Abstract: We test the predictions of the dynamic investment CAPM using the U.S. REIT sector, a setting where asset homogeneity and high reliance on external capital allows for a cleaner test of the production-based theory than broad equity samples. We construct a robust out-of-sample forecast of future investment growth, and find that expected growth strongly predicts the cross-section of REIT returns. Over a sample period of approximately 25 years, a long-short portfolio based on this forecast earns a significant premium of more than 6% annually. We document a novel, leverage-based economic channel for this premium: high-growth expectations lead firms to increase financial leverage, which in turn amplifies systematic cash flow risk. An augmented four-factor model including this expected growth factor outperforms both the Fama-French six-factor model and the Bond and Xue (2017) model in explaining prominent REIT patterns. Finally, we show that this premium is distinct from its counterpart in common stocks, highlighting the importance of sector-specific risk factors.

Abstract: We investigate the economic consequences of corporate climate change dialogue using text-based exposure measures from earnings conference calls for U.S. public real estate industry. We find that this dialogue is a powerful leading indicator of tangible corporate transition actions. Higher regulatory exposure predicts future investment in certified green buildings and attracts tenants with superior environmental profiles. This transition, however, entails short-term costs. Higher opportunity exposure, in contrast, predicts a persistent decline in future operating and rental performance. While these cash flow risks are priced, leading to a subsequent significant valuation discount, higher opportunity exposure is associated with lower future realized stock returns, suggesting market underreaction to the severity of predictable cash flow decline. Our findings highlight the critical need for adaptive strategies that balance environmental goals with financial performance, especially as regulatory pressures and market expectations about sustainability continue to evolve.

Abstract: We estimate the risk premium for firm-level climate change exposure among U.S. publicly listed real estate stocks from 2005 to 2024. Using a text-based measure of climate exposure derived from earnings calls, we document a negative unconditional risk premium of -0.70% per annum in realized returns, corroborated by an implied cost of equity premium of -0.19% p.a. We find that this negative premium is primarily driven by climate-related upside opportunities rather than downside risks. Investigating the mechanism, we find that unexpected spikes in public climate concern positively predict stock prices for high-exposure firms and negatively predict prices for low-exposure firms. A return decomposition into cash flow and discount rate news components further demonstrates that these shocks compress the discount rates of high-exposure firms. Our results suggest that the demand for high-exposure real estate stocks is driven by ESG or impact investing, where investors accept lower expected returns to satisfy non-pecuniary preferences.