Two essays in real estate
[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT REQUEST OF AUTHOR.] In this dissertation, I investigate two segments of the real estate literature: real estate portfolio management and analyst net asset value (NAV) estimates. In the first essay presented in Chapter 1, I investigate tenant concentration in real estate portfolios and its effect on performance and risk. Utilizing the disclosure of major tenants by 152 Equity REITs from 2000-2017, I document a positive relation between tenant concentration and profitability. REITs with greater tenant concentration experience higher profit margins and lower expense and operating efficiency ratios, suggesting the positive relation between tenant concentration and profitability is driven by increased operational efficiency. Although these REITs are more efficient, tenant concentration is often stated as a risk in public disclosures. Consistent with this view, I find that REITs with greater tenant concentration have greater idiosyncratic risk. Further, banks appear to price this risk into their rate setting process and penalize REITs with greater tenant concentration. Accounting for the quality of the tenant base, the positive effects of tenant concentration (profitability and operating efficiency) are concentrated in REITs with high quality tenants and the negative effects of tenant concentration (idiosyncratic risk and cost of debt) are concentrated in REITs with low quality tenants. In a horse race regression of tenant, geographic, and property type concentrations, tenant concentration appears to have the most critical impact on operating performance and risk.
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