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The Journal of Real Estate Finance and Economics

Erschienen in:

01.05.2013

On The Operating Performance of REITs Following Seasoned Equity Offerings: Anomaly Revisited

verfasst von: Chinmoy Ghosh, Scott Roark, C. F. Sirmans

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 4/2013

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Abstract

We examine the operating performance of equity REITs following seasoned equity offerings from 1990–2007. This study uses a variety of measures of operating cash flow and documents improvements in industry-adjusted operating performance prior to issue and a statistically significant decline in these measures after issuance. The deterioration in operating performance of REITs is similar in magnitude to that found for industrial firms in prior studies. We find evidence of mean reversion in operating performance and timing by issuing firms, and that information asymmetry plays an important role in the results. Notably, in using a longer sample period and a variety of cash flow measures and benchmarks, this study finds evidence that is in contrast to results found in an earlier analysis of REIT operating performance.

Vorheriger Artikel Commercial Mortgage Workout Strategy and Conditional Default Probability: Evidence from Special Serviced CMBS Loans

Nächster Artikel Corporate Governance and Performance of Externally Managed Singapore Reits

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Indeed, on page 83, FHH claim that, “In general, REITs have operating performance characteristics surrounding SEOs that are quite different from their industrial counterparts.”

The S&P 500 increased from 340 to approximately 750 during this time.

At the time of their study, the payout requirement was 95% of taxable income. Subsequently, this statutory minimum was reduced to 90% as part of the REIT Modernization Act of 1999.

For a succinct review of the theoretical models and empirical evidence on seasoned equity offerings, see Eckbo and Masulis (1995).

Prior to the REIT Modernization Act of 1999, REITs had to distribute 95 percent of taxable income as dividends.

However, as Feng, Ghosh and Sirmans (2006) note, contrary to other regulated industries, the regulatory provisions of REITs may actually exacerbate the agency problems rather than mitigate them. For instance, the rule that REITs must have at least 100 different owners in the aggregate, five biggest of which cannot own more than fifty % of total shares outstanding, makes it difficult for blockholders to acquire large ownership stakes and pose a serious takeover threat, and for shareholders to form alliances and monitor managers.

REITs are highly active in the capital market with frequent debt, preferred equity and common equity issues and a number of firms issue equity more than once in a calendar year. We use only one observation for the year, but add together all the proceeds and shares issued during the calendar year.

For instance, Depreciation (Data #14) is missing in over 95% of the firm-year observations for REITs and this line item is typically (improperly) included with other line items in Cost of Goods Sold (Item #41). Depreciation is a significant non-cash expense for REITs (it typically ranges from 10–20% of sales and averaged approximately 14% of sales across all REITs in 2000) and by using Compustat data alone, any cash flow measure for REITs which does not correct for Compustat errors will misstate operating cash flows. See Appendix for a fuller discussion of the problems with accounting data for REITs.

Table II in the FHH study erroneously reports Sales for the issuing REITs. The table states that the sales are in millions of dollars, however the decimal point is off and the table actually reports sales in hundreds of thousands of dollars. So while the Mean Sales in Table II shows 639.76, this is equal to $64 million.

For firms where there were no non-issuing firms that met both matching criteria, we dropped the book to market criteria and relaxed the market value criteria until there was at least one matching firm.

We also adjusted performance by using the average (instead of the median) operating performance of the matched firms. The results were largely the same, except that in the case of changes from (0,+1) and (+1,+2), the results aren’t statistically significant. All other results remain the same, both in direction of the change and in significance. For instance, the adjusted change in performance from (−1,+1) and (−1,+2) remain significantly negative.

The results using FFO are not reported and can be obtained from the authors on request.

We thank William Hardin for his suggestion during the 2009 ARES conference regarding the overlapping observations.

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Titel: On The Operating Performance of REITs Following Seasoned Equity Offerings: Anomaly Revisited
verfasst von: Chinmoy Ghosh
Scott Roark
C. F. Sirmans
Publikationsdatum: 01.05.2013
Verlag: Springer US
Erschienen in: The Journal of Real Estate Finance and Economics / Ausgabe 4/2013
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-011-9344-x

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