Real Estate Investors
Paper Session
Saturday, Jan. 8, 2022 3:45 PM - 5:45 PM (EST)
- Chair: Tingyu Zhou, Florida State University
Option Price Implied Information and REIT Returns
Abstract
This paper investigates whether option-implied variables predict the cross-section of REIT returns. Among several measures we examine, the difference of changes in call and put implied volatilities (ΔCVOL-ΔPVOL) significantly predicts the REIT returns. A long-short strategy produces a return spread of 0.12% per week. ΔCVOL-ΔPVOL significantly predicts the stock market reaction to earnings conference calls. The return predictability is more pronounced among REITs with higher information asymmetry, such as noncore REITs and REITs with headquarter in less transparent MSA. Informed trading and related return predictability are also stronger for REITs operating in regions with higher land supply elasticity.Corporate Real Estate Holdings, Firm Value, and Returns: Evidence from a Dynamic Partial Adjustment Model
Abstract
The trade-off between the potential benefits and costs of corporate real estate (CRE) ownership in the production process creates an optimal or target level of CRE usage that varies over time and across firms. Using a dynamic partial adjustment model, we examine the extent to which firm valuations and returns are driven by differences in CRE holdings from predicted (target) levels and the speed at which investors expect the firm to move toward its target level of CRE ownership. We find that investors tend to punish the stock prices of companies that have “excess” CRE more than firms that hold too little, which suggests that firms with high real estate holdings are expected to be more vulnerable to negative productivity shocks. Stock return tends to be positively correlated with deviations from predicted CRE ownership; however, this positive correlation is mainly driven by the firms with too little CRE.REIT Capital Structure Choices: When Does Preparation Matter?
Abstract
Pavlov, Steiner and Wachter (2018) find that REITs which prepared by reducing leverage and extending maturity prior to the 2007-2009 financial crisis outperformed their peers during the crisis, a result that holds in the presence of leverage and maturity level controls. While the authors document this finding, they are unable to identify its cause. The recent COVID-related market downturn and subsequent recovery offers a unique opportunity to extend this work and to test for why leverage adjustments before a crisis matter. Specifically, we document that the capital structure adjustments that have strong predictive power for the 2007-2009 financial crisis returns have no impact on the REIT returns during the COVID pandemic of 2020. The relevant difference between the two events is that the 2007-2009 financial crisis was largely predictable, especially for members of the real estate industry, while the COVID pandemic was truly unpredictable. Therefore, preparation prior to the 2007-2009 crisis was seen as a signal for managerial competence, but had no information value during the recent pandemic. In other words, managers are expected to prepare for changes in the external environment if and only if those changes are predictable.Discussant(s)
Ruchi Singh
,
University of Georgia
Chongyu Wang
,
University of Hong Kong
Stanimira Milcheva
,
University College London
Mariya Letdin
,
Florida State University
JEL Classifications
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location