Friday, Jan. 4, 2019 2:30 PM - 4:30 PM
- Chair: Timothy Riddiough, University of Wisconsin-Madison
Incorporating the Impact of Financial Intermediaries on the Price and Future Returns of Real Estate
AbstractRecent developments in financial economics suggest an important role for the leverage of financial intermediaries and/or limited stock market participation in understanding asset returns. Interest in this area originally developed following the financial crisis but since then further research has suggested a greater role and range of applications for models based on this approach. Successful applications of such a model cover a broad range of asset classes, including stocks, treasury and corporate bonds, options, CDS, commodities and currencies. In this paper we apply insights from intermediary asset pricing models to explain the cross-section and time-series returns of real estate markets. Consistent with these theories, we find that funding liquidity and the capital share of income have significant predictive power for equity REIT excess returns over time, even when we control for the dividend price ratio of the equity REIT index and commonly used stock market return predictors. Similarly, these variables have significant explanatory power for the cross-section of equity REIT returns.
Do REITs Issue IPOs and SEOs When Public Real Estate Returns Are High
REITs as Lessees
AbstractExisting research on REIT financing argues that the financing choices of REITs are mainly limited to debt and equity. Hence, leasing has been largely ignored as a source of external funding for REITs. This study fills this gap in the literature by examining the leasing activities of REITs. Using a sample of 187 unique REITs that report non-missing leasing information between 1974 and 2016, we document that, on average, leasing expenses over the next five years account for approximately 9.34% of total long-term fixed claims. Furthermore, our results show that operating lease intensity in REITs tends to increase with the level of financial distress and contracting cost, tax liabilities, and growth opportunities. Lastly, we document that REITs use leasing as a substitute to debt financing.
- G3 - Corporate Finance and Governance
- R2 - Household Analysis