کیفیت مستاجرین و مدیریت نقدشوندگی REIT Tenant Quality and REIT Liquidity Management

Introduction Property values depend upon quality tenants and consistency (Smith, 2009). Real Estate Investment Trust (REIT) firms are only as strong as their properties. Per regulatory requirements, REIT firms are required to hold at least 75 % of their assets in real property. At least 75 % of the REIT gross income must be derived from rents, mortgage interest or sales of real property. As a result, REIT firms care a great deal about the quality of their tenants who pay rent regularly and periodically. In this research I examine the effects of tenant quality on REIT corporate liquidity management (i.e. cash holdings and utilization of bank lines of credit). As U.S. corporations hold more and more cash (Bates, Kahle, and Stulz, 2009), the REIT industry seems to maintain an unusually low percentage of cash holding as noted by Damodaran (2005).1 While previous studies have focused on the influences of firm characteristics on liquidity management of non-REIT firms (see, for example, Opler, Pinkowitz, Stulz, and Williamson, 1999) and REIT firms (see, for example, Hardin et al., 2009), my research effort extends to the characteristics of the source of the cash flow: the tenants. Leases are often referred to as the engines of property values (Liu, Liu, and Zhang, 2016). The risk arises in the collection of rent. Thus the quality of leases depends on the quality of tenants as well as rate and maturity. Tenants with better financial health and higher creditworthiness reduce the amount of risk in collecting rent. The financial health and creditworthiness of tenants are critical to the cash flow and cash flow volatility of REIT firms. Cash holdings are a precautionary savings motive for REIT firms with lower tenant quality. REIT firms with higher tenant quality have less incentive to save more liquid assets because they are not as concerned with the rental income uncertainty.2 Thus I expect that the characteristics of the tenants play an important role in the corporate liquidity management decisions of REIT firms. I hypothesize that, in general, REIT corporate liquidity is inversely related to the financial health and quality of the tenants. I test this hypothesis by empirically analyzing the data from SNL Financial on REITs and their publicly-traded tenants from 2000 to 2013. I investigate the lead-lag relationship between tenant quality and REIT liquidity management because REIT firms tend to use the tenants’ financial information prior to when leases are signed. I expect that tenant quality from the previous year also has an impact on REIT liquidity management for the subsequent year. The empirical analysis results confirm my expectation. I find that, in general, tenant quality (as measured by Altman Z-score, credit rating, size, book-to-market ratio, and ROA) is negatively correlated with total liquidity holdings (as measured by the sum of cash holding3 and unused credit line4 scaled by total assets, following Hardin and Hill (2011)) of REIT firms.