Date of Award

Spring 4-8-2016

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Real Estate

First Advisor

Jonathan A. Wiley

Second Advisor

Karen M. Gibler

Third Advisor

Alan J. Ziobrowski

Fourth Advisor

Gerald D. Gay

Abstract

Dual asset markets are unique to real estate. When the assets are held by a real estate investment trust (REIT), properties trade in property markets while claims on cash flows from these assets trade in a public equity market. If the two parallel markets are in disagreement regarding the total market value of underlying assets, then REIT managers are faced with inter-market arbitrage opportunities. If a REIT’s shares trade at premium in the stock market relative to the net asset value (NAV) of the underlying assets, the arbitrage opportunity can be exploited by issuing new equity in the stock market and purchasing assets in the property market with the proceeds from new equity. If a REIT’s shares trade at a discount to NAV, the arbitrage opportunity is achieved by selling assets in the local property market and repurchasing shares of common equity. In this dissertation, I investigate whether REIT managers attempt to exploit such opportunities. Specifically, I identify whether share price premiums or discounts to NAV influence the propensity of REIT managers to purchase versus sell assets in the property market. In addition, I investigate whether the market-wide premiums to NAV influence the relative transaction prices paid for the property while carefully controlling for the sample selection issue in the analyses. Further, since this information is feasible to evaluate by analysts, I investigate how investors in the stock market react when REIT managers issue new equity during periods of premiums to NAV. The analyses use property level transaction data for commercial real estate asset values and stock price data for REITs.

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