Stock repurchases by real estate investment trusts (REITS), stockholder returns and underperformance, free cash flow and capital restructuring motives

The relationship between performance measures and stock prices is well documented in the financial literature. Some studies find that the relationship is positive (Lev, 1989) and others find a negative relationship (Anwaar, 2016, Sloan, 1996), although most studies exclude REITs due to their unique tax exemptions. This paper examines the explanatory power of net income (NT) and funds from operations (FFO) as it relates to stock return in Canadian real estate investment trusts (REITs) that traded on the Toronto Stock Exchange (TSE) during the 2001-2016 period. Legislation exempts Canadian REITs from corporate taxes as long as they satisfy a number of mandated requirements. The most essential legal requirement is the payment of dividend as a specified percentage of a REITs cash flow. Industry-specific cash flow measures, such as NI, FFO, or cash flow distributions may explain their stock are return performance in Canada. In particular, FFO my explain stock return performance better than NI or distribution due to its unique qualities. Analysis on a hand-collected and proprietary Canadian REIT quarterly data set that covers 2001 to 2016 reveals that FFO does in fact have better explanatory power than NI, consistent with studies of U.S. REITs.

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International Real Estate Review

International Real Estate Review ◽

10.53383/100178 ◽

2014 ◽

Vol 17 (1) ◽

pp. 23-46

Author(s):

Tien Sing ◽

◽

Kok Weng Loh ◽

Keyword(s):

Real Estate ◽

Real Estate Investment Trusts ◽

Excess Returns ◽

Real Estate Investment ◽

Empirical Results ◽

Fund Managers ◽

Investment Trusts ◽

Asset Classes

The study tests the predictability of excess returns on four global asset classes that include Shariah-compliant (SC) real estate, SC stocks, conventional real estate and real estate investment trusts (REITs). Based on weekly excess returns from January 2001 to December 2010, our empirical results do not reject the hypothesis that Shariah compliance risk is significantly priced in the excess returns of a portfolio of the four global asset classes. Shariah compliance risk and real estate risk are mutually exclusive. Fund managers will only price one common Shariah compliance risk in a pure real estate portfolio that consists of SC real estate, conventional real estate and REITs.

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The Explanatory Power Of Alternative Income Measures On Stock Prices: Evidence for Canadian Real Estate Investment Trusts

10.32920/14656665 ◽

2021 ◽

Author(s):

Sedat Ogeturk

Keyword(s):

Real Estate ◽

Cash Flow ◽

Stock Prices ◽

Stock Return ◽

Explanatory Power ◽

Real Estate Investment Trusts ◽

Real Estate Investment ◽

Data Set ◽

Investment Trusts ◽

The Relationship

The relationship between performance measures and stock prices is well documented in the financial literature. Some studies find that the relationship is positive (Lev, 1989) and others find a negative relationship (Anwaar, 2016, Sloan, 1996), although most studies exclude REITs due to their unique tax exemptions. This paper examines the explanatory power of net income (NT) and funds from operations (FFO) as it relates to stock return in Canadian real estate investment trusts (REITs) that traded on the Toronto Stock Exchange (TSE) during the 2001-2016 period. Legislation exempts Canadian REITs from corporate taxes as long as they satisfy a number of mandated requirements. The most essential legal requirement is the payment of dividend as a specified percentage of a REITs cash flow. Industry-specific cash flow measures, such as NI, FFO, or cash flow distributions may explain their stock are return performance in Canada. In particular, FFO my explain stock return performance better than NI or distribution due to its unique qualities. Analysis on a hand-collected and proprietary Canadian REIT quarterly data set that covers 2001 to 2016 reveals that FFO does in fact have better explanatory power than NI, consistent with studies of U.S. REITs.

Download Full-text