Market's evaluation on REITs rate of growth at different ages

Abstract

This paper examines the performance of United States (US) Real Estate Investment Trusts (REITs), in relation with growth as well as age. Specifically, it aims to find out if the market has a preference for growth when REITs are of a certain age. This is firstly analysed using Bivariate Return Sort, classifying REITs into groups by age and rate of growth. Thereafter, the REITs are compared with their returns. The results of this analysis show no significant trends. As such, a Cross-Sectional Panel Regression is employed in order to ascertain if the age and growth are an explanatory variables for returns. The results of the first model, which takes into account all REITs, show that age is not significant in explaining returns. However, when this portfolio is broken down into age groups as well as sectors, the results show otherwise. For the age group regression, only the middle-aged REITs show significant results, and that they are penalised by the market for growth. As for the sector regressions, age and growth for Industrial and Office REITs also show a significant relationship with returns, indicating that the older ones that pursue growth tend to underperform their counter parts. Generally, the results from all three models verify the presence of asset growth anomaly. This age related study concludes with evidence that age can be a predictor of future stock performance of REITs. This will serve as crucial information for REIT managers and investors as they can benefit from such information going forward.