REIT Price-to-Net Asset Value, Performance, and Managerial Entrenchment

Abstract

This study examines P/NAV dynamics in the REIT industry, utilizing NAV estimates from SNL Financial and stock returns and distributions from CRSP. The findings reveal that REITs typically trade at a premium to their NAVs around IPOs, transitioning to a discount approximately 30 months later. The analysis also shows a positive association between P/NAV and future excess NAV returns, consistent with Chay and Trzcinka (1999). Furthermore, the results suggest high past excess stock returns indicate managerial ability, creating market expectations reflected in premiums. However, when controlling cross-sectional correlation, this relationship loses statistical significance. Additional findings indicate that REITs with positive excess NAV returns, longer public trading histories, or CEO replacements are likelier to trade at a premium to NAV. In contrast, those led by older CEOs, CEOs with longer tenures, or recent outside appointments tend to trade at a discount. Although the negative relationship between CEO tenure and P/NAV is not statistically significant, it supports Berk and Stanton’s (2007) assertion that entrenched CEOs contribute to NAV discounts.