Risk-return characteristics and investment of REIT hotels: A comparison with C-corporation hotels

Jinhoo Kim, Purdue University

Abstract

This dissertation examines whether and how REIT hotel companies differ from C-corporation hotel companies in terms of risks and returns, performance, and corporate investment. The risk-return characteristics and performance were examined by a single-factor and a three-factor asset pricing model. Results suggest that REIT and C-corp hotels have similar risk-return characteristics and performance: (1) A market portfolio has a significantly positive effect on the returns of both REIT and C-corp hotels; (2) The size and book-to-market equity factors in common stocks also have a significant explanatory power for both the returns on both groups; and (3) Both hotel groups performed similarly to the market portfolio, on a risk-adjusted basis, during the 2000s. The investment of REIT and C-corp hotel companies were examined based on the sensitivities of investment to cash flow and investment opportunities. Results show that the sensitivity of investment to cash flow is positive and significantly higher for REIT hotels than for C-corp hotels, suggesting that REIT hotels are more likely to experience constraints on their corporate investment. The findings of this dissertation can help hotel investors choose an appropriate organizational structure between the REIT and C-corp structures. In addition, the findings provide information that portfolio managers can use in constructing a well-diversified portfolio.

Degree

Ph.D.

Advisors

Jang, Purdue University.

Subject Area

Management|Economics

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