Tenant Quality and REIT Liquidity Management
Posted: 18 Mar 2017
There are 2 versions of this paper
Tenant Quality and REIT Liquidity Management
Date Written: March 16, 2017
Abstract
Property values depend upon quality tenants and consistency (Smith, 2009). REIT firms are only as strong as their properties. In this research I examine how tenant quality affects REIT firm liquidity management (i.e. cash holdings and utilization of line of credit). I find that 1) tenant Altman Z-score and size are inversely related to total liquidity (cash plus unused credit line) and unused credit lines of REIT firms; 2) tenant size is inversely related to the total corporate liquidity and unused credit lines of REIT firms, but has no affect on REIT cash holdings; 3) tenant credit ratings are negatively related to total credit available and unused credit lines; 4) tenant book-to-market ratio and tenant profitability are negatively related to REIT cash holdings, but positively correlated to the total available credit lines and unused credit lines of REIT firms; 5) these effects vary across different property types. These results suggest that the analysis of tenant quality can offer insights into the firm policy and decision makings of REIT firms.
Keywords: REIT; Liquidity management; Cash holding; Credit line; Tenant quality
JEL Classification: G00, G30, G32; D92
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