REIT Growth, Valuation and Performance

32 Pages Posted: 11 Jul 2022

See all articles by Eli Beracha

Eli Beracha

Florida International University

Zifeng Feng

The University of Texas at El Paso

William G. Hardin

Florida International University (FIU) - College of Business Administration

Date Written: March 1, 2022

Abstract

The extent to which a real estate investment trust’s (REIT’s) physical growth is related to market valuation and performance is examined. Using a sample of U.S. equity REITs over the 1995-2020 period, we measure a REIT’s growth as the growth of its total area in square feet (or its number of properties) and find that fast-growing REITs are unable to increase their cash flow proportionally with the expansion of their physical footprint. Moreover, we find no evidence that this growth alone is associated with stock performance. However, we show that rapidly growing REITs are associated with higher market valuation, measured by capitalization rates, Price/FFO ratio, or firm Q. These findings suggest that capital structure, managerial actions and potential for improved property level performance rather than physical growth alone play major roles in REIT valuation. Overall, our findings align with expectations for market efficiency in a highly transparent asset group such as equity REITs.

Keywords: REIT, Growth, Performance, Valuation, Stock Return

Suggested Citation

Beracha, Eli and Feng, Zifeng and Hardin, William G., REIT Growth, Valuation and Performance (March 1, 2022). Available at SSRN: https://ssrn.com/abstract=4150084 or http://dx.doi.org/10.2139/ssrn.4150084

Eli Beracha

Florida International University ( email )

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

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

William G. Hardin

Florida International University (FIU) - College of Business Administration ( email )

Miami, FL 33199
United States

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