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Article
Publication date: 2 February 2015

Daniel Wurstbauer and Wolfgang Schäfers

Similar to real estate, infrastructure investments are regarded as providing a good inflation hedge and inflation protection. However, the empirical literature on…

Abstract

Purpose

Similar to real estate, infrastructure investments are regarded as providing a good inflation hedge and inflation protection. However, the empirical literature on infrastructure and inflation is scarce. Therefore, the purpose of this paper is to investigate the short- and long-term inflation-hedging characteristics, as well as the inflation protection associated with infrastructure and real estate assets.

Design/methodology/approach

Based on a unique data set for direct infrastructure performance, a listed infrastructure index, common direct and listed real estate indices, the authors test for short- and long-term inflation-hedging characteristics of these assets in the USA from 1991-2013. The authors employ the traditional Fama and Schwert (1977) framework, as well as Engle and Granger (1987) co-integration tests. Granger causality tests are further conducted, so as to gain insight into the short-run dynamics. Finally, shortfall risk measures are applied to investigate the inflation protection characteristics of the different assets over increasingly long investment horizons.

Findings

The empirical results indicate that in the short run, only direct infrastructure provides a partial hedge against inflation. However, co-integration tests suggest that all series have a long-run co-movement with inflation, implying a long-term hedge. The causality tests reveal reverse unidirectional causality – while real estate asset returns are Granger-caused by inflation, infrastructure asset returns seem to cause inflation. These findings further confirm that both assets represent a distinct asset class. Ultimately, direct infrastructure investments exhibit the most desirable inflation protection characteristics among the set of assets.

Research limitations/implications

This study only presents results based on a composite direct infrastructure index, as no sub-indices for sub-sectors are available yet.

Practical implications

Investors seeking assets that are sensitive to inflation and mitigate inflation risk should consider direct infrastructure investments in their asset allocation strategy.

Originality/value

This is the first study to examine the ability of direct infrastructure to assess inflation risk.

Details

Journal of Property Investment & Finance, vol. 33 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 7 November 2016

Benjamin Gbolahan Ekemode and Abel Olaleye

This paper aimed to examine the return/risk performance of direct and indirect real estate (listed property stock) in the Nigerian real estate market and analyzed the…

Abstract

Purpose

This paper aimed to examine the return/risk performance of direct and indirect real estate (listed property stock) in the Nigerian real estate market and analyzed the short-term integration between the two classes of real estate assets. It also established whether investors could achieve diversification benefits by combining both assets in a portfolio.

Design/methodology/approach

The data utilized comprised annual returns on direct real estate calculated from the rental and capital values of 226 direct commercial properties obtained from property valuers in Lagos, Nigeria, for a period of January 1999-December 2014. The appraisal-based direct real estate returns were de-smoothed using the Geltner (1993) procedure. The annual returns of indirect real estate were also computed from the transactions of listed property stock on the Nigerian Stock Exchange for the study period. The return-risk profiles were also broken down into short- and medium-term sub-periods, comprising 3, 5, 8 and 12 years to reflect the level of volatility in the market, whereas the nature of the short-term relationship between the two real estate assets classes was tested using Granger causality technique.

Findings

The results revealed that listed property stock performed better than unsmoothed direct real estate on a risk-adjusted performance basis. The performance profile, however, varies over the different sub-periods considered. Short-term integration analysis showed that there was no bidirectional relationship between direct and listed property stock, implying diversification and risk reduction possibilities in combining both assets with other asset classes in a domestic asset portfolio. Overall, the results confirm the findings of previous study that listed property stocks return is segmented from the direct real estate market upon which its pricing and trading in the stock market are based.

Practical implications

The conclusion of the study suggests that investors could achieve improved performance by investing in listed property stocks than direct real estate in the Nigerian real estate market. The inclusion of both assets in a domestic mixed-asset portfolio could also be expected to offer diversification and risk reduction benefits.

Originality/value

This is one of the few studies that examine the short-run integration between direct real estate and listed property stocks with a focus on an emerging African market.

Details

Journal of Financial Management of Property and Construction, vol. 21 no. 3
Type: Research Article
ISSN: 1366-4387

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Article
Publication date: 3 October 2008

Abeyratna Gunasekarage, David M. Power and Ting Ting Zhou

The purpose of this paper is to examine the long‐term relationship between the rate of inflation and the returns of real estate and financial assets traded in New Zealand markets.

Abstract

Purpose

The purpose of this paper is to examine the long‐term relationship between the rate of inflation and the returns of real estate and financial assets traded in New Zealand markets.

Design/methodology/approach

The question of whether these assets are good candidates to hedge inflation in the long run is addressed employing cointegration and causality tests on quarterly data for the period from December 1979 to December 2003.

Findings

A strong long‐term relationship was found between the returns offered by all types of real estate assets (i.e. residential, commercial, industrial and farm building) and the rate of inflation. However, such a long run relationship is not detected between the rate of inflation and the returns of financial assets (i.e. stocks, short‐term bills and long‐term bonds).

Research limitations/implications

The empirical findings reveal that the direction of causality is from inflation to real estate assets indicating that changes in property prices do not cause inflation in New Zealand; the cause of inflation is independent of the price movements for real estate assets. The real estate assets are found to offer an effective hedge against inflation in the long run. The same cannot be said for the financial assets, however.

Originality/value

This is the first New Zealand study which investigates the long‐term inflation hedging effectiveness of both real estate and financial assets. The findings should be of interest to most of the investors in New Zealand as the real estate assets play a significant role in their portfolio decisions.

Details

Studies in Economics and Finance, vol. 25 no. 4
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 22 August 2018

Frank Kwakutse Ametefe, Steven Devaney and Simon Andrew Stevenson

The purpose of this paper is to establish an optimum mix of liquid, publicly traded assets that may be added to a real estate portfolio, such as those held by open-ended…

Abstract

Purpose

The purpose of this paper is to establish an optimum mix of liquid, publicly traded assets that may be added to a real estate portfolio, such as those held by open-ended funds, to provide the liquidity required by institutional investors, such as UK defined contribution pension funds. This is with the objective of securing liquidity while not unduly compromising the risk-return characteristics of the underlying asset class. This paper considers the best mix of liquid assets at different thresholds for a liquid asset allocation, with the performance then evaluated against that of a direct real estate benchmark index.

Design/methodology/approach

The authors employ a mean-tracking error optimisation approach in determining the optimal combination of liquid assets that can be added to a real estate fund portfolio. The returns of the optimised portfolios are compared to the returns for portfolios that employ the use of either cash or listed real estate alone as a liquidity buffer. Multivariate generalised autoregressive models are used along with rolling correlations and tracking errors to gauge the effectiveness of the various portfolios in tracking the performance of the benchmark index.

Findings

The results indicate that applying formal optimisation techniques leads to a considerable improvement in the ability of the returns from blended real estate portfolios to track the underlying real estate market. This is the case at a number of different thresholds for the liquid asset allocation and in cases where a minimum return requirement is imposed.

Practical implications

The results suggest that real estate fund managers can realise the liquidity benefits of incorporating publicly traded assets into their portfolios without sacrificing the ability to deliver real estate-like returns. However, in order to do so, a wider range of liquid assets must be considered, not just cash.

Originality/value

Despite their importance in the real estate investment industry, comparatively few studies have examined the structure and operation of open-ended real estate funds. To the authors’ knowledge, this is the first study to analyse the optimal composition of liquid assets within blended or hybrid real estate portfolios.

Details

Journal of Property Investment & Finance, vol. 37 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 15 May 2007

Meziane Lasfer

This paper aims to contrast the financial costs and benefits of leasing, rather than owning real estate assets.

Abstract

Purpose

This paper aims to contrast the financial costs and benefits of leasing, rather than owning real estate assets.

Design/methodology/approach

The main argument is that leasing is beneficial. The hypothesis is tested using a total of 2,343 UK‐quoted companies over the period 1989‐2002, resulting in 14,101 pooled time‐series and cross‐sectional observations.

Findings

The results indicate that large and high‐growth companies are likely to lease than to own these assets. Companies that lease are more efficient in using their real estate and that these benefits are compounded in share price valuation as leasing propensity is strongly leasing propensity is not linear, but an inverse U‐shaped, suggesting that the market is also considering the costs of not owning real estate.

Research limitations/implications

The study relied on historical accounting values of real estate rather than market values which are not available in machine readable format, and there was no data on the type of real estate and its location.

Originality/value

The results of the paper provide strong and consistent evidence that the market values the costs and benefits of leasing.

Details

Journal of Corporate Real Estate, vol. 9 no. 2
Type: Research Article
ISSN: 1463-001X

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Article
Publication date: 29 May 2009

Ingrid Nappi‐Choulet, Franck Missonier‐Piera and Marion Cancel

The purpose of this paper is to investigate the impact of corporate real estate (CRE) ownership on value creation for non‐financial French listed companies.

Abstract

Purpose

The purpose of this paper is to investigate the impact of corporate real estate (CRE) ownership on value creation for non‐financial French listed companies.

Design/methodology/approach

Using a pool sample composed of SBF 250 companies over the period 1999‐2004, this paper investigates the association between economic value added (EVA) and market value added (MVA) as proxies for the value generated by French listed companies and the proportion of real estate in their asset portfolio.

Findings

The empirical results show that an increase in the proportion of real estate assets (over total assets) is negatively associated with EVA, but only for firms in service industries exhibiting low real estate intensity. The regression on MVA shows a negative association with the increase in the proportion of real estate for firms outside the service industries.

Research limitations/implications

Recent trends show that many large companies have sold a significant portion of their CRE assets. The underlying motives for such behaviour are yet to be examined (at least for the French context). If real estate has any influence, an association should be observable between proxies of value creation and the change in the proportion of real estate assets, owned by a company. The results suggest that sales of CRE assets may be driven by value maximizing behaviour.

Practical implications

In order to maximize the value of their firm, managers should apparently take value creation into consideration in their decisions to invest in or dispose of real estate assets.

Originality/value

The paper suggests that in a French context, CRE disposals may generate value added in certain industries with specific CRE intensity.

Details

Journal of Corporate Real Estate, vol. 11 no. 2
Type: Research Article
ISSN: 1463-001X

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Article
Publication date: 1 October 1999

Liow Kim Hiang

The proportion of real estate in a non‐property company’s asset portfolio has increased to anextent where it has become an asset capable of enhancing corporate wealth…

Abstract

The proportion of real estate in a non‐property company’s asset portfolio has increased to an extent where it has become an asset capable of enhancing corporate wealth. This initial study hopes to establish the foundation and provide background information on corporate real estate holding profiles of listed Singapore business firms. Using financial statement data and firm market values from 1987 to 1996, this paper provides an analysis of real estate holdings in both absolute and relative terms. Real estate holdings by business segment and asset subtype, growth in corporate real estate holdings over time; and key financial characteristics of corporate real estate (eg real estate as a percentage of shareholders’ equity and real estate relative to market value of the firm) are included in the paper.

Details

Journal of Corporate Real Estate, vol. 1 no. 4
Type: Research Article
ISSN: 1463-001X

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Article
Publication date: 15 February 2018

Gulcan Onel, Jaclyn Kropp and Charles B. Moss

Over the past four decades, real values of farm real estate and the share of assets on farmers’ balance sheets attributed to farm real estate have increased. The purpose…

Abstract

Purpose

Over the past four decades, real values of farm real estate and the share of assets on farmers’ balance sheets attributed to farm real estate have increased. The purpose of this paper is to examine the factors that explain the concentration of the US agricultural balance sheet around a particular asset, farm real estate, and the extent to which the degree of asset concentration varies across United States Department of Agriculture production regions.

Design/methodology/approach

State-level data from 48 states and entropy-based inequality measures are used to examine changes in asset distributions (real estate vs non-real estate assets) both within and between regions over time.

Findings

The agricultural balance sheet is found to concentrate into real estate in the USA over the period 1960-2003 with the rate of concentration varying across production regions. In some regions, the concentration is mainly due to changes in real estate prices, while in other regions concentration is also driven by changes in real estate holdings or changes in total factor productivity.

Originality/value

This study formally estimates the degree to which the concentration of balance sheet items can be explained by the observed changes in farm real estate prices relative to observed changes in agricultural factor productivity or changes in farm real estate holdings. The computed regional differences in asset concentration and its main drivers have implications for changes in equity and solvency positions of farmers as well as agricultural lenders’ risk exposure.

Details

Agricultural Finance Review, vol. 78 no. 4
Type: Research Article
ISSN: 0002-1466

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Book part
Publication date: 2 September 2009

Nitin Pangarkar, Jie Wu and Long Wai (Rico) Lam

This chapter examines the acquisition of assets (real estate) and companies in the Chinese real estate industry. We propose a nuanced view of state ownership (beyond state…

Abstract

This chapter examines the acquisition of assets (real estate) and companies in the Chinese real estate industry. We propose a nuanced view of state ownership (beyond state being the largest shareholder) and argue that firms with a combination of state and private ownership may be in a unique position to acquire real assets. We conduct an analysis of the growth and funding of the industry for the period and also analyze the successful acquisitions in the industry over 2004–2007. Our analysis is supportive of the nuanced view about state-owned enterprises (SOEs) and their advantageous position for acquiring real estate assets from the government. Our analysis also sheds light on the two-stage marketization process in the Chinese real estate industry where SOEs endowed with real estate assets are sold to non-SOEs.

Details

Advances in Mergers and Acquisitions
Type: Book
ISBN: 978-1-84855-781-9

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Article
Publication date: 1 March 1995

Brigitte Ziobrowski and Alan Ziobrowski

Recent studies on foreign investment in US real estate provideevidence that fluctuating exchange rates are likely to reduce thepotential gains from international…

Abstract

Recent studies on foreign investment in US real estate provide evidence that fluctuating exchange rates are likely to reduce the potential gains from international diversification by making these investments more risky. However, other research has suggested that forward currency contracts may provide an effective mechanism for offsetting exchange rate volatility and thus restore the diversification benefits. Examines the use of forward contracts as a means of hedging the currency risk associated with foreign investment in US real estate. Indicates that, although continuous hedging of US real estate with forward contracts allows foreign investors to eliminate most of the risk induced by currency instability, the improvements are insufficient to produce diversification gains for all foreign investors in the context of meanvariance portfolio performance.

Details

Journal of Property Valuation and Investment, vol. 13 no. 1
Type: Research Article
ISSN: 0960-2712

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