Cross-country differences in disclosure quality: a study of fair value disclosures by european real estate companies

Companies are under IAS 40 required to report fair values of investment properties on the balance sheet or to disclose them in the notes. The standard requires also that companies have to disclose the methods and significant assumptions applied in determining fair values of investment properties. However, IAS 40 does not include any illustrative examples or other guidance on how to apply the disclosure requirements. We use a sample with publicly traded companies from the real estate sector in the EU. We find that a majority of the companies use income based methods for the measurement of fair values but there are considerable cross-country variations in the level of disclosures about the assumptions used in determining fair values. More specifically, we find that Scandinavian and German origin companies disclose more than French and English origin companies. We also test whether disclosure quality is associated with enforcement quality measured with the “Rule of Law” index according to Kaufmann et al. (2010), and associated with a secrecy- versus transparency-measure based on Gray (1988). We find a positive association between disclosure and earnings quality and a negative association with secrecy.

Do responsible real estate companies outperform their peers?

This paper investigates the relationship between corporate social and environmental performance and financial performance for a sample of publicly traded US real estate companies. Using the MSCI ESG (formerly KLD) database on seven Environmental, Social & Governance dimensions in the 2003-2010 period, and weighting the dimensions according to prominence in the real estate sector, we model Tobin's Q and annual total return in a panel data framework. The results indicate a positive relationship between ESG rating and Tobin's Q but this effect is driven by ESG concerns rather than strengths. Consistently across all model specifications, overall ESG ratings are associated with lower returns. Negative scores appear to result in higher returns in the short run but positive scores have no significant impact on returns.

European CMBS pricing: bond, mortgage and real estate characteristics

The recent global economic crisis is often associated with the development and pricing of mortgage-backed securities (i.e. MBSs) and underlying products (i.e. sub-prime mortgages). This work uses a rich database of MBS issues and represents the first attempt to price commercial MBSs (i.e. CMBSs) in the European market. Our results are consistent with research carried out in the US market and we find that bond-, mortgage-, real estate-related and multinational characteristics show different degrees of significance in explaining European CMBS spreads at issuance. Multiple linear regression analysis using a databank of CMBSs issued between 1997 and 2007 indicates a strong relationship with bond-related factors, followed by real estate and mortgage market conditions. We also find that multinational factors are significant, with country of issuance, collateral location and access to more liquid markets all being important in explaining the cost of secured funding for real estate companies. As floater coupon tranches tend to be riskier and exhibit higher spreads, we also estimate a model using this sub-set of data and results hold, hence reinforcing our findings. Finally, we estimate our model for both tranches A and B and find that real estate factors become relatively more important for the riskier investment products.

Continental shift? An analysis of convergence trends in European real estate equities

European economic and political integration have been recognised as having implications for patterns of performance in national real estate and capital markets and have generated a wide body of research and commentary. In 1999, progress towards monetary integration within the European Union culminated in the introduction of a common currency and monetary policy. This paper investigates the effects of this ‘event’ on the behaviour of stock returns in European real estate companies. A range of statistical tests is applied to the performance of European property companies to test for changes in segmentation, co-movement and causality. The results suggest that, relative to the wider equity markets, the dispersion of performance is higher, correlations are lower, a common contemporaneous factor has much lower explanatory power whilst lead-lag relationships are stronger. Consequently, the evidence of transmission of monetary integration to real estate securities is less noticeable than to general securities. Less and slower integration is attributed to the relatively small size of the real estate securities market and the local and national nature of the majority of the companies’ portfolios.

Firm Market Performance and Volatility in a National Real Estate Sector

We present empirical evidence using daily data for stock prices for 17 real estate companies traded in the Sao Paulo, Brazil stock exchange. from August 26, 2006 to March 31, 2010. We use the U.S. house price bubble, financial crisis and risk measures to instrument for momentums and reversals in the domestic real estate sector. We find evidence of conditional premium persistence and conditional volatility persistence in the market. We find that the conditional risk-return relationship in the sector is consistent with the prospect theory of risk attitudes in this period. Certain companies seem to be operating on a perceived potential industry return above the target, while most others are below the target, and the whole sector is below target on average. (C) 2011 Elsevier Inc. All rights reserved.

Diretrizes para o estabelecimento de parcerias entre empresas do real estate residencial.

O presente trabalho tem como foco o estudo e análise das alianças estratégicas realizadas entre empresas do setor do real estate, no período entre 2006 e 2010, enfatizando as alianças realizadas entre empresas atuantes predominantemente nas cidades de São Paulo e Rio de Janeiro com empresas atuantes nas regiões Norte e Nordeste do Brasil, cujo objetivo por parte das empresas paulistas foi o espalhamento geográfico. Considerando o volume representativo de alianças estratégicas verificado no setor no período em questão e a geração de resultados dos empreendimentos objetos de tais parcerias inferiores às expectativas estabelecidas, o objetivo do trabalho é a apresentação de um conjunto de diretrizes que possa contribuir para o planejamento, realização e condução de futuras parcerias entre empresas do setor, visando a mitigar dificuldades e a explorar da melhor forma possível os benefícios que as alianças estratégicas podem proporcionar. Para tanto, realizou-se uma pesquisa por meio de um estudo de casos múltiplos abrangendo o estudo de empresas de capital aberto que atuavam predominantemente nas capitais do eixo Rio-São Paulo, empresas atuantes em nível regional no Norte e Nordeste brasileiro que realizaram parcerias com as empresas do Sudeste, além de empresas de consultoria que estiveram envolvidas nas parcerias por meio de prestação de serviços. Tal pesquisa permitiu identificar as principais dificuldades, vantagens e desvantagens decorrentes das parcerias em questão, cujos dados foram analisados e discutidos à luz da revisão bibliográfica, embasando assim o conjunto de diretrizes proposto. As diretrizes apresentadas visam a contribuir com todo o processo que envolve a realização de uma parceria, contemplando desde aspectos de planejamento, gestão até aspectos operacionais e são complementadas por recomendações que somadas às diretrizes podem elevar a probabilidade de êxito das parcerias.

Análise da possível expansão internacional de empresas brasileiras de real estate residencial para o mercado costarriquenho, uma abordagem SWOT.

Devido ao crescimento e à experiência adquirida pelas empresas brasileiras de real estate residencial nos últimos anos, e às características próprias desse setor, os mercados internacionais poderiam ser considerados como possíveis alvos para essas empresas. Por exemplo, no mercado residencial costarriquenho, incentivos para projetos residenciais de alta densidade populacional, reformas nos processos para a obtenção dos alvarás de construção e mudanças demográficas e culturais, parecem propiciar um ambiente favorável para empresas dessa indústria. Portanto, o objetivo do presente trabalho é estudar uma possível expansão geográfica de empresas brasileiras de real estate no mercado residencial costarriquenho, a partir da estruturação de uma análise de abordagem SWOT dos elementos necessários para tal incursão. Para isso, realizou-se uma revisão bibliográfica na busca dos elementos estratégicos do ambiente interno de empresas de real estate residencial que devem ser considerados para processos de internacionalização, identificando-se 12 forças e 10 fraquezas desta revisão. Ademais, analisou-se: o mercado residencial; a macroeconomia, e as conjunturas político-legais e socioculturais da Costa Rica, na procura de fatores que devem ser tomados em conta por parte de empresas de real estate ao ingressar nesse país, distinguindo-se 24 oportunidades e 20 ameaças dessa análise. Para complementar o estudo, foi avaliada a atratividade do mercado residencial costarriquenho para receber investimentos por onze importantes empresas do setor de real estate residencial brasileiro, por meio de um questionário estruturado com os elementos identificados na primeira parte do trabalho. Os resultados mostraram que, no momento da avaliação, as empresas entrevistadas deram maior atenção ao tamanho do mercado e às características do sistema financeiro para o setor residencial, e identificaram a carência do conhecimento local e sua cultura empresarial, como os elementos que dificultariam sua internacionalização. Conclui-se sobre a possível internacionalização de empresas brasileiras de real estate residencial para o mercado da Costa Rica, que elementos desde uma perspectiva econômica racional e principalmente contingencial definem essa estratégia, não sendo viável nem vantajoso idealizar um processo de internacionalização nesse mercado, devido às atuais condições de seus mercados locais e aos elementos do ambiente interno que várias dessas empresas apresentam.

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.

Corporate real estate strategies - a multinational approach

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Management from the NOVA – School of Business and Economics

The impact of real estate on the terminal wealth of the UK mixed-asset portfolio

The argument for the inclusion of real estate in the mixed-asset portfolio has concentrated on examining its effect in reducing the portfolio risk - the time series standard deviation (TSSD), mainly using ex-post time series data. However, the past as such is not really relevant to the long-term institutional investors, such as the insurance companies and pension funds, who are more concerned the terminal wealth (TW) of their investments and the variability of this wealth, the terminal wealth standard deviation (TWSD), since it is from the TW of their investment portfolio that policyholders and pensioners will derive their benefits. These kinds of investors with particular holding period requirements will be less concerned about the within period volatility of their portfolios and more by the possibility that their portfolio returns will fail to finance their liabilities. This variability in TW will be closely linked to the risk of shortfall in the quantity of assets needed to match the institution’s liabilities. The question remains therefore can real estate enhance the TW of the mixed-asset portfolio and/or reduce the variability of the TW. This paper uses annual data from the United Kingdom (UK) for the period 1972-2001 to test whether real estate is an asset class that not only reduces ex-post portfolio risk but also enhances portfolio TW and/or reduces the variability of TW.

Is ESG commitment linked to investment performance in the real estate sector?

The linkage between corporate commitment to environmental, social and governance (ESG) issues and investment performance has generated a substantial body of research outside the real estate sector. Nevertheless, the relationship between the environmental performance and financial performance of companies is still not well understood as studies have found mixed and contradicting results. Drawing upon the KLD database which contains ratings on seven ESG dimensions from 2003-2009, this paper investigates the relationship between the ESG rating and the financial performance of a sample of US real estate firms. Since the primary transmission channel from ESG activities to financial performance may be better reflected by a firm's intangible assets, we model both Tobin's q and the total annual return in a panel framework with time and sector specific fixed effects. Our results are largely consistent with the existing literature finding a positive relationship between CFP and CSP. Further, the time scale of the lagged effects seems plausible.

The performance effects of composition changes on sector specific stock indices: The case of European listed real estate

This paper examines the impact of changes in the composition of real estate stock indices, considering companies both joining and leaving the indices. Stocks that are newly included not only see a short-term increase in their share price, but trading volumes increase in a permanent fashion following the event. This highlights the importance of indices in not only a benchmarking context but also in enhancing investor awareness and aiding liquidity. By contrast, as anticipated, the share prices of firms removed from indices fall around the time of the index change. The fact that the changes in share prices, either upwards for index inclusions or downwards for deletions, are generally not reversed, would indicate that the movements are not purely due to price pressure, but rather are more consistent with the information content hypothesis. There is no evidence, however, that index changes significantly affect the volatility of price changes or their operating performances as measured by their earnings per share.

1992 census of financial, insurance, and real estate industries.

[v. 1] Geographic area series (FC92-A-1) -- [v. 2] Nonemployer statistics series (FC92-N-1) -- [v. 3] Subject series: Establishment and firm size (FC92-S-1) -- [v. 4] Sources of revenue (FC92-S-2) -- [v. 5] Miscellaneous subjects (FC92-S-3).