Sunday, Jan. 5, 2020 1:00 PM - 3:00 PM (PDT)

Manchester Grand Hyatt, Nautical
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Eva Steiner, Cornell University

How Smart is the Real Estate Smart Beta? Evidence from Optimal Style Factor Strategies for REITs

Manuela Pedio
,
Bocconi University
Massimo Guidolin
,
Bocconi University

Abstract

"This paper has a twofold objective. First, we contribute to the stream of literature that investigates whether traditional asset pricing factors show any predictive power for the cross-section of Real Estate Investment Trust (REIT) returns. In particular, we investigate the existence of a premium associated to the Value, Size, Momentum, Investment, and
Profitability factors over the period 1993-2018. We find support for all the pricing factors
but for the Profitability one. Second, we investigate whether a set of smart-beta strategies,
based on the combination of the identified factors, may outperform similar allocation
techniques that do not exploit factors. We find that all the proposed factor-based strategies
display a higher risk-adjusted out-of-sample performance than a simple buy-and-hold
investment in the real estate market (proxied by the FTSE NAREIT All REITs Index). In
addition, we find that when factor-based strategies are implemented, REIT-only portfolios
display risk-adjusted performances comparable to those of diversified portfolios that include
equity, bond, and commodities."

Property Market Liquidity and REIT Liquidity

Bing Zhu
,
University of Reading
David Downs
,
Virginia Commonwealth University

Abstract

This paper examines the impact of property market liquidity on firm-specific REIT liquidity. Our analysis measures firm-level exposure to local, direct real estate markets using the property holdings of each REIT. The results show that property market liquidity causally influences REIT liquidity. This impact is especially true during the global financial crisis period, which provides additional evidence that liquidity is transmitted from direct to indirect property markets. The results also reveal that the liquidity of a firm’s assets can affect the liquidity of financial claims on the assets. The corporate investment decision, including the selection of a geographic market, can affect stock liquidity. Furthermore, we find that information asymmetry, investment growth and financial constraints speed up the transmission. REITs with geographically dispersed assets, high investment growth and low cash interest coverage rate may improve stock liquidity by investing in more liquid property markets. Overall the empirical results support the predictions of our theoretical model, which shows that the liquidity of a REIT’s fixed assets, which are traditionally viewed as illiquid, can affect stock liquidity. Finally, we find that REIT values are related to the property market liquidity of the underlying assets.

NAV Premiums and Betting against the Sentiment

Mariya Letdin
,
Florida State University
Stace Sirmans
,
Auburn University
Stacy Sirmans
,
Florida State University

Abstract

"We examine the composition of REIT Net Asset Value premiums to stock prices. We find that nearly 58% of NAV premiums are explained by observable company fundamentals. The
proportion of NAV premiums explained by REIT fundamentals is primarily driven by size, market share, growth and low leverage. NAV premiums unexplained by fundamentals are
related to the level of company opacity and investor sentiment. High fundamental premium REITs outperform low fundamental premium REITs, and the results reverse for unexplained
premiums, where low sentiment premium REITs have the highest performance. A portfolio based on low sentiment premiums yields the greatest results, of nearly fourteen percent per annum."

REIT Unit Investment Trusts and Fund Manager Skill

Kimberly Luchtenberg
,
American University

Abstract

This study examines fund manager skill using a sample of Real Estate Investment Trust Unit Investment Trusts (REIT UITs). Since REIT UITs are limited to a single industry and the fund managers do not trade, REIT UITs are an ideal sample to study fund manager stock-selection skill. Using a hand-collected sample of REIT UITs from May 2009 to July 2015, this study finds that REIT UITs do not deliver statistically significant positive alpha. This is the first paper to investigate fund manager stock selection skill in REIT UITs and contributes to the literature evaluating the effectiveness of fund active management.
Discussant(s)
Chongyu Wang
,
University of Florida
Shaun Bond
,
University of Queensland
Wally Boudry
,
Cornell University
Moussa Diop
,
University of Wisconsin-Madison
JEL Classifications
  • G1 - General Financial Markets
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location