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REITs on the Rebound Following Liquidity Crisis, Titman Says

06/27/2013 | By Mitch Irzinski

Sheridan Titman, professor of finance with the University of Texas, joined for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

During the liquidity crisis, stock prices fell more for REITs than for other companies. Titman summarized the results of his research on this topic.

“Our main result is that REIT prices fell a lot during the crisis because of the amplification effect of debt,” he said. “In addition to that, [for] the REITs that had a lot of debt that came due in 2008 and 2009, their stock prices dropped a lot more than the others because of an anticipation of problems associated with the rolling over of that debt.”

Titman shared his opinion regarding why REITs that faced debt maturities during the liquidity crisis didn’t recover as completely as the rest of the REIT industry.

“As it turns out, for the REITs, in general, their stock prices dropped a lot in 2008 and 2009, and then they rebounded quite a bit,” he said. “The REITs that had a lot of debt due in 2008 and 2009 had to either issue a lot of equity in the downturn, so they had very bad market timing, and a lot of the others were forced to sell properties .”

Titman also discussed how the liquidity crisis affected smaller REITs versus larger REITs.

“This actually surprised us,” he said. “Initially we thought that the smaller REITs would suffer more during the crisis, because we thought the liquidity squeeze would hurt those REITs that would have the most difficulty raising capital. It turned out that [with] the larger REITs, their stock prices dropped more than the small REITs. We looked at a couple of potential reasons, but we’re not entirely sure why that was the case. The important thing was the stock prices dropped more, but then they rebounded, so there was no permanent effect on the larger REITs versus the smaller REITS.”

Titman, his colleague Gary Twite and Libo Sun, a professor at Cal Poly Pomona, received the outstanding research prize from NAREIT at the 2013 Real Estate Research Conference.