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REITs, Growth Options and Beta

Dogan Tirtiroglu (), Thu Ha Nguyen (), Ercan Tirtiroglu () and Tan Cheng Wee ()
Additional contact information
Dogan Tirtiroglu: Isik University
Thu Ha Nguyen: Monash University
Ercan Tirtiroglu: University of Massachusetts Dartmouth
Tan Cheng Wee: HSBC Institutional Trust Services (Singapore) Limited

The Journal of Real Estate Finance and Economics, 2017, vol. 55, issue 3, 370-394

Abstract: Abstract 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-place and the difference between the latter two in detail for 1983–2012, and also for three sequential, distinct, and mutually-exclusive REIT sub-periods. We find that, (i) the betas of growth options are larger than those of assets-in-place, (ii) there are differences in these betas across Equity REITs’ sub-sectors and sub-periods, (iii) REITs with a high growth profile tend to employ more short-term 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 (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2017
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The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

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