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REITs 2

Paper Session

Friday, Jan. 4, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, 217
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Timothy Riddiough, University of Wisconsin-Madison

Government Ownership and Firm Value: Evidence from Singapore REITs

David Kuo Chuen Lee
,
Singapore University of Social Sciences
Qing Li
,
University of Florida

Abstract

This paper examines how government ownership affects firm value in the Singapore Real Estate Investment Trust (S-REIT) industry. We construct measures of Singapore government’s ownership in REITs based on the shareholdings by Temasek Holdings and statutory boards of the government. First, we find that government-linked REITs (GL-REITs) tend to have both higher firm value and higher profitability than non-government-linked REITs (non-GLREITs). In particular, Tobin’s Q ratio of GL-REITs is 13.3% higher than that of non-GLREITs. Second, GL-REITs enjoy about 0.5% lower interest rate costs when borrowing money compared to non-GLREITs. Third, we find that GL-REITs are associated with better corporate governance, with the chairman of the board more likely to be independent. Finally, our evidence suggests that lower financing cost is the reason why GL-REITs achieve higher profitability compared to non-GLREITs. We find that better governance seems to be among the reasons why GL-REITs have higher firm value compared to non-GLREITs.

Incorporating the Impact of Financial Intermediaries on the Price and Future Returns of Real Estate

Shaun Bond
,
University of Cincinnati
Hui Guo
,
University of Cincinnati
Changyu Yang
,
University of Cincinnati

Abstract

Recent developments in financial economics suggest an important role for the leverage of financial intermediaries and/or limited stock market participation in understanding asset returns. Interest in this area originally developed following the financial crisis but since then further research has suggested a greater role and range of applications for models based on this approach. Successful applications of such a model cover a broad range of asset classes, including stocks, treasury and corporate bonds, options, CDS, commodities and currencies. In this paper we apply insights from intermediary asset pricing models to explain the cross-section and time-series returns of real estate markets. Consistent with these theories, we find that funding liquidity and the capital share of income have significant predictive power for equity REIT excess returns over time, even when we control for the dividend price ratio of the equity REIT index and commonly used stock market return predictors. Similarly, these variables have significant explanatory power for the cross-section of equity REIT returns.

Do REITs Issue IPOs and SEOs When Public Real Estate Returns Are High

James Shilling
,
DePaul University
Jay Sa-Aadu
,
University of Iowa
Yao-Min Chiang
,
National Taiwan University

Abstract

TBD

REITs as Lessees

He Li
,
University of Wisconsin-Whitewater
Erik Devos
,
University of Texas-El Paso
Elizabeth Devos
,
Eastern Michigan University

Abstract

Existing research on REIT financing argues that the financing choices of REITs are mainly limited to debt and equity. Hence, leasing has been largely ignored as a source of external funding for REITs. This study fills this gap in the literature by examining the leasing activities of REITs. Using a sample of 187 unique REITs that report non-missing leasing information between 1974 and 2016, we document that, on average, leasing expenses over the next five years account for approximately 9.34% of total long-term fixed claims. Furthermore, our results show that operating lease intensity in REITs tends to increase with the level of financial distress and contracting cost, tax liabilities, and growth opportunities. Lastly, we document that REITs use leasing as a substitute to debt financing.
Discussant(s)
Joseph Ooi
,
National University of Singapore
Robert Connolly
,
University of North Carolina
Mariya Letdin
,
Florida State University
Eva Steiner
,
Cornell University
JEL Classifications
  • G3 - Corporate Finance and Governance
  • R2 - Household Analysis