Reits, Growth Options and Beta
Posted: 4 Nov 2017
Date Written: November 2, 2017
Are REITs income stocks, only? Following Myers (1977) and Bernardo et al. (2007), we examine empirically REITs' unlevered betas, betas of growth options, betas of assets-in-lace and the difference between the latter two in detail for 1983-2012, and also for three sequential, distinct, than those of assets-in-lace, (ii) there are differences in these betas across Equity REITs' sub-debt and are mainly listed on NASDAQ, and (iv) the Global Financial Crisis has influenced considerably the beta estimates across all sub-sectors and REIT types. These findings raise a question mark about the 'income stock, only' description of REITs. Our findings have important implications for the cost of capital of REITs and their capital budgeting practices. We discuss them, when appropriate, with numerical examples.
Keywords: Beta, Growth option; Assets-in-place; REITs, REIT maturity era; Cost of capital
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation