Abstract
This paper examines how a concentrated tenant base affects the operating performance and market valuations of US REITs. We observe that REITs adopting a concentrated tenant base present higher corporate cash flows and lower expenses. However, we identify a concentration discount effect that REITs with a more concentrated tenant base experience lower market valuations. We argue that this concentration discount is a result of the trade-offs between the impacts of the tenant base on the operating performance, risk levels and growth potentials. We find that a concentrated tenant base is associated with higher liquidity risk and lower dividend growth, resulting in an inflated discount factor. Our findings are not subject to sub-samples of focused or diversified REITs and stay robust after correcting for the selection bias as well as controlling for the lease structure, tenant quality and anchor tenant effect.r
Original language | English |
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Pages (from-to) | 899-927 |
Number of pages | 29 |
Journal | Review of Quantitative Finance and Accounting |
Volume | 57 |
Issue number | 3 |
DOIs | |
State | Published - Oct 2021 |
Keywords
- Herfindahl index
- REIT performance
- REIT valuations
- Tenant concentration