Financing corporate real estate: the impact of corporate real estate in the shareholder value equation

Purpose This paper aims to analyse the corporate rent-vs-buy decision on real estate through the trade-off theory and default option in the framework of a corporation that aims to optimise its capital structure. Design/methodology/approach The methodological core of this paper comprises the trade-off theory that approaches the optimal capital structure by counterbalancing debt tax savings with bankruptcy costs. Impacts on the default option and the default barrier are made explicit. The paper also explores the practical applicability of the renting scenarios in the European context by examining the regimes of real estate investment trusts in different countries from the demand-side of commercial renting. Findings Analytical relationships with tax savings, bankruptcy costs, default option and default barrier are identified for the renting-vs-buying real estate decisions. Research limitations/implications The theoretical model assumes simplifications, such as constant debt, to make it operational. The paper centres exclusively on the trade-off capital structure theory. Practical implications This paper is an analysis of corporate real estate decisions together with capital structure. Applications are not only quantitative but also conceptual and strategic. Originality/value Identifying the main variables that govern the impact of corporate real estate decisions on capital structure and interweaving different approaches generates a conceptual framework that enlightens strategic thinking in this field.

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THE IMPACT OF STRUCTURAL CHANGES ON CORPORATE REAL ESTATE OWNERSHIP: EVIDENCE FROM GERMANY

International Journal of Strategic Property Management ◽

10.3846/ijspm.2020.13776 ◽

2020 ◽

Vol 0 (0) ◽

pp. 1-16

Author(s):

Julian Seger ◽

Andreas Pfnür

Keyword(s):

Structural Change ◽

Real Estate ◽

Structural Changes ◽

Ownership Strategy ◽

Requirements Change ◽

Corporate Real Estate ◽

New Business ◽

Company Survey ◽

Business Requirements ◽

The Impact

Although real estate resources represent a high percentage of the corporate assets of non-property companies, their future role is unclear. Longevity and difficulty in revising property-related decisions clash under dynamically changing environmental conditions. This makes it necessary to consider the ownership strategy and its altering role in order to avoid inefficiencies and not to hinder companies in mastering structural change successfully. In a first step, data from a telephone company survey (CATI) among 69 corporate real estate managers of German companies are grouped by performing a two-step cluster analysis according to the degree to which they are affected by structural change. The resulting clusters are then tested regarding differences in their ownership strategy. The empirical analysis shows that firms highly affected by structural change exhibit a higher willingness to decrease the proportion of ownership. The decline in real estate assets is particularly evident in the office segment and in increased acceptance of sale-and-rent-back solutions. First hints show that structural change and associated new business requirements change the relevance of CRE ownership. To avoid competitive disadvantages, especially European firms should scrutinize their high ownership ratios.

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International Real Estate Review

International Real Estate Review ◽

10.53383/100150 ◽

2012 ◽

Vol 15 (1) ◽

pp. 107-126

Author(s):

Hongyan Du ◽

◽

Yongkai Ma ◽

Keyword(s):

Real Estate ◽

Stock Returns ◽

Positive Impact ◽

Abnormal Returns ◽

Systematic Risk ◽

Stock Performance ◽

Significant Difference ◽

Corporate Real Estate ◽

Systematic Risks ◽

The Impact

This paper attempts to study the relationships among corporate real estate (CRE), capital structure and stock performance of China¡¦s non-real estate firms, including the bidirectional relationships between debt ratio (DR) and corporate real estate ratio (CRER), the impact of CRER on stock performance, and whether this impact differs across firms with different debt levels. The results show that for the overall sample, DR has a positive effect on CRER, while CRER negatively affects DR. CRER has no significant positive impact on the abnormal returns of stocks, and even decreases those for firms in the information industry. However, it can significantly reduce the systematic risks of stock returns. Moreover, we find that CRER has no significant effect on abnormal returns regardless of the amount of debt level that a firm has, and there is no significant difference between the effects of CRER on abnormal returns for firms with different levels of debt. On the other hand, the effect of CRER on systematic risk is significantly negative for firms in the low debt group, and insignificantly positive for firms in the high debt group. The CRER of lower debt firms can significantly reduce much more systematic risk than that of the high debt firms.

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The Impact of Corporate Real Estate Ownership on the Firm Value

Journal of Real Estate Analysis ◽

10.30902/jrea.2021.7.3.163 ◽

2021 ◽

Vol 7 (3) ◽

pp. 163-183

Author(s):

Gwang Ho Han ◽

Hye Eun Han ◽

Seung Han Ro

Keyword(s):

Real Estate ◽

Firm Value ◽

Corporate Real Estate ◽

The Impact ◽

Estate Ownership

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Value-Relevance of Corporate Real Estate Information: Empirical Study on the impact of Corporate Real Estate in Korea Capital Market

Journal of Money & Finance ◽

10.21023/jmf.31.2.3 ◽

2017 ◽

Vol 31 (2) ◽

pp. 83-114

Author(s):

Won Cheol Kang ◽

Sung Soo Koh

Keyword(s):

Real Estate ◽

Empirical Study ◽

Capital Market ◽

Value Relevance ◽

Corporate Real Estate ◽

The Impact

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Value creation and the impact of corporate real estate assets

Journal of Corporate Real Estate ◽

10.1108/14630010910963124 ◽

2009 ◽

Vol 11 (2) ◽

pp. 78-90 ◽

Cited By ~ 7

Author(s):

Ingrid Nappi‐Choulet ◽

Franck Missonier‐Piera ◽

Marion Cancel

Keyword(s):

Real Estate ◽

Value Creation ◽

Corporate Real Estate ◽

The Impact ◽

Real Estate Assets

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Corporate real estate and corporate strategy alignment in South Africa

Journal of Corporate Real Estate ◽

10.1108/jcre-05-2019-0025 ◽

2020 ◽

Vol 22 (3) ◽

pp. 181-196

Author(s):

Tsoanelo Ntene ◽

Samuel Azasu ◽

Anthony Owusu-Ansah

Keyword(s):

South Africa ◽

Real Estate ◽

Financial Performance ◽

Corporate Strategy ◽

Shareholder Value ◽

Share Price ◽

Production Operation ◽

Strategy Formulation ◽

Content Type ◽

Corporate Real Estate

Purpose This paper aims to discuss whether alignment between corporate real estate strategy and corporate strategy exists for non-property companies listed on the Johannesburg Securities Exchange and what effects alignment has on the firms’ financial performance. Design/methodology/approach The study was both qualitative and quantitative in nature, with a specific focus on non-property firms listed on the Johannesburg Securities Exchange. The qualitative part of the study involved the analysis of the firms’ annual reports to determine the presence and use of corporate real estate strategies and their alignment to corporate strategy and the extraction of financial indicator data. The quantitative portion of the study involved the use of multivariate analysis, to distinguish and quantify the relationship, if any, between corporate real estate strategy and the identified financial performance indicators. The independent variables were the CRE strategies employed and the dependent variable was the share price. The methods used in this study have been applied before in European and Asian studies; this assisted in ensuring that validity and reliability was achieved. Findings The study finds that the most used strategy by firms (47%) is that which facilitates production, operation and service delivery. The Consumer Goods, Healthcare and Telecommunications sectors appear to demonstrate the highest level of alignment. Return on Shareholder Funds has a strong significant positive correlation with share price. Flexibility as a corporate real estate strategy also has a significant positive coefficient, which indicates a positive relationship with share price. Research limitations/implications Although consistent with results of studies conducted in Europe and Asia, the results of this research may not be applicable to privately held non-listed firms, state-owned enterprises, non-profits and educational institutions. This study also ignores the dynamic external environment in which firms operate and the necessity of firms adjusting their corporate real estate strategy to their changing business strategy. Practical implications These results suggest that the incorporation of corporate real estate strategy in the firms’ corporate strategy formulation has the potential to enhance shareholder value for South African firms. Real estate developers, landlords and owner occupiers would benefit from better understanding the strategic requirements of corporations to ensure that the solutions they provide increase the likelihood of maximizing shareholder return. Originality/value The role of corporate real estate strategy in the firms’ corporate strategy formulation has the ability to enhance shareholder value. This research adds to the scant literature on corporate real estate management in South Africa.

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