REIT Operational Efficiency and Shareholder Value

Eli Beracha, Zifeng Feng and William G. Hardin

Journal of Real Estate Research, 2019, vol. 41, issue 4, 513-554

Abstract: A real estate investment trust (REIT) is an intermediary that passes its cash flows and income to its shareholders. Hence, the efficiency of a REIT in providing this service should affect shareholder value. Using a sample of U.S. equity REITs from 1995 to 2017, we find a strong positive correlation between REIT value (measured by firm Q, market-to-book equity ratio, and capitalization rate) and lagged operational efficiency measures. The results also show that more efficient REITs are associated with average stock returns that are up to 3.88% higher than less efficient REITs. These results are robust across REIT sectors and common risk factors.

Date: 2019
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DOI: 10.22300/0896-5803.41.4.513

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