The Impact of Ageing Property on Portfolio Risk, Performance and Executive Compensation : The Case of REITs

This paper examines the effects of property age on the operational efficiency, firm risk, stock performance, and executive compensation of real estate investment trusts (REITs). Using a large property-level data set of U.S. equity REITs from 1995 to 2020, we construct a firm-level property age measure based on the age of individual properties held by REITs. We first document several stylized facts that the firm-level property age is associated with higher maintenance costs, but lower operational efficiency and revenue growth, controlling for key firm characteristics such as leverage and firm age. Moreover, REITs with more older properties, on average, have lower shareholder value. Surprisingly, we find that holding older properties results in higher firm risk without compensating shareholders with higher stock returns. Interestingly, executives of these REITs receive higher compensation relative to their peers. The higher pay for those REIT managers may be due to the fact that the older property portfolio is less operationally efficient and requires more efforts to operate