Olgun Sahin, School of Business, has had a paper accepted for publication in the Journal of Accounting and Finance, scheduled to be published in Volume 12 (1), Winter 2012. The paper, “Non-traded REITs,” was presented at the Academy of Finance meeting in March 2011. The abstract of the paper is below.
Non-traded REITs Abstract
(This is the version submitted for review; the final print copy will be shorter.)
In this paper, I examine differences between non-traded and traded REITs by using available financial data. I also attempt to quantify the effects of no listing on REIT valuation. Findings indicate that there are many differences along a number of dimensions between non-traded and traded REITs. For example, non-traded REITs hold fewer properties, employ lower leverage, generate lower return on invested capital (ROIC) and funds from operations (FFO) and pay a greater fraction of their income in dividends. There does not appear to be significantly different dividend yields. I attribute the claims of a higher dividend yield on non-traded REITs to differences in dividend yield computations. Non-traded REITs also seem to have lower market-to-book multiples if they were publicly traded. These findings have public policy implications especially considering how their dividends may be funded and how non-traded REIT shares are purchased. For example, a mandate on how dividends are financed (through operating income) would make non-traded REITs even more credible to investors. In addition, it is not clear what justifies high transaction costs associated with investing in non-traded REITs. It does not appear to be superior ROIC generated by non-traded REITs.