Postcrisis REIT performance using financial ratios: A DEA approach

Abstract

This study examines the performance of public lodging real estate investment trusts (REITs) following the financial crisis period from 2013 to 2017. We employed data envelopment analysis, a nonparametric technique based on linear programming, to measure performance. Determinants of efficiency were assessed by a set of financial ratios predicting each REIT’s efficiency against its peers. Consequently, a Malmquist productivity index (MPI) evaluated the efficiency change in several periods. The empirical results revealed that the REITs generally performed well despite the moderate degree of volatility in the financial ratios. Results showed a wide variation in performance consistency, with a limited number of REITs—that is, 5 out of 20—consistently performing well during the study period. Additionally, the MPI indicated a decline in efficiency, while the productivity change showed a mixture of reflections. The decomposition components of the productivity index and efficiency changes are also provided. This study sheds light on understanding inefficient REITs and provides some guidance on the critical indicators that would help such REITs restructure their operational strategies to improve efficiency.