Explaining the NAV Discount in REIT pricing - Evidence from the U.S.

Sammanfattning: This paper investigates the relationship between stock price and net asset value (NAV) for 71 real estate investment trusts (REITs) in the U.S. between Q1/1998 and Q4/2018. More specifically, by testing for cointegration, we look for evidence of a long-term equilibrium between stock price and NAV. We use the group-mean panel- dynamic ordinary least-squares (PDOLS) estimator and error correction model (ECM) is to observe the dynamic relationship between price and NAV. In addition, we estimate two fixed-effect models to regress NAV discount against a number of firm- and market-specific factors. Our results show a long-term equilibrium between stock price and NAV, as well as mean-reverting behavior towards this long-term equilibrium both over the long and the short term. By estimating fixed-effect models for firm- and market-specific factors we find that leverage, company size, liquidity, past performance, consumer confidence and business confidence are significantly correlated with U.S. REITs' NAV discounts.