Abstracts for Vol. 7, No. 1 of the Journal of Real Estate Portfolio Management

Landlords, Tenants and E-Commerce: Will the Retail Industry Change Significantly?

Elaine M. Worzala, and Anne M. McCarthy

Internet sales of goods were approximately $170 billion in 1999 and are expected to increase rapidly (Center for Research in Electronic Commerce, 1999). Predictions about the impact of e-commerce on retailers change just as rapidly. No study to date has analyzed the impact the Internet might have on individual retailers and their plans for expansion. This study provides an empirical baseline from which to track changes. On-site interviews of tenants at four types of retail locations revealed that unique products, high levels of service and closeness to the customer are important retailer strategies. Further, only a small number of retailers expect Internet sales to have a negative impact on their need for retail space.

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Economic Analysis Suggests that REIT Investment Characteristics are Not as Advertised

Richard A. Graff

Commercial real estate is a cyclical asset with partial inflation-hedging characteristics. The inflation-hedging characteristics can account for the observed long-term appreciation in institutional-grade real estate value over the last two decades. Investment characteristics of regulated investment companies are shaped by two sets of economic attributes: investment portfolio characteristics and legal constraints on the companies. Both sets of real estate investment trust (REIT) attributes differ from corresponding attributes of regulated funds that invest in corporate securities. Analysis of the REIT attributes suggests that REIT investment performance since industry inception has been more or less as could have been anticipated. Despite imminent regulatory changes, it also suggests that future REIT investment performance should be similar to performance
in the recent past.

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MPT and the Downside Risk Framework: A Comment on Two Recent Studies

Ping Cheng, and Marvin L. Wolverton

Comparing the downside risk (DR) framework with classic modern portfolio theory (MPT) is less straightforward than it may appear. Two recent studies have attempted to compare the two models in terms of portfolio risk. This study uses an empirical example to demonstrate the pitfalls of making such comparisons. Additionally, we suggest a means of making an appropriate comparison between DR and MPT.

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Dividend Payout Characteristics of U.K. Property Companies

Joseph T. L. Ooi

Employing panel data methodology, the dividend policy of property companies quoted
on the London Stock Exchange is examined. Between 1986 and 1998, the quoted property sector paid out, on average, 44% of its net earnings as dividends. Similar to firms in other sectors, real estate corporations smooth their dividend payout to minimize the chance of having to reduce dividends in subsequent years. The empirical evidence further shows that the dividend payout ratio of the average real estate corporation is dictated to a large extent by the firm’s total asset holding and leverage ratio. Property investment companies pay significantly higher dividends, compared to property trading companies.

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Public vs. Private Real Estate in Hong Kong Using Adaptive Expectations

Raymond Y. C. Tse, and James R. Webb

Previous studies (Tse and Webb, 2000) have found mixed evidence for the role of the expected growth rate in real estate prices for explaining ex post real estate stock prices. This study demonstrates that the change in real estate stock prices is affected by both expected and unexpected changes in real estate prices where real estate price expectations are formed adaptively. The model presented in this study explains very well the real estate stock prices in Hong Kong for the period 1984–1998. This study indicates that both the expected and unexpected changes in residential, office and industrial real estate prices are important determinants of the change in real estate securities prices for Hong Kong.

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The Wealth Effects of REIT Straight Debt Offerings

Shawn D. Howton, and Shelly W. Howton

The market’s reaction to seventy four real estate investment trust (REIT) straight debt issues between 1991 and 1997 is examined. No significant market reaction to straight debt issues on the announcement day is found. The findings also show that in univariate tests of announcement day returns, the market reaction to a straight debt issue is inversely related to the issuer’s level of existing cash and inversely related to investment opportunities as measured by Tobin’s q. These results differ from previous findings for industrial firms in Howton, Howton and Perfect (1998). The differences between REITs and industrials may be due to the regulatory structure of REITs.

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The Relative Importance of Property Type and Regional Factors in Real Estate Returns

Stephen L. Lee

This article presents an elegant and simple approach to the decomposition of property
type and regional influences on property returns, and thus provides a quantitative framework for analyzing the relative impact of these two diversification categories to real estate portfolio selection. Using data on retail, office and industrial properties spread across 326 real estate locations in the United Kingdom, over the period 1981 to 1995, the results show that the performance of real estate is largely property type-driven, a result in line with previous work. This implies that the property type composition of the real estate fund should be the first level of analysis in constructing and managing the real estate portfolio. As a consequence, real estate fund managers need to pay more attention to the property type allocation of their portfolios than to the regional spread.

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The Evolution of Real Estate in the Economy

Dapeng Hu, and Anthony Pennington-Cross

While the economy as a whole has been rapidly changing in response to technological innovation, real estate has evolved from a depository of wealth for households and assets for corporations into a major force in the debt and equity markets. In contrast, the role of real estate as a contributor to the nation’s output and income has remained steady at approximately 11% of gross domestic product.

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The Efficiency of Nursing Home Chains and the Implications of Nonprofit Status: A Comment

Kris J. Knox, Eric C. Blankmeyer, and J. R. Stutzman

Anderson, Lewis and Webb (1999) find that nursing facilities are relatively cost inefficient, profit-seeking homes are less inefficient than nonprofit facilities and chain facilities are more inefficient than independent firms. The purpose of this comment is to support and extend their findings. We also find that profit-seeking facilities are more efficient than nonprofit homes. However, chain facilities are significantly more efficient when both technical (cost) and allocative (price) efficiency are considered. Hence, we are reluctant to accept their policy recommendation that mergers and subsidies to chain facilities be discouraged.

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