We examine the relationship between a firm’s main business focus and its risk and performance, using the unique settings of U.S. equity real estate investment trusts (REITs). In this paper, a REIT’s prime operating revenue ratio (POR) is measured as the ratio of rental revenue to total revenue. The empirical results show that REITs that earn more revenue from their prime business—property rentals—are less apt to take on risk but also achieve higher operational performance in the cross-section and over the medium term. The magnitudes of these results in a market crisis period are even stronger than in normal times. We also find evidence that REITs with higher POR are associated with less information asymmetry, higher operational efficiency, and higher market value. We also use three alternative REIT business focus measures based on their assets, expenses, and income. The results are qualitatively and quantitatively similar. To investigate why some REITs focus to a greater extent on non-prime businesses, the paper provides evidence that REIT executives receive, on average, higher pay when their firms engage more extensively in other businesses, and larger REITs are more likely to explore non-rental-revenue businesses. Lastly, we use the coronavirus pandemic as a quasi-experimental setting and provide evidence that REITs that have earned higher POR in recent years generally achieve better operational performance and reduce risk during the first three quarters of 2020. In sum, the results suggest that a REIT’s focus on its prime business generally leads to greater profitability and lower risk.

Hotels are generally perceived as the riskiest type of commercial real estate (CRE) investment because hotel “leases” have relatively high turnover. Existing literature regarding CRE investment risk and return lacks investigation of hotels at the unit level—which is the level of analysis undertaken by existing and prospective hotel investors. Two major types of hotels are branded and independent ones. The purpose of this study is to investigate the variability (risk) of key performance indicators (KPIs) such as occupancy rate, and revenues and profit of branded versus independent hotels. Using a large sample of performance data regarding over 4,000 U.S. hotel properties from 2000 to 2019, we examine the extent to which branding affects the volatility of KPIs. We find that brand-affiliated hotels have lower cash flow risk measured as lower volatilities of KPIs compared with independent ones. Furthermore, the level of volatility reduction of branded hotels is greater for profit than for revenue, and profit may be the most important KPI for hotel investors. The magnitude of volatility reduction also increases as the measurement window length (number of years) increases. We also study the long-term returns of branded versus independent hotels. This study contributes to the understanding regarding the relationships between investment risk of branded versus independent hotels, extends the literature regarding hotel investment, and provides hotel investors and analysts information regarding risk to aid decisions such as developing, purchasing, holding, or disposing of hotel assets.

Commercial real estate (CRE) investment involves risk, and hotels are perceived as the riskiest CRE assets because of the high turnover of guest room occupants and are the most operation-intensive of all types of CRE properties. Furthermore, that risk may vary significantly across types of hotels based on different dimensions. The existing academic literature regarding CRE investment performance generally lacks such investigation of hotels at the establishment level. The purpose of the current study is to investigate the volatility of operating profit (risk) of different types of hotel assets. Using relative standard deviations of historical performance (gross operating profit [GOP]) to measure hotel risk, we examine various property characteristics and the extent to which they affect the volatility of GOP at the unit level from 2015 through 2020 of over 3,000 U.S. hotel properties. We find that different types of hotels have carried different levels of risk. Specifically, we find significant differences in risk based on hotel brand affiliation status, class, property type, location type, region in which the hotels are located, age of the hotels, size of the hotels, and their occupancy and average daily rate levels. This study provides practitioners and researchers with an understanding regarding the relationships between the risk of different types of hotels, and provides practitioners with information regarding risk and a benchmarking methodology that may be applied to evaluate risk to aid hotel investment decisions. Furthermore, we provide researchers with information regarding various hotel characteristics that may lead to relatively greater/lesser risk.

Previous models of tenant composition in shopping malls have focused on traditional anchor and nonanchor retailers who sell similar merchandise. With the changing preferences of modern shoppers who seek unique and entertaining experiences, this article introduces a new type of store known as “specialty stores” that offer experiential consumption. Using a dynamic game model that considers the trade‐off between the benefits of agglomeration and the costs of competition, we re‐examine the tenant optimization problem faced by mall owners in the current retail environment. Our findings show that specialty stores have a significant impact on the optimal tenant mix and the rent revenue of developers. This article provides valuable insights into the optimal tenant composition for large‐scale shopping centers that cater to contemporary consumers.