Real Estate Investment Trust Industry Research Articles

한국 상장 리츠의 주가급락위험 분석 : 산업 간 비교를 중심으로

For general investors, the rapid growth of Korean listed Real Estate Investment Trusts (REITs) has expanded investment opportunities in high-quality real estate assets. However, because of the information asymmetry inherent in real estate and the characteristics of sponsor structures, REITs are susceptible to agency problems, which can lead to stock price crash risk. This study measures the stock price crash risk of Korean listed REITs and empirically analyzes their relative risk level by comparing them with other industries. Korean listed REITs are found to exhibit a higher stock price crash risk than other industries, which is inferred to be related to agency problems. However, during the market expansion period after 2020, the risk gap tends to decrease, suggesting that the emergence of large-scale sponsor REITs and market maturation contribute to crash risk mitigation. Based on these findings, policy recommendations are proposed, such as strengthening internal controls and enhancing managerial transparency, to ensure the REIT industry’s sustainable development.

Bankruptcy Prediction in REITs

Bankruptcy in many industries is a well-documented norm; however, in the real estate investment trust (REIT) industry, the related literature is very thin. This study uses the vector autoregressive (VAR), logistic, and multilinear models to detect bankruptcy in the REIT industry. The macroeconomic variables used as part of showing bankruptcy are adopted from Altman (1968), with an addition of funds from operations (FFOs). The results confirm interconnectedness among the Altman (1968) variables, including their causal nature on bankruptcy. The commonly used ratios (i.e. profitability, solvency and liquidity) confirm the declining financial health and financial positions of REIT firms during tough market conditions.

A fuzzy model for financial performance measurement of real estate investment trusts: comparison of investment areas

PurposeThis study aims to present the financial performance of companies and investment areas in the real estate investment trust (REIT) industry.Design/methodology/approachA fuzzy model for financial performance measurement (FM-FPM) was proposed through the collaboration of fuzzy axiomatic design (FAD) and fuzzy entropy weighting (FEW). For the data, financial ratios were used, and their importance and functional requirements were collected via a questionnaire survey.FindingsThe FM-FPM is a beneficial model to be used for a REIT industry based on the structured procedures of FAD and FEW techniques. It can be suitable to regularly evaluate the performance of REITs and their investment areas in financial means, especially in today’s turbulent business environment. The Turkish market that was considered to show the practical applicability of the FM-FPM demonstrated specifically that diversified real estate was found to rank first, followed by mixed-buildings, warehouses, shopping malls and hotels, respectively.Research limitations/implicationsThe FM-FPM can be employed for REIT industries in other countries and adapted to different industries. However, more respondents or a different set of criteria might lead to different outputs.Practical implicationsThe FM-FPM may guide REIT managers and investors while making their decisions and controlling the performance of REITs and investment areas.Social implicationsThe FM-FPM may encourage low- and middle-income investors to make good use of their savings.Originality/valueThe research is first (1) to offer a FPM model in order to determine investable areas in a REIT industry and (2) to employ multiple criteria decision-making tools in order to measure the financial performance of individual companies and investment areas in a REIT industry.

The Beta Factor in the REIT Industry

This study explores the beta factor in the South African real estate investment trust (REIT) industry. Using MASCOFLAPEC, historical, and Monte Carlo (vanilla, antithetic, and quasi-random) betas, the author confirms that the beta factor and volatility theory have the same intuitive explanation. Interestingly, the beta factor, as shown by quantitative and qualitative betas, appropriately accounts for the financial position and financial health of REITs. The alphas (Sharpe, Treynor, and Jensen) support the findings on the betas.

글로벌 상장 리츠의 운용 효율성 추정과 제도효과 연구

This research aims to present a conceptual model on the efficiency of global real estate investment trusts (REITs). Based on Data Envelopment Analysis approach (DEA), output-oriented distance function is used to construct a input/output production frontier that defines best-practice operational technology for the REITs industry. The results suggest that global REITs have experienced discriminative growth between countries and sectors, and scale inefficiencies have consistently maintained for the sample periods. The results also find that size of REITs’s properties (market capitalization) show strong positive relationship with operational efficiency scores which implies that the effect of economies of scale still strongly exits. Lastly, with country comparison analysis, the findings reveal that leverage restriction regimes force to efficient management of REITs through reducing debt and interest expenses.

The relative performance of green REITs: Evidence from financial analysts’ forecasts and abnormal returns

The aim of this study is to analyze and compare the financial analysts’ forecasts accuracy and bias, and the abnormal earnings announcement returns of “green” and “non-green” U.S. real estate investment trusts (REITs) from 2010 to 2018. First, we document the accuracy and the bias of financial analysts’ earnings and FFO forecasts on “green” and “non-green” REITs. Our results report that the level of accuracy and the level of optimism are different for both categories. Second, we observe that abnormal stock returns could be related to the adoption of “green” and sustainable measures. Our results shed a new light on the relative performance of REITs and highlight the potential link in the U.S. REIT industry between “greenness” analysts’ forecasts and abnormal returns on stock markets.

The efficiency of REITs industry in Saudi Arabia: profit-oriented approach

PurposeThis study aims to extensively investigate the efficiency of real estate investment trusts (REITs) in Saudi Arabia.Design/methodology/approachThe study employs the data envelopment analysis on 17 Saudi REITs with an innovative profit-oriented approach in selecting REITs' inputs and outputs.FindingsIt is found that the traditional approach underestimates the efficiency of Saudi REITs in comparison with the profit-oriented approach, implying that relying on the traditional approach in assessing the efficiency of REITs will underestimate their efficiency and provide misleading results about their actual performance. However, both approaches showed that Saudi REITs are very efficient in utilizing their inputs, and the major source of their inefficiency is related to their scale inefficiency. Moreover, small Saudi REITs are more efficient than large ones. Finally, a higher level of debt is supposedly associated with lower levels of efficiency, indicating that Saudi REITs should not rely on debt funding because there is no tax advantage from using debt.Originality/valueThis paper has several contributions to the literature. First, it employs an innovative profit-oriented approach in selecting REITs' inputs and outputs. Second, this study focuses on analyzing the efficiency of REITs in Saudi Arabia, which is the largest country in the Middle East region, regarding size, stock market capitalization and gross domestic product. Finally, to the best of the author's knowledge, this is the first study to investigate the efficiency of REITs in Saudi Arabia, and it provides substantial information for REITs' investors and managers about the current efficiency of the Saudi REITs industry.

A Reexamination of Economies of Scale in the Management of Real Estate Investment Trusts

With improvements in employment and housing markets post-credit crisis, real estate investment trusts (REITs) have sought to improve the quality and productivity of their portfolios by increasing their merger and acquisition activity across all property types. As the REIT industry has consolidated, we aim to evaluate whether this consolidation from 2012 to 2017 provides economies of scale gains for the management of REITs across seven REIT categories: diversified REITs, hotel and resort REITs, health care REITs, office REITs, residential REITs, retail REITs, and specialized REITs. We measure economies of scale using three different scale measures: total assets, real estate assets, and rental revenue. We evaluate economies of scale using a translog cost function. We find that REIT operating expenses increase less than proportionately with increases in total assets and that larger size results in reduced REIT operating costs.

CEO Influence on Funds from Operations (FFO) Adjustment for Real Estate Investment Trusts (REITs)

This paper investigates the non-GAAP performance measures of the REIT industry, specifically the difference (FFO adjustment) between concurrent FFO and Net Income (NI). Using the U.S. Equity REIT data from 1993 to 2018, we first find evidence that both NI and FFO are associated with REIT market-adjusted stock returns, suggesting both contain information that is valuable to investors. Second, we document a significant and positive relationship between contemporaneous FFO adjustment and NI, indicating a possible “selective” and “intentional” inclusion and/or omission of “good” vs. “bad” news in FFO reporting. Third, we find direct evidence that more powerful CEOs are indeed associated with higher FFO adjustments, suggesting CEOs’ involvement in hiding subpar performance. Finally, we focus our attention on a more recent period, when the National Association of Real Estate Investment Trusts (NAREIT) provided additional clarifications and guidelines, and the U.S. Securities and Exchange Commission (SEC) increased scrutiny on FFO reporting. Our results show a diminished “manipulation” for the majority of the REITs, suggesting these guidelines and scrutiny have achieved their intended purposes. While non-GAAP performance measures might supply additional information to investors, our results indicate that providing continuous guidance and monitoring is essential.

Equity versus Asset Acquisitions in the REIT Industry

Real estate investment trust (REIT) acquisitions are recurrent capital allocation decisions that impact the value and operations of the firm. Although REIT equity acquisitions have received considerable attention in the literature, the effects of major asset acquisitions require further scrutiny. We examine the impact of acquisition type on REIT market returns and operating performance. The results suggest no significant differences in market reaction to the form of acquisition. We interpret this as evidence in favor of efficiency in REIT acquisition decisions. However, the results suggest a net positive effect in operating performance of asset acquisitions relative to equity acquisitions, conditioned by firm and deal characteristics. Overall, our results suggest that asset acquisitions are more efficient in the long run. We provide evidence that the type of acquisition is relevant to firm operations.

CEO Influence on Funds from Operations (FFO) Adjustment for Real Estate Investment Trusts (REITs)

This paper investigates non-GAAP performance measures of the REIT industry, specifically the difference (FFO adjustment) between concurrent FFO and Net Income (NI). Using the U.S. Equity REIT data from 1993 to 2018, we first find evidence that both NI and FFO are associated with REIT market-adjusted stock returns, suggesting both contain information that is valuable to investors. Second, we document a significant and positive relationship between contemporaneous FFO adjustment and NI, indicating a possible “selective” and “intentional” inclusion and/or omission of the “good” vs. “bad” news in the FFO reporting. Third, we find direct evidence that more powerful CEOs are indeed associated with higher FFO adjustments, suggesting CEOs’ involvement in hiding subpar performance. Finally, we focus our attention in a more recent period, when the National Association of Real Estate Investment Trusts (NAREIT) provides additional clarifications and guidelines, and the U.S. Securities and Exchange Commission (SEC) increases scrutiny on FFO reporting. Our results show a diminished “manipulation” for the majority of the REITs, suggesting these guidelines and scrutiny have achieved the intended purposes. While non-GAAP performance measures might supply additional information to investors, our results indicate that providing continuous guidance and monitoring is essential.

REIT industry liquidity, valuation, and ownership reactions to ETF inceptions

ABSTRACT We examine the impact of Real Estate Investment Trust (REIT) Exchange Traded Fund (ETF) inceptions on the valuation, ownership structure, and liquidity of the U.S. REIT market. We posit that the relative homogeneity and concentration of the REIT industry creates a strong interconnection among REITs, especially for events that involve a significant number of firms in the industry. Initial perusal of the data suggests that the scarce supply of REITs forces new funds to include, on average, 60% of all existing REITs in their portfolios thus shocking the industry as a result of fund creations. We find that REITs experience a significant increase in institutional ownership and in stock turnover upon ETF inceptions. Small REITs experience a positive valuation effect, a significant increase in number of shareholders, and a significant reduction in shadow cost, while large capitalization REITs experience a significant negative valuation effect. We attribute this result to portfolio rebalancing effects driven by the increased visibility and coverage of small REIT stocks as a consequence of fund inceptions. We additionally find that buy-and-hold abnormal returns are positive and significant for all REITs, suggesting a permanent impact of ETF inceptions on REIT valuations. Finally, we find that REIT ETF inceptions create permanent increases in volatility in the REIT industry.

Economies of Scale and the Operating Efficiency of REITs: A Revisit

Building on past research regarding the operating efficiency of Real Estate Investment Trusts (REITs) and recognizing the substantial changes in this industry since the turn of the millennium, we examine REIT efficiency over the period 2001–2015. Using both time-varying stochastic frontier and linear models of costs, revenues, and performance measures, we find evidence showing that the REIT industry is slowly moving away from both cost and revenue efficiency over time; however, size remains positively correlated with efficiency. Despite the rapid expansion of asset sizes and evidence of diminishing efficiencies of scale, larger REITs still enjoy comparative advantages over smaller REITs in both revenue (production) and costs. We also find evidence that post-recession efficiencies exceed pre-recession efficiencies, and we document modest evidence of the “weeding-out” of inefficient enterprises during the market downturn. The results suggest, through a diverse set of measures, that additional efficiency opportunities for REITs may be achievable through continued growth and consolidation.

The Real Estate Investment Trust Industry and the Financial Crisis: Modeling Volatility (1985-2016)

This work measures the sensitivity of the residual volatility of the risk premiums of various Real Estate Investment Trusts (REITs) sectors to systemically important economic events between January 2, 1985, and December 30, 2016. To this end, the residual yields of the REITs are calculated and, with them, a GARCH (1,1) model is estimated, with dummy variables that identify eleven sub-periods delimited by systemic events that occurred in the American economy. The volatility of residual yields is found to decrease with the S&P500 risk premium, and increases only for some sectors with increases in Treasury Bond yields (T-Bills). Similarly, residual yield volatility increased in some periods (e.g., after the Black Monday crash, the low-quality mortgage crisis, and the Great Recession), but did not during the period of stock market collapse caused by companies in the “new economy” (known as the dot-com bubble). Knowledge of these stylized facts opens up new risk management possibilities for those investors considering in including these alternative investments in their portfolios.

Industry Concentration and U.S. REIT Returns

AbstractThe real estate investment trusts (REITs) industry has been omitted from industry concentration studies because REITs are unique, regulated companies. We fill this research gap and investigate the relationship between REIT industry concentration and its returns. First, we demonstrate that changes in concentration drive future REIT returns, and this causality is significant and unilateral. Second, we find that changes in concentration can significantly and negatively predict future REIT returns. Third, we reveal that this predictive power is asymmetric, with stronger power on equity‐REIT than mortgage‐REIT returns. We contend that greater REIT industry concentration implies less risk leading to lower future returns and vice versa.

Rethinking the Tax-Revenue Effect of REIT Taxation

Real estate investment trusts (REITs) have recently made headlines in major media outlets and have caught the attention of lawmakers and analysts because they erode the corporate tax base. REITs are not subject to the entity-level tax that typically applies to corporations. To avoid being taxed on real estate income, some corporations spin off real estate into REITs. After a REIT spinoff, such corporations rent the real estate from the REIT and continue to use it in their operations. Thus, a mere change in corporate form removes taxable income from the corporation (i.e., erodes the corporate tax base) and eliminates the entity-level tax on income from the spun-off real estate. This erosion of the corporate tax base concerns lawmakers (who have proposed prohibiting tax-free REIT spinoffs), some economists, and the media. Another concern is that the IRS has extended REIT classification to entities that hold nontraditional real estate, such as telecommunications infrastructure, billboards, oil and gas pipeline systems, timber, casinos, prisons, and data centers. The extension of REIT taxation to nontraditional real estate may not erode the corporate tax base because the assets may come from noncorporate entities. Thus, the tax-revenue effect of REIT taxation extends beyond REIT spinoffs and the erosion of the corporate tax base. Nonetheless, intuition suggests that more REIT spinoffs, the expansion of REIT taxation, and the growth of the REIT industry must erode the corporate tax base and significantly reduce government tax revenue. This Article challenges that intuition and presents two counterintuitive findings. First, it shows that REIT spinoffs can actually increase tax revenue even though they erode the corporate tax base. Second, it reveals that loss of tax revenue from REIT taxation primarily results from REITs forming from partnerships, not from REIT spinoffs. The Article concludes by recommending how these findings should influence discussions of REIT reform.

Does A Firm's Entry or Exit Affect Competitors’ Value? Evidence from the REIT Industry

AbstractWe analyze 483 entry and 439 exit events of publicly traded real estate investment trusts (REITs) and find that changes in the number of REITs in the market affect rival REITs’ stock performance. We also partition the sample by the modes of entries and exits as well as by REIT asset type in order to disentangle alternative explanations. Overall, our evidence indicates that the supply effect still matters for stock prices even after considering signaling and price pressure explanations.

Corporate hedging, firm focus and firm size: the case of REITs

PurposeThe purpose of this paper is to investigate the substitutability of corporate hedging and diversification in the real estate investment trusts (REITs) industry. The authors hypothesize that, relative to diversified firms, focused firms are more likely to be associated with hedging. The role of firm size is also analyzed.Design/methodology/approachThe logistic regression approach is utilized to analyze the probability of hedging and the panel regression approach is used to examine the amount of hedging.FindingsThe authors find that, relative to diversified firms, firms focused on a single property type are more likely to engage in hedging. However, this finding is significant only for smaller firms, which implies a non-linear relation between hedging and firm size. The evidence is not as strong when firm focus is measured by geographic concentration. In terms of hedging amount, smaller firms’ average hedge ratio is greater than that of larger firms. For either small or large firms group, hedging amounts increase with firm focus measured by either property or geographic concentration and increase with firm sizes.Research limitations/implicationsThe results imply that, relative to diversified REITs, REITs focused on a single property type are more likely to engage in hedging. However, this finding is significant only for smaller firms, which implies a non-linear relation between hedging and firm size. The evidence is not as strong when firm focus is measured by geographic concentration, suggesting that geographic concentration is perceived to be less risky than property type concentration. For either small or large firms group, hedging amounts increase with firm focus measured by either property or geographic concentration and increase with firm sizes, which implies that hedging amount does not depend on firm size. The sample period is limited to the years 2010 to 2013 because some data needs to be manually collected.Practical implicationsThe results imply that REITs consider both property diversification and hedging in managing their risk.Originality/valueThe research represents an early attempt to investigate the relation between corporate hedging and diversification. The investigation into the REIT industry has several advantages such as a lower likelihood of using derivatives for speculation.

Equity Versus Asset Acquisitions in the REIT Industry

We examine the differing influences of equity and asset acquisitions in Real Estate Investment Trusts (REITs) considering the prevalence of REIT asset acquisitions as frequent and major investment decisions. We examine the impact of asset purchase announcements on market returns, operating performance, and dividend payout. Our results suggest that asset acquisitions are better for the acquiring firm than equity acquisitions. Specifically, we find that equity acquisitions result in significantly negative market reactions, where asset acquisitions do not. Both equity and asset acquisitions have a negative influence on operating performance; however, the effect is significantly less for asset acquisitions.

Categorizing sentiment and its impact on REIT returns

Purpose– The purpose of this paper is to reexamine the impact of investor sentiment on real estate investment trust (REIT) returns using direct, survey-based measures of sentiment to categorize sentiment from institutional and individual investors.Design/methodology/approach– The authors provide a framework in which sentiment is classified into individual and institutional investor sentiment under the assumption that investors, depending on sophistication, react differently to the same set of information and will influence REIT prices differently. The authors employ a methodology that uses panel regression analyses and divides the sample of REITs into size and performance portfolios.Findings– The regression results suggest that institutional investor sentiment is positively and significantly related to REIT returns contemporaneously for multiple sample specifications. These results are consistent with high levels of institutional ownership in REITs. Results also suggest that individual investor sentiment only influences small capitalization and low-αportfolios.Originality/value– The findings provide more evidence on the influence of investor sentiment on security pricing even for highly regulated sectors such as the REIT industry. Investors may use changes in sentiment as signals for portfolio rebalancing and capital allocations.