New insights into the NAV spread puzzle of listed real estate : idiosyncratic and systematic evidence

Weis, Christian (IRE|BS International Real Estate Business School, University of Regensburg, Germany) ; Woltering, René-Ojas (Ecole hôtelière de Lausanne, HES-SO // University of Applied Sciences Western Switzerland) ; Sebastian, Steffen (IRE|BS International Real Estate Business School, University of Regensburg, Germany)

This paper presents novel insights into the NAV spread puzzle of listed real estate. We find 1) that increasing company size reduces NAV discounts and increases NAV premiums which can be explained by economies of scale and the popularity of large stocks among investors. 2) Increasing company-specific risk increases the discount as risk of potential default decreases attractiveness among investors. Contrary to existing research, rising leverage reduces the discount and increases the NAV premium accordingly, which can be explained by a potential positive leverage effect on the return on equity. 3) Long-term credit market indicators help to explain the NAV spread puzzle: An increase in the default spread, increases the discount and decreases the premium. However, the results for the short-term credit market indicator term spread do not help to solve the NAV spread puzzle. 4) Increasing positive stock market and property sector sentiment reduces NAV discounts as was found by past research accordingly and is in line with the noise trader theory. The analysis is based on monthly data over the 2005-2014 period for a global sample of 447 listed real estate companies (REITs and REOCs) in 12 countries. This rich setting offers substantial heterogeneity in NAV spreads, idiosyncratic and systematic factors across time and countries.


Keywords:
Conference Type:
full paper
Faculty:
Economie et Services
School:
EHL
Subject(s):
Economie/gestion
Publisher:
Reading, UK, 27-30 June 2018
Date:
2018-06
Reading, UK
27-30 June 2018
Pagination:
37 p.
Published in:
Proceedings of the 25th Annual Conference of the European Real Estate Society, 2018
External resources:
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 Record created 2018-10-22, last modified 2019-06-11

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