Insider Ownership and Firm Value: Evidence from Real Estate Investment Trusts

Real estate investment trust (REIT) provides a unique laboratory to study the relation between insider ownership and firm value. One, a REIT has to satisfy special regulations which weaken alternative mechanisms to control agency problems. Empirically, I find a significant and robust nonlinear relation between Tobin's Q and REIT insider ownership that is consistent with the trade-off between the incentive alignment and the entrenchment effect of insider ownership. Two, many REITs are Umbrella Partnership REITs (UPREITs) which have dual ownership structure. They have both common shares and Operating Partnership Units (OP units). Property owners can contribute their properties to the UPREIT in exchange for OP units. Their capital gains taxes remain deferred as long as they hold onto their OP units and the UPREIT does not sell the properties they contributed. OP units owners are locked in with the firm and have incentive to monitor firm management, but their interests diverge from the common shareholders because their tax bases are much lower. Consistent with the trade-off between positive monitoring effect of OP units and tax-induced agency costs, I find that UPREIT's firm value increases with the fraction of OP units, but the effect is significantly weaker for the UPREITs where insiders hold OP units.     

Real Estate Risk Exposure of Equity Real Estate Investment Trusts

This study examines the linkage between equity real estate investment trust (REIT) returns and the private real estate factor. The results reveal a tighter connection between REIT and the private real estate market starting from 1993. In addition, large-cap REITs seem to behave more like real estate than do small-cap REITs. Overall, the results are consistent with three notions: (1) that institutional investors provide information-gathering services (Bradrinath et al., Rev. Financ. Stud., 8:401–430, 1995), (2) that a more sophisticated investor base improves information flow, and (3) that a high degree of participation from institutional investors strengthens the linkage between REIT returns and the underlying real estate factor (Ziering et al., The evolution of public and private market investing in the new real estate capital markets, Prudential Real Estate Investors, Parsippany, NJ, 1997).

Real Estate Investment Trusts and Stock Price Reversals

A trigger value of –5% is used to identify a sample of real estate trusts (REITS) that experience substantial one-day price declines. Abnormal returns are then calculated for the subsequent two-day period. The results of this study suggest stock price reversals are associated with extreme stock price declines for REITS. Hence, it appears the market overreacts at the time unfavorable information about REITS is disseminated. The degree of reversal across the sample is assessed according to variables such as the initial price decline (day 0), pre-event leakage (day –1), size (capitalization), the type of real estate investment trust, and relative trading volume.     

Preferences of Institutional Investors in Commercial Real Estate

The Journal of Real Estate Finance and Economics - In this paper we analyze market segmentation by firm size in the commercial real estate transaction process. Using novel micro-level data, we look...     

Volatilities and Momentum Returns in Real Estate Investment Trusts

We examine the relation of time-varying idiosyncratic risk and momentum returns in REITs using a GARCH-in-mean model and incorporate liquidity risk in the asset pricing model. This is important because illiquidity may be more severe for REITs due to the nature of their underlying assets. We find that momentum returns display asymmetric volatility, i.e., momentum returns are higher when volatility is higher. Additionally, we find evidence that REITs with lowest past returns (losers) have higher idiosyncratic risks than those with highest past returns (winners) and that investors require a lower risk premium for holding losers’ idiosyncratic risks. Therefore, although losers have higher levels of idiosyncratic risks, their low risk premia cause low returns, which contribute to momentum. Lastly, we find a positive relation between REITs’ momentum return and turnover.     

从苹果社区信托看中国房地产信托的发展

苹果社区信托产品的面世一方面说明房地产融资并非只有银行贷款一条出路,另一方面说明了基于实体经济的金融创新具有广阔的市场前景。     

借鉴国际经验发展我国房地产投资信托基金

本文阐述了国际房地产投资信托基金运作的经验,从我国房地产投资信托基金发展现状出发,提出了发展我国房地产投资信托基金的模式设想,以及推进我国房地产投资信托基金发展的政策建议.     

Liquidity and Liquidation: Evidence from Real Estate Investment Trusts

This study provides evidence that highly leveraged owner-managed properties liquidated assets during the commercial real estate decline of the late 1980s, and that this provided buying opportunities for better capitalized buyers. The analysis documents significant financial distress costs for highly leveraged firms during an industry-wide downturn and shows that these costs are particularly large for owner-managed firms.     

Efficiency,Scale Economies,and the Risk/Return Performance of Real Estate Investment Trusts

Estimates from a directional output distance function are used to construct a risk/return frontier that defines the best-practice management technology for Real Estate Investment Trusts (REITs). We model REIT performance as a production process in which each REIT produces a desirable output (return) and an undesirable output (risk) using inputs of managerial effort and financial capital. The results suggest that ignoring the effects of risk yields a management technology that is significantly different from one that incorporates risk. In addition, market valuation is inversely related to inefficiency and directly related to leverage.     

发展农田房地产投资信托基金F-REITs的思考

乡村振兴的资金需求缺口,不但需要各级政府加大投入,而且需要全社会资本参与,尤其需要结合农村实际情况进行金融创新,为乡村建设提供强有力的资金支持。F-REITs正是基于农田房地产衍生而来的一种金融创新融资工具,F-REITs的低风险、长期稳定收益和较强抗风险能力等特征在多样化投资决策中越来越受到国外投资者的重视。借鉴美国、加拿大等国FREITs的运作经验,结合我国土地“三权”分置政策和当前农地流转存的问题,探讨在我国发展F-REITs的可行性和运作模式,为乡村振兴提供一种新的融资方式,也为农村金融创新做出尝试。     

Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts

Prior empirical evidence regarding the impact of dividend taxes on firm valuation is mixed. This study avoids some of the complications encountered in previous empirical work by exploiting institutional characteristics of REITs, such as their limited discretion over dividend policy and the relative transparency of REIT assets. We regress the market value of equity on the market value of assets and tax basis, which creates tax deductions that lower future dividend taxes without affecting future pretax cash flow. We find that firm value is positively related to tax basis, suggesting that future dividend taxes are capitalized into share prices.     

The Cost Efficiency of Real Estate Investment Trusts: An Analysis with a Bayesian Stochastic Frontier Model

Using a stochastic frontier methodology that incorporates Bayesian statistics, this paper analyzes the cost efficiency of real estate investment trusts (REITs) by observing the deviations of the measured costs of individual REITs from a defined efficient cost frontier. Using 1995–1997 data, we extend the previous research in this area and measure REIT efficiency more precisely by isolating random measurement error from the overall deviations from the efficient cost frontier. We calculate the magnitude of each REIT's managerial inefficiency, the industry inefficiency, and returns to scale. In addition, we assess specific characteristics of REITs for their contribution to inefficiency by calculating the odds ratio that a REIT with a specific characteristic is more efficient than a REIT with an alternative characteristic. The results show that, for the years studied, REITs are relatively cost efficient with most REITs facing increasing returns to scale. Additionally, the REIT's use of debt and the REIT's management style significantly affect the cost performance of REITs during the aforementioned time period. Finally, diversification across property types, as measured, does not seem to influence REIT cost efficiency.     

Institutional Investors Tilt Their Real Estate Holdings Toward Quality,Too

This article confirms and extends prior results regarding tilting of institutional investment in common stock toward quality. The evidence presented here suggests that, while both real estate investment trusts and institutional investors tilt their real estate holdings toward quality, the tilt is much more pronounced in the case of institutional investors. Controlling for quality, there is further evidence that institutional investors overweight locations where the share of local employment in business services, finance, insurance, and real estate, and transportation is relatively high (compared to national averages). This evidence is consistent with the hypothesis that significant sector tilting by institutional investors is induced by the constraints of the prudent man rule.     

On the Capital Structure of Real Estate Investment Trusts (REITs)

Much of the literature on capital structure excludes Real Estate Investment Trusts (REITs) due mainly to the unique regulatory environment of these firms. As such, the issue of how REITs choose among different financing options when they raise external capital is largely unexplored. In this paper, we explore two issues on the capital structure of REITs: is there a relationship between market-to-book and leverage ratios, and, is the relationship between market-to-book and leverage ratio temporary or persistent. Our results suggest that REITs with historically high market-to-book ratio tend to have persistently high leverage ratio. In essence, REITs with high growth opportunity and high market valuation raise funds through debt issues. This finding, which is robust to various specifications and econometric tests, is contrary to the financing decisions of non-regulated firms. We attribute it to the special regulatory environment of REITs where, despite no apparent benefits to debt financing, management issues debt. Comments from Robert Edelstein and others at the Maastricht–Cambridge 2005 Symposium, and an anonymous referee are gratefully acknowledged. Any remaining errors are our own.     

Information Asymmetry and Corporate Liquidity Management: Evidence from Real Estate Investment Trusts

We examine the impact of information asymmetry on a firm??s choice between cash and credit lines for corporate liquidity management using a panel data set from real estate investment trusts (REITs). Information asymmetry, as measured by analyst forecast error and dispersion, is negatively related to the use of lines of credit. Specifically, firms with more severe information asymmetry are less likely to have access to bank credit lines. Concurrently, more transparent firms are more likely to utilize bank credit lines as opposed to cash for liquidity management. The results are robust to alternative information asymmetry proxies and specifications. These findings suggest that information asymmetry plays an important role in corporate liquidity management.     

Board Independence,Ownership Structure and Performance: Evidence from Real Estate Investment Trusts

For Real Estate Investment Trusts (REITs), mandatory distribution of income limits free cash flow. But, restrictions on source of income and asset structure result in widely dispersed stock ownership, which makes external monitoring through the takeover market less likely. As such, alternative monitoring mechanisms, including external directors, must be in place to discourage deviant managerial behavior. Using a simultaneous equation system, we conclude that while independent directors enhance REIT performance, the effect is weak. Higher CEO stock ownership and control through tenure and chairmanship of the board reduce the representation by outside directors, and adversely affect REIT performance. Institutional ownership or blockownership fails to serve as alternate disciplining mechanism to (inadequate) monitoring by outside board members, although their presence seems to enhance performance.     

基于澳大利亚房地产信托基金市场的VaR模型实证分析

房地产信托基金(REITs)代表着目前全世界房地产领域最先进的生产力.澳大利亚房地产信托基金市场(A-REITs)在金融危机期间表现相对平稳.本文通过介绍A-REITs市场情况,从微观角度采用VaR风险模型方法,测出A-REITs整体市场和特定个体风险水平.在此基础上,建议中国房地产信托基金行业(C-REITs)统一市场风险计量工具,建立相关制度控制内外部风险,为C-REITs试点健康快速发展提供参考.     

Financial Leverage,CEO Compensation,and Corporate Hedging: Evidence from Real Estate Investment Trusts

This paper studies the determinants of corporate hedging practices in the REIT industry between 1999 and 2001. We find a positive significant relation between hedging and financial leverage, indicating the financial distress costs motive for using derivatives in the REIT industry. Using estimates of the Black–Scholes sensitivity of CEO’s stock option portfolios to stock return volatility and the sensitivity of CEO’s stock and stock option portfolios to stock price, we find evidence to support managerial risk aversion motive for corporate hedging in the REIT industry. Our results indicate that CEO’s cash compensation and the CEO’s wealth sensitivity to stock return volatility are significant determinants of derivative use in REITs. We also document a significant positive relation between institutional ownership and hedging activity. Further, we find that probability of hedging is related to economies of scale in hedging costs.

Depreciation-Related Capital Gains,Differential Tax Rates,and the Market Value of Real Estate Investment Trusts

We develop a model for valuing U.S. real estate investment trusts (REITs) that considers the tax liability impounded in REITs’ property portfolios. This liability is a function of the portfolio’s accumulated depreciation and is driven by different tax rates applied to individual components of the total gain from property sales. These two components are the capital gain resulting from the sale of property at a price higher than its cost and the gain due to the recapture of depreciation taken during the use of the property. Our measure of value is the REIT’s net asset liquidation value (NALV). The metric of REIT value currently used by analysts is a REIT’s net asset value (NAV), but a REIT’s NAV will always be greater than the NALV and therefore overestimate market value, all else equal. Finally, using observed market prices for REITs, we provide evidence that NALVs give superior estimates of REIT market prices than do NAVs.     

A Quarterly Transactions-based Index of Institutional Real Estate Investment Performance and Movements in Supply and Demand

This article presents a methodology for producing a quarterly transactions-based index (TBI) of property-level investment performance for U.S. institutional real estate. Indices are presented for investment periodic total returns and capital appreciation (or price-changes) for the major property types included in the NCREIF Property Index. These indices are based on transaction prices to avoid appraisal-based sources of index “smoothing” and lagging bias. In addition to producing variable-liquidity indices, this approach employs the Fisher-Gatzlaff-Geltner-Haurin (Real Estate Econ., 31: 269–303, 2003) methodology to produce separate indices tracking movements on the demand and supply sides of the investment market, including a “constant-liquidity” (demand side) index. Extensions of Bayesian noise filtering techniques developed by Gatzlaff and Geltner (Real Estate Finance, 15: 7–22, 1998) and Geltner and Goetzmann (J. Real Estate Finance Econ., 21: 5–21, 2000) are employed to allow development of quarterly frequency, market segment specific indices. The hedonic price model used in the indices is based on an extension of the Clapp and Giacotto (J. Am. Stat. Assoc., 87: 300–306, 1992) “assessed value method,” using a NCREIF-reported recent appraised value of each transacting property as the composite “hedonic” variable, thus allowing time-dummy coefficients to represent the difference each period between the (lagged) appraisals and the transaction prices. The index could also be used to produce a mass appraisal of the NCREIF property database each quarter, a byproduct of which would be the ability to provide transactions price based “automated valuation model” estimates of property value for each NCREIF property each quarter. Detailed results are available at .