Wealth Effects of Diversification and Financial Deal Structuring: Evidence from REIT Property Portfolio Acquisitions

This paper offers new evidence as to how RPTs can be value enhancing for minority shareholders. In doing so, we address an ongoing theoretical tension in the related party transaction (RPT) literature by focusing on real estate investment trusts (REITs) in Asia. The empirical evidence is mixed in the corporate finance literature on whether RPTs create or destroy firm value. On average, REITs in our sample engaged in RPTs amounting to 5.4 % of total assets, annually, between 2003 and 2010. This is not a trivial amount and is nearly double the 2.8 % RPT rate for U.S. industrial firms. We identify three main channels for REIT RPTs: real estate asset acquisitions from related parties (57.4 %), income earned from related parties (22.2 %) and management fees paid to related parties (14.8 %). The identification strategy we employ relies on two distinct methodologies when examining RPTs and firm value: a multivariate regression approach and, secondly, an exogenous wealth effects test for RPT J Real Estate Finan Econ announcements. Overall, the results suggest that REIT managers and sponsors do not expropriate wealth from their minority shareholders through RPTs. We find evidence that an ad hoc acquisitions pipeline from sponsor to REIT generally drives the value and wealth proposition, although the impact could be reversed in a credit crisis.

Section: Wealth Effects Of Related Acquisitionssupporting

confidence: 90%

Related Party Transactions and Firm Value: Evidence from Property Markets in Hong Kong, Malaysia and Singapore

Downs

Ooi

Wong

et al. 2015

“…For the most part, studies tend to focus on REIT to REIT acquisitions (Allen and Sirmans 1987;McIntosh et al 1989;Campbell et al 2003) rather than the acquisitions of physical assets. Campbell et al (2003) evaluate the shareholder wealth effects of the acquisition of a portfolio of properties by REITs, and find positive announcement-period shareholder returns. A more recent work focusing on Asian REITs is by Ooi et al (2010).…”

Section: Literature Reviewmentioning

confidence: 99%

Seasoned Equity Issuance by Japan and Singapore REITs

Ong

Ooi

Kawaguichi

2010

“…Lee (2001) stresses the importance of property type and regional factors in real estate returns, which illustrates the importance of corporate focus along these two dimensions for real estate companies. Campbell et al (2003) investigate a sample of 209 REIT portfolio acquisitions during 1995Y2001 and find evidence that excess returns to acquirers are positively related to the geographical focus in the acquistion. Eichholtz et al (2000) studied the impact of corporate focus on the stock outperformance of 150 U.S. equity REITs for the period 1989Y1995, and reported a significantly positive relation between the level of industrial focus and the risk-adjusted stock performance.…”

Section: Corporate Focus Theorymentioning

confidence: 99%

Corporate Focus and Stock Performance International Evidence from Listed Property Markets

Boer¹,

Brounen

Veld³

2005

Does corporate focus translate into superior stock performance? We use 17 years of international data on 275 property companies from the U.S., British, French, Dutch and Swedish listed property share markets to answer this question. After analyzing corporate structures, we document significant differences in corporate focus strategies both between nations and firms and over time. By linking these focus profiles to risk-adjusted performance measures, we show that companies with high levels of geographical focus perform significantly better than the overall market. With regard to industrial focus, our results are mixed but again imply a positive relationship between corporate focus and stock outperformance. At the same time, our results show that the firm-specific risk of a company increases with higher levels of corporate focus. Hence, our results imply that within the real estate sector a focused strategy mildly increases both a firm’s return and risk. Copyright Springer Science + Business Media, Inc. 2005corporate focus, stock performance, industrial- and geographical concentration,