Local Economy, Asset Location and REIT Firm Growth

Journal of Real Estate Finance and Economics, Forthcoming

45 Pages Posted: 6 Apr 2021 Last revised: 6 Apr 2021

See all articles by Zifeng Feng

Zifeng Feng

The University of Texas at El Paso

Zhonghua Wu

Florida International University (FIU)

Date Written: March 2, 2021

Abstract

This paper empirically examines the extent to which and how local economic growth and asset location affect firm growth based on a sample of US equity real estate investment trusts (REITs) from 2001 to 2016. Using the GDP growth rate by MSA and individual property data of REITs, we construct an aggregated measure of local economic growth for each REIT based on its asset locations in different metropolitan areas. We find that REIT firm growth (measured using both book value and market value of assets) is positively correlated with the lagged firm-level economic growth measure, indicating that REITs allocating assets in areas with higher economic growth tend to experience higher firm growth. Moreover, local economic growth enhances REIT growth mainly through the growth of equity (not through the growth of debt), as REITs with more assets in higher economic growth areas provide higher stock returns to shareholders. These findings suggest that local economic conditions have a significant impact on REIT firm growth and a REIT’s asset allocation strategy can play an important role in its long-term prospects.

Keywords: Local Economy, Asset Location, Firm Growth, REITs

JEL Classification: R30

Suggested Citation

Feng, Zifeng and Wu, Zhonghua, Local Economy, Asset Location and REIT Firm Growth (March 2, 2021). Journal of Real Estate Finance and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3818499

Zifeng Feng (Contact Author)

The University of Texas at El Paso ( email )

500 W. University Ave.
El Paso, TX 79968
United States

HOME PAGE: http://https://sites.google.com/view/zifeng-feng/home

Zhonghua Wu

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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