Asset Growth and Stock Performance: Evidence from REITs

43 Pages Posted: 23 Aug 2016

See all articles by David C. Ling

David C. Ling

University of Florida - Warrington College of Business Administration

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate

Ruoran Xu

National University of Singapore (NUS)

Multiple version iconThere are 2 versions of this paper

Date Written: August 19, 2016

Abstract

In this paper, we examine the impact of asset growth rates on the future stock performance of 308 publicly traded real estate investment trusts (REITs). We observe that fast growing REITs tend to underperform slow growing REITs. However, we find evidence that the growth effect is significantly less negative for REITs selling at a premium to NAV. On the asset investment side, the negative asset growth effect is associated with growth in non-core assets. This is consistent with the notion that firms that grow outside of their competency areas are penalized by the market. On the asset financing side, we find that growth activities funded by taking on more unsecured debt are associated with negative stock performance over the next 12 months. In addition, we only observe the asset growth effect in the sub-sample of REITs that engages in equity issuance over the next 12 months. The combined evidence suggests that contemporaneous equity dilution, which has not been considered in previous studies, may provide a simple explanation for the underperformance of fast growing firms.

Keywords: REITs, asset growth, pricing anomaly

Suggested Citation

Ling, David Curtis and Ooi, Joseph T. L. and Xu, Ruoran, Asset Growth and Stock Performance: Evidence from REITs (August 19, 2016). Available at SSRN: https://ssrn.com/abstract=2826610 or http://dx.doi.org/10.2139/ssrn.2826610

David Curtis Ling (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9307 (Phone)
352-392-0301 (Fax)

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Ruoran Xu

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

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