Real Estate Investment Trusts Managers Research Articles

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.

Impacts on REIT Stock Capital Structures, Equity Costs, and Market Liquidities of Being Included in ETF Managed Portfolios

In recent years, especially as compared to mutual funds, exchange traded fund (ETF) markets have grown and advanced significantly compared to other financial asset classes because of relative advantages. We found that inclusion of real estate investment trusts (REITs) in ETF assets under management (AUM) positively impacts REIT capital structure (financial leverage), cost of equity capital, and stock market liquidity. As percentages of REIT outstanding shares included in ETF AUM increased, we found corresponding reductions in financial leverage (both book and market leverage), reduced costs of equity capital, and greater market liquidity. This should be of particular interest to REIT and ETF managers as well as REIT and ETF investors. Partially because regulatory statutes incentivize REITs to rely more heavily on external equity financing, REIT stocks included as ETF AUM showed greater reductions in leverage compared to non-REIT stocks also held as ETF AUM. Our results, including applying difference-in-differences models, were robust with respect to these findings, REIT type, and firm fixed effects.

The Financial Industry Sets Sights on Institutional Investors: A Relational Approach to Property Investment Outsourcing

Over the past few decades, pension funds have emerged as major players in global financial markets as the reserves they manage have grown steadily. In this context, trustees are confronted with acute dilemmas regarding how best to generate investment returns to beneficiaries. This involves crucial decisions regarding the diversification of investment portfolios as well as decisions on whether, when, and to whom to outsource investment functions and tasks. The literature in economic geography has frequently treated outsourcing decisions as taken by the asset owners based on criteria such as costs of coordination, availability of information, governance structure, and internal expertise. Focusing on the outsourcing of property investment by Brazil’s largest pension funds and drawing on a relational approach, this article investigates the actions taken by the real estate investment trust (REIT) industry to attract and retain pension fund money into their investment vehicles. It is claimed that REIT managers have acted on three dimensions to capture pension fund money: (1) by influencing the regulatory framework affecting pension funds, (2) by building networks of trust with pension fund managers and trustees, (3) by adapting internal procedures to the expectations and needs of institutional investors. Putting the spotlight on the evolving, power-laden relationships connecting key actors in finance, we were able to demonstrate how the pooling of money by financial institutions is politically and socially constructed and how it changes the geography of money flows.

Are REIT Dividend Changes a Firm-Specific or an Industry-Level Signal? Evidence From the Decomposition of Stock Returns

This study examines the firm-specific and industry-level effects of dividend announcements by equity real estate investment trusts (REITs). Using stock returns to measure the information impounded in stock prices from dividend announcements, we decompose stock returns into three return components: firm-specific, industry-level, and market-wide. This decomposition allows us to examine the relative importance of the firm-specific and industry-level information contained in dividend announcements. We find that the market reaction to equity REIT dividend changes is mainly driven by the firm-specific return component. We also find that equity REIT managers are more likely to cut (raise) dividend payments when the stock price reveals less (more) firm-specific information. Moreover, the managerial dividend signal can explain the announcement-period firm-specific abnormal return but not the industry-wide abnormal return, suggesting that the managerial dividend signal conveys mainly firm-specific information.

Can textual analysis solve the underpricing puzzle? A US REIT study

PurposeAlthough many theories aim to explain initial public offering (IPO) underpricing, initial-day returns of US Real Estate Investment Trust (REIT) IPOs remain a “puzzle”. The literature on REIT IPOs has focused on indirect quantitative proxies for information asymmetries between REITs and investors to determine IPO underpricing. This study, however, proposes textual analysis to exploit the qualitative information, revealed through one of the most important documents during the IPO process – Form S-11 – as a direct measure of information asymmetries.Design/methodology/approachThis study determines the level of uncertain language in the prospectus, as well as its similarity to recently filed registration statements, to assess whether textual features can solve the underpricing puzzle. It assumes that uncertain language makes it more difficult for potential investors to price the issue and thus increases underpricing. Furthermore, it is hypothesized that a higher similarity to previous filings indicates that the prospectus provides little useful information and thus does not resolve existing information asymmetries, leading to increased underpricing.FindingsContrary to expectations, this research does not find a statistically significant association between uncertain language in Form S-11 and initial-day returns. This result is interpreted as suggesting that uncertain language in the prospectus does not reflect the issuer's expectations about the company's future prospects, but rather is necessary because of forecasting difficulties and litigation risk. Analyzing disclosure similarity instead, this study finds a statistically and economically significant impact of qualitative information on initial-day returns. Thus, REIT managers may reduce underpricing by voluntarily providing more information to potential investors in Form S-11.Practical implicationsThe results demonstrate that textual analysis can in fact help to explain underpricing of US REIT IPOs, as qualitative information in Forms S-11 decreases information asymmetries between US REIT managers and investors, thus reducing underpricing. Consequently, REIT managers are incentivized to provide as much information as possible to reduce underpricing, while investors could use textual analysis to identify offerings that promise the highest returns.Originality/valueThis is the first study which applies textual analysis to corporate disclosures of US REITs in order to explain IPO underpricing.

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.

Is the MD&A of US REITs informative? A textual sentiment study

PurposeThis study examines whether language disclosed in the Management Discussion and Analysis (MD&A) of US Real Estate Investment Trusts (REITs) provides signals regarding future firm performance and thus generates a market response.Design/methodology/approachThis research conducts textual analysis on a sample of approximately 6,500 MD&As of US REITs filed by the SEC between 2003 and 2018. Specifically, the Loughran and Mcdonald (2011) financial dictionary, and a custom dictionary for the real estate industry created by Ruscheinsky et al. (2018), are employed to determine the inherent sentiment, that is, the level of pessimistic or optimistic language for each filing. Thereafter, a panel fixed-effects regression enables investigating the relationship between sentiment and future firm performance, as well as the markets’ reaction.FindingsThe empirical results suggest that higher levels of pessimistic (optimistic) language in the MD&A predict lower (higher) future firm performance. Hereby, the use of a domain-specific real estate dictionary, namely that developed by Ruscheinsky et al. (2018) leads to superior results. Corresponding to the notion that the human psyche is affected more strongly by negative than positive news (Rozin and Royzman, 2001), the market responds solely to pessimistic language in the MD&A.Practical implicationsThe results suggest that the market can benefit from textual analysis, as investigating the language in the MD&A reduces information asymmetries between US REIT managers and investors.Originality/valueThis is the first study to analyze exclusively US REITs, whether language in the MD&A is predictive of future firm performance and whether the market responds to textual sentiment.

Malaysia REIT Companies Concepts in Practicing Sale and Leaseback Investment

Sale and leaseback investment has been a growing trend among the Real Estate Investment Trust (REIT) Companies in Malaysia. This study is to determine the important elements in the concepts of the sale and leaseback transactions practiced by the REIT companies. The study uses the NVIVO software to analyze the data interviews with the REIT managers that adopt sale and leaseback investment transactions. With a response rate of 78%, results show there are three main elements namely location, type of lease, and rental. This study forms a useful guide to real estate managers in developing countries towards using the sale and leaseback as one of the alternative methods in property investment.

Sale and Leaseback Investment Concepts in Malaysian REIT Companies

Sale and leaseback investment has been a growing trend among the Real Estate Investment Trust (REIT) Companies in Malaysia. This study is to determine the important elements in the concepts of the sale and leaseback transactions practiced by the REIT companies. The study uses the NVIVO software to analyze the data interviews with the REIT managers that adopt sale and leaseback investment transactions. With a response rate of 78%, results show there are three main elements namely location, type of lease, and rental. This study forms a useful guide to real estate managers in developing countries towards using the sale and leaseback as one of the alternative methods in property investment.Keywords: sale and leaseback; property investment; REITeISSN: 2398-4287 © 2019. The Authors. Published for AMER ABRA cE-Bs by e-International Publishing House, Ltd., UK. This is an open-access article under the CC BYNC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer–review under responsibility of AMER (Association of Malaysian Environment-Behaviour Researchers), ABRA (Association of Behavioural Researchers on Asians) and cE-Bs (Centre for Environment-Behaviour Studies), Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Malaysia.DOI: https://doi.org/10.21834/e-bpj.v4i12.1942

The Interrelationships between REIT Capital Structure and Investment

We explore the interdependence of investment and financing choices in US listed Real Estate Investment Trusts (REITs) in the period 1973–2011. We find that the investment and financing choices of REITs are interdependent, but they are not made simultaneously. Our results suggest that investment determines leverage, but leverage has no apparent effect on investment decisions. Conversely, the debt‐overhang conflict between shareholders and debt holders that theoretically drives the reverse influence of leverage on investment policy does not appear to filter through to the actual investment choices of REITs. Rather, we find that REIT managers utilize the maturity dimension of capital structure to mitigate potential investment distortions and ensure that investment remains on its value‐maximizing path. We also present novel evidence on the role of investments in driving a wedge between REIT target leverage and actual leverage levels, and on the interplay between investments and leverage adjustments toward the target ratio in explaining REIT capital structure dynamics.

Cross-listing of real estate investment trusts (REITs)

PurposeThe purpose of this paper is to examine the common stock price reaction and the changes to the risk exposure of the cross-listing for real estate investment trusts (REITs).Design/methodology/approachThe paper adopts the event study methodology to assess the abnormal returns (ARs). Pre- and post-cross-listing changes in the risk exposure for the domestic and foreign markets are examined, via a modified two-factor international asset pricing model. A comparison is made for two broad cross-listings, namely, the depositary receipts and the dual ordinary listings, to examine the impacts from institutional differences.FindingsCross-listed REITs generally experience positive and significant ARs throughout the event window, implying significant superior returns associated with the cross-listing for REITs. On systematic risks, REITs exhibit significant decline in their domestic market β coefficients after the cross-listing. However, the foreign market β coefficients do not yield conclusive evidence when compared across the sample.Research limitations/implicationsResults are consistent with prudential asset allocation for potential diversification gains from the cross-listing, as the reduction from the domestic market beta is more significant than changes in the foreign market beta.Practical implicationsThe results and findings should incentivise REIT managers to explore viable cross-listing.Social implicationsSuch cross-listing for REITs should enhance risk diversification.Originality/valueThis is a pioneer study on cross-listing of REITs. It provides a basis for investment decision making, and could provoke further research and discussion.

REIT Liquidity Management and Institutional Investors

We examine how institutional investors influence the liquidity choice between cash versus bank credit lines of real estate investment trusts (REITs). While cash offers REIT managers unconditional control rights, credit lines subject managers to bank monitoring. We find that REITs use more bank credit lines relative to cash under the oversight of institutional investors, especially independent and long-term institutions. These findings suggest that institutional investors attenuate the REIT managers' propensity to keep excessive cash relative to credit lines. Moreover, institutional investors delegate more agency monitoring to banks when their holding REITs are more risky and have more severe agency problems.

Oil prices and real estate investment trusts (REITs): Gradual-shift causality and volatility transmission analysis

According to literature, oil price shocks and volatility can have sector-specific impacts in the market. While these studies include most asset groups, the dynamic relationship between the oil market and Real Estate Investment Trusts (REITs) has not been tested. This study examines the role of oil price shocks and volatility on six REIT categories: Residential, Hotel, Healthcare, Retail, Mortgage and Warehouse/Industrial REITs for the January 2005–December 2013 period. In addition, a new causality approach is proposed by augmenting the Toda–Yamamoto method with a Fourier approximation. This approach is capable of capturing gradual or smooth shifts and does not require a prior knowledge regarding the number, dates, and form of structural breaks. The so-called Fourier Toda–Yamamoto causality (mean spillover) test finds uni-directional causality running from oil prices to all REITs, except for the mortgage REITs. In the latter case, the causality is reversed. In addition, the relatively new and simple causality-in-variance test shows that there is bi-directional volatility transmission between the oil market and all REITs. Our results have important implications for REIT managers and investors.

The governance mechanisms of family-controlled REITs

Purpose – The purpose of this paper is to analyze how founders of family-controlled Real Estate Investment Trusts (REITs) under bounded rationality implement internal governance mechanisms that may affect the long-term performance once the founder retires. These actions create a hurdle for successors to follow the founder’s success. Design/methodology/approach – The authors collected data on secondary sources of 36 family and 22 professionally managed REITs from 1999 to 2012 that resulted in an unbalanced panel data of 726 REIT-year observations. The authors use a series of multi-variate analyses to test the hypotheses. Findings – The findings confirm that founders of family-controlled REITs focus more on developing internal governance mechanisms to satisfy their personal goals. Long-term performance is negatively affected once the successor takes over especially when the successor is a family member. Research limitations/implications – The authors have data limitations about family involvement. The authors suggest future avenues of investigation such as combining perceptual with archival data. Practical implications – The authors expect that REIT managers and families can use the findings to develop viable and sustainable governance practices. Especially, being a publicly traded REIT implies to conform to the market expectations so there is a need to balance socio emotional wealth preservation with financial goals. Originality/value – The authors frame the paper on transaction cost economics and contribute to the literature by stating that the dominance of founders of family-controlled REITs are more aligned to keep the business under family control once the founder retires.

Related Party Transactions and Firm Value: Evidence from Property Markets in Hong Kong, Malaysia and Singapore

This paper offers new evidence as to how RPTs can be value enhancing for minority shareholders. In doing so, we address an ongoing theoretical tension in the related party transaction (RPT) literature by focusing on real estate investment trusts (REITs) in Asia. The empirical evidence is mixed in the corporate finance literature on whether RPTs create or destroy firm value. On average, REITs in our sample engaged in RPTs amounting to 5.4 % of total assets, annually, between 2003 and 2010. This is not a trivial amount and is nearly double the 2.8 % RPT rate for U.S. industrial firms. We identify three main channels for REIT RPTs: real estate asset acquisitions from related parties (57.4 %), income earned from related parties (22.2 %) and management fees paid to related parties (14.8 %). The identification strategy we employ relies on two distinct methodologies when examining RPTs and firm value: a multivariate regression approach and, secondly, an exogenous wealth effects test for RPT announcements. Overall, the results suggest that REIT managers and sponsors do not expropriate wealth from their minority shareholders through RPTs. We find evidence that an ad hoc acquisitions pipeline from sponsor to REIT generally drives the value and wealth proposition, although the impact could be reversed in a credit crisis.

Beyond friendly acquisitions: the case of REITs

Unlike operating companies, acquisitions between Real Estate Investment Trusts (REITs) are friendly and acquirers have been previously found to experience positive announcement effects. This study looks beyond stock response and long term performance and finds that overconfidence motivates REIT managers to acquire other firms or assets within the industry. We find that larger, more profitable, and less transparent REITs with fewer growth opportunities are more likely to become acquirers. We further find that top managers tend to personally buy more shares prior to the acquisition announcement and then sell more shares afterward. Our empirical evidence lends support to the hubris hypothesis.

Elective stock dividend in REITs: market reaction and determinants

PurposeThe purpose of this study is to look at the market reaction to stock dividend announcements of real estate investment trusts (REITs) and further look at their determinants.Design/methodology/approachThe paper uses standard event methodology for market reaction to determine abnormal returns and CARs. Additionally the paper uses a logistic regression to analyze determinants.FindingsUsing a sample of 37 announcements from fourth quarter 2008 till first quarter 2010, the paper finds a mean negative abnormal return of −1.23 percent on the day of the announcement. Further, following the announcement day, the paper finds a weak significant positive abnormal return on the day after that (+1), which may convey some optimism from the investors. Further, when the paper looks at the characteristics of such REITs, it finds that REITs with higher leverage ratio and larger asset bases are more likely to issue stock dividend. Additionally, the results also indicate that the stock dividend announcement lead to an abnormal turnover of 0.24 percent for these REITs on the day following the announcement. This may suggest an increase in the marketability of the stock dividend REITs after the announcement date.Practical implicationsFirst, the reaction of the market will help gauge the response of investors to such announcements. This could provide REIT managers information on ex‐ante investor reaction to such dividend decisions. Second, this study will help identify the characteristics of REITs that declare stock dividends. For investors who rely on market trading information, study in this regard will help them to build up their portfolios.Originality/valueThis is the only study that looks exclusively at stock dividends in REITs and the second study to look at stock dividends in REITs in general. It is different from the other study in this field because of its methodology, sample size and some distinct results.

The Impact of Debt Offerings on REIT Long-Run Performance

We evaluate real estate investment trust (REIT) long-run return performance after debt issuances. Our results suggest no abnormal returns for REITs following debt issues. Only REITs issuing debt in periods of increased debt issuing activity experience positive abnormal returns. Using a REIT-specific factor model, we observe that only value-weighted portfolios show positive abnormal returns, suggesting that larger REITs perform better after debt issues relative to other REITs. We provide support for the pecking-order and the market-timing theories of capital structure. REIT managers take fair advantage of favorable market conditions to raise capital and issue debt as the first choice of the pecking order.

Liquidity and the Future Stock Returns of the REIT Industry

This paper examines how deviations from expected optimal cash holdings affect future stock returns in the real estate investment trust (REIT) industry. Our findings indicate that REIT managers elect to hold less cash to reduce the agency problems of cash flow, supporting the pecking order theory that growth opportunities lead managers to retain more cash on hand. The results show that any deviation from the estimated optimal cash holdings is significantly detrimental to future market performance, suggesting that excess or insufficient cash is harmful to stock returns. The adverse influence of deviations above the optimal value is insignificantly stronger than that of deviations below the optimal value. We also find that the return performances of deviations that do not differ from the expected optimal value surpass those of deviations that differ significantly from the expected level. This implies that REIT managers determine their cash policies based on future growth opportunities and the external costs of capital. Finally, for REIT firms, holding excess or insufficient cash increases the possibility of agency conflict or underinvestment, which will consequently worsen the firm’s future performance.

An Analysis of Lockups in REIT IPOs

We analyze how the unique characteristics of real estate investment trusts (REITs) affect IPO lockup agreements from 1980 to 2006. The findings show that, unlike industrial IPOs, lockup periods for REIT IPOs do not cluster at 180 days, tend to cover longer periods, and vary over time. Our results support the commitment device hypothesis instead of the signaling hypothesis. That is, REIT managers tend to use lockup agreements to alleviate moral hazard problems and protect post-IPO investors rather than to send signals to investors. Finally, contrary to previous studies, we find no significant negative abnormal returns around the unlock date for the whole sample. The lack of aggressive sales by insiders and the fact that REITs are not backed by venture capitalists can explain our finding.