Abstract
We examine the valuation and return performance of real estate trusts (RETs), the 19th-century predecessors of REITs. Unlike REITs, RETs were not constrained by the formal regulatory framework that REITs are subject to today. Our findings indicate that, like modern-day REITs, the primary driver of RET valuations is dividend growth rather than changes in the discount rate. RETs also exhibited performance trends like REITs, particularly during the financial downturns. We find a positive relationship between credit availability and excess returns for both RETs and REITs. Additionally, RETs shared several characteristics with modern-day REITs, such as high dividend payouts from cash flows, low leverage, and non-taxable status at the trust level. However, RETs largely disappeared as public stocks when the Morrissey ruling in 1935 removed their tax benefits. This raises the question of whether regulators should reconsider some statutory REIT requirements which currently limit REIT growth.
Published Version
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