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.

A-REIT seasoned equity offerings : determinants and market reaction

The paper examines the decision by Australian Real Estate Trusts (A-REITs) to issue seasoned equity offerings from 2000 - 2008 and stock market reaction to the offerings using panel data and event study methodologies, respectively. The global financial crisis has resulted in freezing of the Australian bond markets, with several A-REITs left with seasoned equity issuance and asset sales as the only viable modes of raising additional capital. The findings review that leverage and operating risk are negative significant determinants of seasoned equity offerings; profitability and growth opportunities are positive significant determinants. Of the structure and type of properties held by the A-REIT, only stapled management structure and international operations are significant determinants. Type of properties held by A-REITs show inconsistent results. Similar to previous studies of seasoned equity offerings, we find a significant negative abnormal return associated with their announcement and no evidence of excessive leakage of information. Cross-sectional regressions show that the issued amount raised and leverage are significant factors affecting abnormal returns.

Dislodgement of commercial property public debt markets : the case of U.S. and Australia

The paper investigates if there are any discernible trends in the U.S. and Australian commercial property public debt markets with the onset of the global financial crisis (GFC). Commercial mortgage-backed securities and unsecured bonds issued by real estate investment trusts for the period 2000 to Q3:2009 are reviewed. It is shown that events in the equity markets have an impact on the pricing of these two instruments. Furthermore, the impact of subdued activity in these financing instruments on the commercial property market is discussed.

Depreciation, income distribution and the UK REIT

Purpose – The purpose of this paper is to consider prospects for UK REITs, which were introduced on 1 January 2007. It specifically focuses on the potential influence of depreciation and expenditure on income and distributions. Design/methodology/approach – First, the ways in which depreciation can affect vehicle earnings and value are discussed. This is then set in the context of the specific rules and features of REITs. An analysis using property income and expenditure data from the Investment Property Databank (IPD) then assesses what gross and net income for a UK REIT might have been like for the period 1984-2003. Findings – A UK REIT must distribute at least 90 per cent of net income from its property rental business. Expenditure therefore plays a significant part in determining what funds remain for distribution. Over 1984-2003, expenditure has absorbed 20 per cent of gross income and been a source of earnings volatility, which would have been exacerbated by gearing. Practical implications – Expenditure must take place to help UK REITs maintain and renew their real estate portfolios. In view of this, investors should moderate expectations of a high and stable income return, although it may well still be so relative to alternative investments. Originality/value – Previous literature on depreciation has not quantified amounts spent on portfolios to keep depreciation at those rates. Nor, to our knowledge, has its ideas been placed in the indirect investor context.

The consistency of private and public real estate within mixed-asset portfolios

This study considers the consistency of the role of both the private and public real estate markets within a mixed-asset context. While a vast literature has developed that has examined the potential role of both the private and public real estate markets, most studies have largely relied on both single time horizons and single sample periods. This paper builds upon the analysis of Lee and Stevenson (2005) who examined the consistency of REITs in a US capital market portfolio. The current paper extends that by also analyzing the role of the private market. To address the question, the allocation of both the private and traded markets is evaluated over different holding periods varying from 5- to 20-years. In general the results show that optimum mixed-asset portfolios already containing private real estate have little place for public real estate securities, especially in low risk portfolios and for longer investment horizons. Additionally, mixed-asset portfolios with public real estate either see the allocations to REITs diminished or eliminated if private real estate is also considered. The results demonstrate that there is a still a strong case for private real estate in the mixed-asset portfolio on the basis of an increase in risk-adjusted performance, even if the investor is already holding REITs, but that the reverse is not always the case.

The impact of real estate on the mixed-asset portfolio in periods of financial stress

The case for holding real estate in the mixed-asset portfolio is typically made on its stabilising effect as a result of its diversification benefits. However, portfolio diversification often fails when it is most needed, i.e. during periods of financial stress. In these periods, the variability of returns for most asset classes increases thus reducing the stabilising effect of a diversified portfolio. This paper applies the approach of Chow et al (1999) to the US domestic mixed-asset portfolio to establish whether real estate, represented by REITs, is especially useful in times of financial stress. To this end monthly returns data on five assets classes: large cap stocks, small cap stocks, long dated government bonds, cash (T-Bills) and real estate (REITs) are evaluated over the period January 1972 to December 2001. The results indicate that the inclusion of REITs in the mixed-asset portfolio can lead to increases or decreases in returns depending on the asset class replaced and whether the period is one of calm or stress. However, the inclusion of REITs invariably leads to reductions in portfolio risk that are greater than any loss in return, especially in periods of financial stress. In other words, REITs acts as a stabilising force on the mixed-asset portfolio when it is most needed, i.e. in periods of financial stress.

Dynamic correlations across REIT sub-sectors

The issue of whether Real Estate Investment Trusts should pursue a focused or diversified investment strategy remains an ongoing debate within both the academic and industry communities. This paper considers the relationship between REITs focused on different property sectors in a GARCH-DCC framework. The daily conditional correlations reveal that since 1990 there has been a marked upward trend in the coefficients between US REIT sub-sectors. The findings imply that REITs are behaving in a far more homogeneous manner than in the past. Furthermore, the argument that REITs should be focused in order that investors can make the diversification decision is reduced.

Dynamic correlations between REIT sub-sectors and the implications for diversification

The issue of whether Real Estate Investment Trusts (REITs) should pursue a focused or diversified investment strategy remains an ongoing debate within both the academic and industry communities. This article considers the relationship between REITs focused on different property sectors in a Generalized Autoregressive Conditional Heteroscedasticity-Dynamic Control Correlation (GARCH-DCC) framework. The daily conditional correlations reveal that since 1990 there has been a marked upward trend in the coefficients between US REIT sub-sectors. The findings imply that REITs are behaving in a far more homogeneous manner than in the past. Furthermore, the argument that REITs should be focused in order that investors can make the diversification decision is reduced.

The information content of REIT credit rating actions and transparency

We examine the short-run and long-run price reaction of equity REIT shares following credit rating actions, testing the transparency of the REIT structure. Generally, the economic effect on the stock price is subdued for both upgrades and downgrades compared to prior literature examining the broader U.S. equity market. An examination of trading volume revealed a significant increase in trading in reaction to downgrade credit rating changes, with a more subdued response to upgrades. The findings support the notion that REITs are more publicly forthcoming about the expectation of positive news in comparison to negative news.

O investimento em ativos florestais : o caso norte-americano e o desenvolvimento desta classe de ativos no Brasil

Este trabalho explora a solução do problema de sub-investimento em novos plantios florestais no Brasil, por meio de empresas especializadas na gestão de ativos florestais. Com a redução dos novos plantios e a crescente demanda por produtos da indústria de base florestal, a oferta de madeira no país deve tornar-se insuficiente para atender a demanda no mercado interno. Programas governamentais de subsídio de crédito e programas privados de fomento florestal visam atrair novos participantes para o negócio das florestas plantadas, porém, essas iniciativas são insuficientes. Este trabalho explora a alternativa de organizar-se o investimento e a gestão dos ativos florestais por meio de empresas especializadas nesta função econômica. No caso dos EUA, vem crescendo a participação dos ativos florestais administrados por empresas organizadas na forma de TIMOs ou Timber REITs, que adquirem grandes áreas de florestas com os recursos de investidores institucionais. Estes investidores são atraídos pelo histórico de retorno desses investimentos e seu potencial para diversificação de carteiras. No Brasil, esses veículos devem ser adequados às necessidades do setor florestal brasileiro, caracterizado pela concentração da propriedade das florestas plantadas nas mãos de grandes empresas integradas, cuja grande parte da produção de madeira é destinada ao consumo próprio. Neste trabalho procurou-se sugerir a securitização de recebíveis florestais como alternativa para a criação desses veículos de investimento no Brasil. Esta alternativa poderia atender os interesses das empresas de base florestal, dos investidores institucionais, fundos de private equity e outros. São estudados casos desta operação na Europa e EUA. Para as empresas integradas, a securitização e a gestão independente das florestas permitiram a liberação de recursos para investimento em seus core businesses e contribuíram para a redução do custo de capital.

School of Nursing Class of 2009

Top Row: Allison Anderson, Meghan Archer, Christopher Aten, Meredith Bajor, Sarah Belleville, Kimberly Bergere, Courtney Bernier, Diana Blanks, Julie Bluhm, Melanie Bork, Karyn Braley, Kathryn Melody Briones, Christine Brouillard, Alyson Bryson

Row 2: Amy Burk, Kelly Capellari, Carmon Carlson, Krystal Cavaliere, Jeffrey Chiambretti, Christine Cho, Renee Christopher, Holli Clewis, James Conway, Kelly Courtney, Jenna Dahn, Erin Daly, Nicole DeFauw, Stefanie DeVita, Jessica DiVirgil, Debra Dombrowski, Genevieve Donnell

Row 3: Kathleen Donnelly, Jennifer El Aile, William Faulkner, Kimberly Johnson, Danielle Alameda, Margaret Wheeler, Brian D Kaminski Jr, Bridget Fil, Rochelle Weller, Leslie Allen-Huisman, Jennifer Musbach, Kathy Feig, Lori Fellows, Shana Ferguson

Row 4: Lauren Frawley, Ashton Frederick, Molly Gacetta, Stephanie Ganger, Amanda Garcia, Megan Gdowski, Chad Godfrey, Emily Halpern

Row 5: Katherine Hammons, Natalie Hecht, Danielle Hiltz, Taylor Hosner, Jennifer Huber, Holly Huling, Nathaniel Hunt, Ana-Leonor Jay

Row 6: Rachel Jeltema, Jennifer Jones, Lindsey Jones, Sarah Kaherl, Jessica Kehbein, Kendra Leidecker, Vanessa Lelli, Meghan Lemmer, Rachel Levinson, Alexandra Lindsay

Row 7: Amanda MacDonald, Joelle Marineau, Laura Mason, Andrea Masser, Michele McKinney, Charles-Robert Moultry, Kathleen Potempa, Bonnie Hagerty, Nicole Nader, Minna Navvab, Rachael Newnam, Uche Obua, Sara Oles, Ceren Onsan-Fitzpatrick

Row 8: Emily Parobek, Dorasy Paul, Rosalynne Pinga, Sarah Pope, Laura Randall, Sarah Reits, Emma Rew, Annemarie Rozwadowski, Nicole Ruhlman, Lydia Sanok, Grace Savercool, Kimberly Schmidt, Renee Schoenborn, Lisa Schuman, Kaitlyn Seltzer, Catherine Sherwood, Elizabeth Smith

Row 9: Aimee Surma, Stephanie Swinteck, Hanna Taylor, Donnie Tietsema, Andreea Toader, Stephanie Upplegger, Meghan Visnick, Scharnice Ward, Tabytha Whitley, Kimberly Wilke, Carie Wright, Kyleen Young, Kristin Zawacki, Christina Ziegler, Carlotta Zirker

School of Nursing Class of 2011

Top Row: Dereje Amente, Grace Baek, Anne Benitez, Anna Berry-Krumrey, Amber Blake, Daniela Bravo-Corona, Shelley Brenner, Melissa Butzky, Ann Cassel, Chantal Chin, Mee-Sook Choo, Stephanie Clapham, Kathryn Clark, Joseph Cleary, Stephanie Conn, Casie Cook

Row 2: Christina Cook, Jessica Cook, Renea Cox, Marissa DaSilva, Kathryn Davenport, Ashley Deford, Alyse DeHaan, Maria Didio, Alyssa Diroff, Amy Doenitz, Emily Domansky, Deanna Dong, Ross Drake, Brian Dulzo, Michelle Dwyer, Jill Eberly, Rachel Escobar, Kathryn Falvey

Row 3: Michelle Fauver, Paula Fe Francisco, Lindsey Frick, Amannda Casper, Ashley Pickett, Kristin Kingma, Thomas Donnelly, Danielle Besk, Kimberly Cristobal, Heather Erdmann, Jessica Kramer, Ana Kotsogiannis, Sarah Bloom, Anna Evola, Melissa Dulic, Anna Garcia, Christopher Gargala, Thomas Geigert

Row 4: Megan Giles, Kristen Gniewkowski, Alexandra Gold, Sarah Gorzalski, Michele Grabow, Amber Gramling, Hannah Gregerson, Maria Hegan, Wendy Hastings, Ahsley Hayner

Row 5: Leanne Heilig, Lauryn Hildensperger, Rachel Hollern, Laura Jean Howatt, Eve Jaehnen, Stephanie Johnson, Peter Kachur, Rachelle Kilburg, Rachel Klein, Sara Klok, Caitlyn Kochanski, Valerie Kotal

Row 6: Lidia Kraft, Allison Kruger, Omotara Kufeji, Jill Kuhlman, Karah Kurdys, Kathryn Lang, Elsa Lindquist, Sara Mangus, Kathryn Marten, Samantha Maskell, Lauren McBride, Kelly McCarley

Row 7: Rachel McClure, Angela McCracken, Mallory Missad, Kathleen Murray, Mariko Nakagawa, Jaclyn Nancekivell, Tracey Negrelli, Kathleen Potempa, Bonnie Hagerty, Healee On, Sarah Osentoski, Kelsey Owens, Kelly Paulisin, Amanda Phillips, Emily Pressley, Kaitlyn Radius

Row 8: Rebecca Reits, Elin Ridenour, Amanda Robbins, Chayla Robles, Jessica Roossien, Alyssa Roy, Leslie Russell, Kristen Ruster, Cynthia Scheuher, Julie Schramm, Kim Schroers, Jennifer Schwartz, Kelly Seestedt, Shannon shank, Andrea Sherzer, Lauren Sir, Erinn Smith, Kathleen Soedarjatno

Row 9: Jessica Stefko, Alexandra Stencel, Brianne Stowell, Alexandra Suseland, Lauren Taylor, Deborah Thornton, Amanda Timmer, Daniel Tjarks, Jillian Traskos, Graham Valley, Sarah Wade, Rachel Wagner, Drew Wakefield, Marlena Westerlund, Katie Wheelock, Jennifer Wilcox, Dana York

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.

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.

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.