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Portfolio greenness and the financial performance of REITs

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  • Eichholtz, Piet
  • Kok, Nils
  • Yonder, Erkan

Abstract

This paper investigates the effects of the energy efficiency and sustainability of commercial properties on the operating and stock performance of a sample of US REITs, providing insight into the net benefits of green buildings. We match data on LEED- and Energy Star-certified buildings with detailed information on REIT portfolios and calculate the share of green properties for each REIT over the 2000–2011 period. We estimate a two-stage regression model and document that the greenness of REITs is positively related to three measures of operating performance – return on assets, return on equity and the ratio of funds from operations to total revenue. We also document that there is no significant relationship between the greenness of property portfolios and abnormal stock returns, suggesting that stock prices already reflect the higher cash flows deriving from investments in more efficient properties. However, REITs with a higher fraction of green properties display significantly lower market betas.

Suggested Citation

  • Eichholtz, Piet & Kok, Nils & Yonder, Erkan, 2012. "Portfolio greenness and the financial performance of REITs," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1911-1929.
    • Handle: RePEc:eee:jimfin:v:31:y:2012:i:7:p:1911-1929
    DOI: 10.1016/j.jimonfin.2012.05.014
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    References listed on IDEAS

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    More about this item

    Keywords

    Energy efficiency; Real estate; REITs; LEED; Energy Star;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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