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Article
Publication date: 24 August 2021

Julian Seger, Kristina Stoner and Andreas Pfnuer

The purpose of this study is to find out if corporate real estate ownership is priced into the capital market performance of non-property companies in the UK. This is of…

Abstract

Purpose

The purpose of this study is to find out if corporate real estate ownership is priced into the capital market performance of non-property companies in the UK. This is of particular interest because ownership still represents a significant weight on the balance sheets and is predominantly considered unfavourable due to its bulkiness and difficult revisability in the event of changes in space demand. This draws attention to the UK as one of the most important European economies that have been exposed to strong uncertainties and dynamics, for example, due to the withdrawal voting of the United Kingdom from the European Union (BREXIT).

Design/methodology/approach

A first look at the real estate assets reported in balance sheets provides insight into possible changes in ownership strategy. This serves as a basis for subdividing companies based on their real estate assets using a portfolio-based approach and that are then analysed using the Fama and French multi-factor model with regard to their influence on capital market returns.

Findings

In general, the share of real estate assets has fallen over the past 10 years, although coinciding with BREXIT voting, some industries such as manufacturing show a turnaround. At the same time, ownership is priced in as a factor on the capital market, which applies to a sample across industries, as well as to separately considered sectors in the manufacturing and service industries. The pricing also shows a counter-cyclical pattern.

Practical implications

Corporate real estate management should be aware of the negative influence of ownership, especially against the background of economic fluctuations. The reduction of ownership can reduce the associated cost of capital and increase company success.

Originality/value

Previous UK-related studies mostly refer to a period before the global economic crisis in 2008, and therefore, are too old to reflect a changed view on corporate real estate ownership because of new corporate environmental conditions, based on inaccurate proxies or mainly refer to the retail segment. This research gap is closed.

Details

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

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Article
Publication date: 20 November 2020

Stoyu I. Ivanov and Matthew Faulkner

Recently, multiple examples of large firms acquiring real estate have polarized investors. Who are the firms investing in real estate and what are their characteristics…

Abstract

Purpose

Recently, multiple examples of large firms acquiring real estate have polarized investors. Who are the firms investing in real estate and what are their characteristics? How does this investment in owning commercial real estate relate to cash holding policies? Is owning commercial real estate associated with better credit ratings? This study questions commonly held beliefs in finance that firms prefer to lease their real estate rather than own it and examines what are the differences in outcomes between the choices.

Design/methodology/approach

The authors identify three testable hypotheses based on the research questions and prior literature. The authors use univariate and multivariate analyses to test these hypotheses along with thorough robustness and addressing of endogeneity issues to confirm that our results hold in a variety of settings. The authors employ new proxies of real estate to the literature from Bloomberg and firm level data from Compustat.

Findings

The authors show that more firms within the S&P 500 choose to own commercial real estate. The authors also find many significant differences in corporate characteristics between firms who own real estate and those who do not, such that firms with real estate ownership have significantly: higher growth opportunities, higher R&D expenses, higher working capital levels, lower capital expenditures, higher leverage and higher cash flow. Firms with corporate real estate (CRE) ownership hold less cash. Contingent on real estate ownership, firms have higher cash holdings as their real estate holdings increase. Last, firms with commercial real estate ownership have higher credit ratings.

Originality/value

One of the main contributions of this study is in the use of a new specific proxy using data on corporate land, buildings and construction in progress, which to the best of our knowledge has not been done in the past. Other studies focus on aggregate property, plant and equipment data which blurs the CRE ownership picture. Additionally, the authors provide an underexplored variable of CRE ownership to its impacts of cash holdings and credit ratings, which had yet to be uncovered.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 13 June 2016

Lei Xu, Ron P. McIver, Yuan George Shan and Xiaochen Wang

The purpose of this paper is to link literature on China’s real estate sector and the impact of governance, ownership and political connectedness on firm financial…

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1123

Abstract

Purpose

The purpose of this paper is to link literature on China’s real estate sector and the impact of governance, ownership and political connectedness on firm financial performance. Whether these factors impact listed real estate firms differently to firms in other industry sectors is identified.

Design/methodology/approach

The paper uses pooled 2008-2013 data on A-share firms. Tobin’s Q captures firm financial performance. Explanatory variables include corporate governance, ownership, local government political connectedness, accounting data and ultimate control. Two-way interactions are estimated between real estate and ownership, governance, political connectedness and other variables. Three-way interactions are estimated between real estate, ownership, control and political connectedness. Year and industry fixed effects are absorbed.

Findings

Industry concentration and proportion of state ownership appear to positively impact performance. Firm size, gearing and greater foreign ownership appear to negatively impact performance. However, differences are identified for real estate firms, in which state control and gearing positively impact performance. Greater state and foreign ownership as well as supervisory board size negatively impact performance. Finally, state control in the presence of local government connections negatively impacts performance, while greater state ownership in the presence of local government connections positively impacts performance.

Originality/value

A lack of empirical evidence on the impact of corporate governance, ownership structures and political connectedness on firm performance in China’s real estate sector is addressed. Importantly, relationships among these factors and the financial performance of China’s listed real estate firms differ to those of firms in other industries.

Details

Managerial Finance, vol. 42 no. 6
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 April 2014

John Edward Graham, Craig Galbraith and Curt Stiles

– The authors aim to measure the value of leasing, versus owning, business locations for the closely-held firm.

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695

Abstract

Purpose

The authors aim to measure the value of leasing, versus owning, business locations for the closely-held firm.

Design/methodology/approach

The authors examine the sales transactions of small businesses in the USA – those with revenues of less than $20 million per year – between 1995 and 2010. The authors contrast the values of firms that own, and do not own, their real estate.

Findings

In general, the authors find negative relationships between closely-held firm values and real estate ownership. Nowhere did the authors observe firm value being enhanced by property ownership.

Research limitations/implications

The data set may be limited by the accuracy of the data provided by business brokers. Compared to the capital markets, the small business “exchange” is less efficient, but it is the only source of unlisted business sales data.

Practical implications

The findings are important to the small-business broker and the investor. The broker might better advise the buyer and seller with the findings. Business owners, private equity investors, and their advisors, are all reminded to focus on the core business strategy and avoid getting “locked into” real estate ownership in a business investment.

Originality/value

The impact of real estate on the valuations of closely-held firms is a largely unexamined area. And there is a lack of consistency on publicly-held company valuations as a function of real estate ownership; these public company findings and the dearth of work on the privately-held company's real estate attract the attention in this study.

Details

Journal of Property Investment & Finance, vol. 32 no. 3
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 December 2005

Dirk Brounen, Gustaf Colliander and Piet M.A. Eichholtz

Purpose – To analyse the effect of corporate real estate ownership on the stock performance of firms active in the international retail sector. Design/methodology/approach…

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1478

Abstract

Purpose – To analyse the effect of corporate real estate ownership on the stock performance of firms active in the international retail sector. Design/methodology/approach – A sample of 454 retail companies is separated into three geographical regions and six different sub‐sectors. We measure the corporate real estate holdings using balance sheets information and link these to the risk and return characteristics of the individual firms. Findings – We find that corporate real estate ownership varies greatly across subsectors. This variation is explained by differences in location and customisation demands of real estate. Retailers for which the micro‐location of real estate is a critical value driver tend to own more of it. In general, corporate real estate ownership for retail companies is associated with a strong relative performance, which contrasts markedly with the negative performance effects found for other industrial sectors. Research limitations/implications – Although we include as many firms as possible in our sample, we are still confronted with sample size limitations while performing sub sample comparisons. Practical implications – Our results show how owning real estate instead of renting it will impact the long run profitability of retailers. Originality/value – Where most of the extending literature focuses on sketching the impact of real estate ownership using theory and isolated cases, we no offer numerical proof based on a international dataset.

Details

Journal of Corporate Real Estate, vol. 7 no. 4
Type: Research Article
ISSN: 1463-001X

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Article
Publication date: 9 August 2011

Jaakko Niskanen, Jussi Rouhento and Heidi Falkenbach

The relationship between ownership structure and firm value has long been of interest in the academic society. The purpose of this paper is to study the relationship…

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1053

Abstract

Purpose

The relationship between ownership structure and firm value has long been of interest in the academic society. The purpose of this paper is to study the relationship between European real estate investment trusts' (REITs) ownership structure and the observed firm value as measured by market‐to‐book (M/B) ratio. In addition, the potential effects of differing REIT ownership structures on other financial ratios, such as return on equity (ROE) and return on assets (ROA), are analyzed. Finally, the potential impact of strategic/insider ownership on REITs is assessed.

Design/methodology/approach

Several “difference between means” tests are run. In each test, the studied group of REITs is divided into three groups according to set criteria. Then, the potential differences observed between the groups are documented, analyzed and reported. Finally, statistical significance of the potential differences among groups is tested.

Findings

First, consistent with the previous studies, this study shows that increasing REIT block ownership results in lower M/B ratios as well as decreased dividend yield, ROE and ROA. In other words, the results suggest that, in terms of M/B ratio, the markets value REITs with low block holdings slightly higher than those with more block holders. However, the relationship is not totally explicit. Second, the relationship between strategic/inside ownership and firm value (and other financial measures) is somewhat obscure. The effects of strategic ownership are an interesting topic, also in terms of potential future research.

Practical implications

One of the fundamental ideas behind REIT legislation is to provide investors with a liquid means of investing in indirect real estate by regulating the ownership structure of the vehicle. The results of this study suggest that the more dispersed the shareholder structure, the higher the firm value, potentially due to increased stock liquidity. This finding could serve as an indication to lawmakers that the REIT ownership regulations not only work in theory but in practice, too.

Originality/value

For the first time in an academic context, the relationship of European REIT ownership structures and firm value is studied in‐depth. Proven scientific methods are employed to discern potential, yet unrevealed patterns between REIT ownership and firm value.

Details

Journal of European Real Estate Research, vol. 4 no. 2
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 3 August 2015

Karim Rochdi

This paper aims to investigate the repercussions and impact of corporate real estate on the returns of non-real-estate equities in a time-series setting. While the…

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1010

Abstract

Purpose

This paper aims to investigate the repercussions and impact of corporate real estate on the returns of non-real-estate equities in a time-series setting. While the ownership of real estate constitutes a considerable proportion of most listed firms’ balance sheet, in the existing literature, whether or not the benefits outweigh the risks associated with corporate real estate, is the subject of controversy.

Design/methodology/approach

The role of corporate real estate ownership in the pricing of returns is examined, after taking well-documented systematic risk factors into account. Employing a data sample from 1999 to 2014, the conditions and characteristics faced by firms with distinct levels of corporate real estate holdings are identified and analyzed.

Findings

The findings reveal that corporate real estate intensity indeed serves as a priced determinant in the German stock market. Among other results, the real-estate-specific risk factor shows countercyclical patterns and is particularly relevant for companies within the manufacturing sector.

Practical implications

The findings provide new insights into the interpretation of corporate real estate and expected general equity returns. Thus, the present analysis is of particular interest for investors, as well as the management boards of listed companies.

Originality/value

To the best of the author’s knowledge, this is the first paper to investigate the ownership of corporate real estate as a priced factor for German equities, after accounting for the well-documented systematic risk factors, namely, market (market risk premium), size (small minus big) and book-to-market-ratio (BE/ME) (high minus low).

Details

Journal of European Real Estate Research, vol. 8 no. 2
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 23 November 2010

Kim Hiang Liow

The purpose of this paper is to examine whether there is a systematic real estate risk factor in retail firms' common stock returns and whether this risk is priced in the…

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1733

Abstract

Purpose

The purpose of this paper is to examine whether there is a systematic real estate risk factor in retail firms' common stock returns and whether this risk is priced in the stock market. In addition, whether the real estate risk sensitivities of retail stocks are linked to each firm's real estate intensity is investigated.

Design/methodology/approach

With a sample of 556 retail firms from 15 countries and a three‐index model with a domestic stock market and a retail market factor, as well as a real estate risk factor as the three explanatory variables, the paper appeals to the maximum likelihood methodology of Gibbons which estimates factor sensitivity coefficients and factor risk premia simultaneously using an iterative seemingly unrelated regression (ITSUR) technique, as well as the generalized method of moments (GMM) procedure. In addition, the paper investigates whether the individual retail firms' real estate βs are affected by the firms' CRER levels and other financial characteristics, using instrumental variables estimation technique via three‐stage least squares (3SLS).

Findings

The paper finds property market risks carry positive risk premia after controlling for sensitivities to general market and retail market risks, implying that real estate is an important factor priced in the stock market value of the sample retail firms. However, higher real estate concentration does not necessarily cause higher real estate exposure after controlling for firm size, leverage and growth, implying that stock market investors are unwilling or unable to understand and capture the full risk real estate ownership risk in corporate valuation.

Research limitations/implications

From the corporate management viewpoint, those retail firms with a significant real estate portfolio should always consider the “real estate exposure” factor in their overall corporate strategy. Their high real estate exposure renders them vulnerable to shocks in the real estate market.

Originality/value

The paper offers insights into whether real estate is an important factor in corporate valuation

Details

Journal of Corporate Real Estate, vol. 12 no. 4
Type: Research Article
ISSN: 1463-001X

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Article
Publication date: 19 June 2020

Julian Seger, Ao Li and Andreas Pfnuer

The purpose of this paper is to examine the influence of corporate real estate (CRE) holdings on firm performance. Unlike previous studies, the paper does not only…

Abstract

Purpose

The purpose of this paper is to examine the influence of corporate real estate (CRE) holdings on firm performance. Unlike previous studies, the paper does not only consider the firms’ primary business segment but also their activities in different business fields. This is of particular interest because additional segments often have different requirements for the provision of space and thus for the ownership strategy, which could have led to a possible bias in previous studies. Furthermore, additional business areas are becoming more relevant through integrated solutions.

Design/methodology/approach

The study uses a balance sheet data set of companies in the six largest European economies for the period from 2000 to 2016. Germany serves as a suitable laboratory for deeper analyses. Holdings of 490 firms are regressed to the stock market performance using a two-stage approach. This procedure is repeated by considering additional business segments.

Findings

The analyses reveal that ownership reduces stock market performance. Additional business activities also appear to influence the relevance of ownership for firm performance.

Practical implications

The research shows that ownership is priced depending on its primary and additional business activities. First, this insight helps capital market players to choose the right investment strategy. Second, it provides CRE decision-makers with information on the optimal provision of real estate.

Originality/value

This is the first paper to examine the contribution of real estate ownership on firm performance in light of the fact that companies operate in more than one sector.

Details

Journal of European Real Estate Research , vol. 13 no. 2
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 11 October 2019

John Edwin Anderson

The purpose of this study is to test the hypothesis that real estate ownership contributes to life satisfaction in transition countries.

Abstract

Purpose

The purpose of this study is to test the hypothesis that real estate ownership contributes to life satisfaction in transition countries.

Design/methodology/approach

Life in Transition survey data are used to model reported life satisfaction using ordinary least squares, ordered probit, generalized ordered logit and bivariate probit models. The hypothesis tested is whether real estate ownership is associated with greater reported life satisfaction.

Findings

Empirical results from the variety of empirical models estimated strongly support the hypothesis that real estate ownership is associated with greater reported life satisfaction in transition countries.

Research limitations/implications

Analysis is limited because life satisfaction is self-reported and specifically for residents of transition countries.

Practical implications

Results confirm that ownership of a home, second home or land parcel is associated with greater life satisfaction.

Social implications

Real estate ownership can be an effective means to improve life satisfaction, especially in societies needing such improvements.

Originality/value

This is the first study of the link between real estate ownership and life satisfaction specifically in transition countries, and using a robust set of empirical models to address issues of ordinal dependent variables, varying coefficient estimates across dependent variable response categories, endogeneity and causality.

Details

Journal of European Real Estate Research , vol. 12 no. 3
Type: Research Article
ISSN: 1753-9269

Keywords

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