Joint Leverage and Maturity Choices in Real Estate Firms: The Role of the REIT Status

We explore the interdependence of leverage and debt maturity choices in Real Estate Investment Trusts (REITs) and unregulated listed real estate investment companies in the U.S. for the period 1973-2011. We find that the leverage and maturity choices of all listed real estate firms are interdependent, but in contrast to industrial firms, they are not made simultaneously. Across the different types of real estate firms considered, we find substantial differences in the nature of the relationship between leverage and maturity. Leverage determines maturity in non-REITs, whereas maturity is a determinant of leverage in REITs. We suggest that the observed differences reflect the effects of the REIT regulation, rather than solely being a function of real estate as the underlying asset class. We also present novel evidence that the relationship between leverage and maturity in both firm types can be used to moderate the effects of other exogenous financing policies.

Leverage, Volatile Future Earnings Growth and Expected Stock Returns

We provide theory and evidence to complement Choi's [RFS, 2013] important new insights on the returns to equity in `value' firms. We show that higher future earnings growth ameliorates the value-reducing effect of leverage and, because the market for earnings is incomplete, reduces the earnings-risk sensitivity of the default option. Ceteris paribus, a levered firm with low (high) earnings growth is more sensitive to the first (second) of these effects thus generating higher (lower) expected returns. We demonstrate this by modeling equity as an Asian-style call option on net earnings and find significant empirical support for our hypotheses.

Agency, Financial Flexibility, and Firm Value: Evidence from REITs

We show empirically that the use of unsecured debt, whose standard covenants commit management to the preservation of debt capacity, leads to lower and more stable leverage. We then show that firm value is sensitive to leverage levels and leverage stability, decreasing in the former and increasing in the latter. Our results support a liquidity-centric version of Jensen's (1986) free cash flow argument. In this version, self-serving managerial tendencies are reigned in without raising leverage indiscriminately, so that financial flexibility is preserved.

Manipulation in U.S. REIT Investment Performance Evaluation: Empirical Evidence

We investigate whether Real Estate Investment Trust (REIT) managers actively manipulate performance measures in spite of the strict regulation under the REIT regime. We provide empirical evidence that is consistent with this hypothesis. Specifically, manipulation strategies may rely on the opportunistic use of leverage. However, manipulation does not appear to be uniform across REIT sectors and seems to become more common as the level of competition in the underlying property sector increases. We employ a set of commonly used traditional performance measures and a recently developed manipulation-proof measure (MPPM, Goetzmann, Ingersoll, Spiegel, and Welch (2007)) to evaluate the performance of 147 REITs from seven different property sectors over the period 1991-2009. Our findings suggest that the existing REIT regulation may fail to mitigate a substantial agency conflict and that investors can benefit from evaluating return information carefully in order to avoid potentially manipulative funds.

On the Capital Structure of Real Estate Firms

The leverage and debt maturity choices of real estate companies are interdependent, and are not made separately as is often assumed in the literature. We use three-stage least squares (3SLS) regression analysis to explore this interdependence for a sample of listed U.S. real estate companies and Real Estate Investment Trusts (REITs) traded between 1973 and 2006.We find substantial differences in the nature of the relationship between leverage and maturity for the two firm types. Leverage is a determinant of maturity for non-REITs, whereas maturity is a determinant of leverage for REITs. We also find that the drivers of capital structure choices in real estate companies and REITs clearly reflect the effects of the REIT regulation.

Key Organizational Resources and the Sustainable Competitive Advantage of Cornell University’s School of Hotel Administration: Suggestions for Tourism & Educational Programs in China

Tourism and hospitality scholars and educational institutions in developing countries can benefit from systematic analysis of their counterparts in developed countries. Using the framework of sustainable competitive advantage, this paper explores the key organizational resources of the School of Hotel Administration at Cornell University that have assured its position as the leading hospitality program worldwide. The paper analyses key resources Cornell Hotel School uses to leverage and sustain its competitive advantage. Suggestions for positioning and enhancing future Chinese tourism and hospitality programs are provided. [Abstract in Chinese] 中国旅游发展起步较晚,在旅游教育的多数领域落后于西方发达国家。选择西方优秀旅游院系进行系统研究并总结其成功经验,对于提高我国旅游教育水平有着重要的意义。本文以持续竞争优势理论为框架,以全球旅游接待业教育的典范——康乃尔酒店管理学院为对象,详细分析了这所著名酒店学院的核心资源和确保其长期保持领袖地位的持续竞争优势,并提出可供中国旅游教育界参考借鉴的措施建议

REIT Capital Structure Choices: Preparation Matters

Sun, Titman, and Twite (2015) find that capital structure risks, namely high leverage and a high share of short-term debt, reduced the cumulative total return of US REITs in the 2007-2009 financial crisis. We find that mitigating capital structure risks ahead of the crisis by reducing leverage and extending debt maturity in 2006, was associated with a significantly higher cumulative total return 2007-2009, after controlling for the levels of those variables at the start of the financial crisis. We further identify two systematic cross-sectional differences between those REITs that reduced capital structure risks prior to the financial crisis and those that did not: the exposure to capital structure risks and the strength of corporate governance. On balance, our findings are consistent with the interpretation of risk-reducing adjustments to capital structure ahead of the crisis as a component of managerial skill and discipline with significant implications for firm value during the crisis.