Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Real Estate Investment Trust (REIT)
Valuation Model
Author
Jamila Awad
Rights Reserved
JAW Group
Date
May 13, 2014
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Executive Summary
The ever-evolving capital market integration and segmentation environment quests a REIT
investment vehicle framework that cements a transparent trading platform between market
operators and investors. The disquisition aspires to conceptualize a technical and theoretical
framework that encapsulates economic as well as firm-specific factors into the parameters
utilized in risk and return models. The narration is partitioned in five sections. The introduction
shadows the concepts elaborated in the prescript. The second chapter asseverates the REIT
structure and the capital market environment entangled to REIT investment vehicles. The third
section umbrages the fundamental and technical arrangements integrated in modeling as well as
evaluating REIT equity securities. The fourth division presents an empirical study of the REIT
valuation model and describes the cascade steps to implement the protocol. Finally, the
conclusion formulates the general findings derived from the research paper.
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
1.Introduction
The evolving interest in real estate investment mediums accentuates the necessity to cement
robust valuation techniques for real estate financial instruments that safeguard market
participants from perilous activities. Furthermore, the era of globalization expands real estate
capital flows that enhance portfolio diversification. Empirical studies demonstrate that Real
Estate Investment Trust (“REIT”) liquidity had significantly increased in the 1990s due to
improvements in REIT market capitalizations, trading volumes, and lastly, organizational
structure. However, the financial crisis of 2008 had a catastrophic impact on the REIT market.
REIT stocks depict financial instruments that securitize real-estate conglomerates trading in
financial markets and adequately hedge in an environment with capital and liquidity constraints
as well as steep inflation. In light, the financial crisis of 2008 induced institutional and individual
investors to massively withdraw capital flows from REIT investment vehicles fearing spillover
financial losses in capital markets. REIT stock prices that deviate from their Net-Asset-Value
(“NAV”) lead to potential arbitrage opportunities. There are strong linkages between REIT and
equity securities even though distinct differences still surface between them (Lee and Stevenson,
2007). REIT stock prices exhibit more than twice the volatility of direct property investment in
the real-estate sector.
The proposed REIT valuation model protocol strives to deliver a technical and theoretical
framework that encapsulates economic as well as firm-specific factors into the parameters
utilized in risk and return models. The mathematical framework used is a regression model to
adjust the beta coefficient in line with economic as well as firm-specific variables that greatly
impact true systematic risk. A REIT portfolio inclines to hold a strong association with
diversified property portfolios over the long run, although with much different property types
and gearing characteristics that should be considered in investment decision-making.
Cyclical economic factors in a frictionless world greatly impact true fundamental REIT values
(Stambaugh, 1999). The proposed technique therefore thwarts potential conflicts of interest
arising from entities pricing the values of REIT underlying assets. In light, entities that value
REIT investment vehicles blend public data accessible to all investors with private information
available only for managers as well as insiders. The cherry-picking methodology implemented
by firms designated to price REIT NAV as well as their commissions on trading business lead to
an environment that induces potential conflicts of interest.
The disquisition is partitioned in five sections. The introduction shadows the concepts elaborated
in the narration and articulates the goal of the protocol. The second chapter asseverates the REIT
structure and the capital market environment entangled to REIT investment vehicles. The third
section umbrages the fundamental and technical frameworks integrated in modeling as well as
evaluating REIT equity securities. The fourth division presents an empirical study of the REIT
valuation model and describes the cascade steps to implement the protocol. Finally, the
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
conclusion resumes the theorems as well as techniques integrated in the proposed modus
operandi and formulates the general findings from the empirical study.
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
2.The REIT Architecture and its Market Environment
The second chapter articulates the REIT structure and the capital market environment entangled
to REIT investment vehicles.
A REIT depicts a tax-exempt pass-through entity with broad based ownership that distributes a
significant portion of its earnings and capital gains to investors. REIT conglomerates manage
various types of properties ranging from industrial to residential location in an array of
geographical locations. The REIT architecture enables investors with limited means to invest via
equity securities in real estate asset classes, and thus, grasp opportunities linked to property
investments. REIT stocks also purpose the needs of investors who seek an equity security
purposing a diversified pool of real estate assets. In the U.S.A., REIT firms pay tax charges on
capital gains that depend on the depreciation of the entity’s assets. The U.S.A. unlisted REIT on
public stock exchanges that burgeoned in the early 2000s raised capital by intermediaries such as
broker-dealer networks however follow the same SEC (“Securities and Exchange Commission”)
policy guidelines as listed REIT. The shares of unlisted REIT are in most circumstances emitted
at a fixed inception price with a constant dividend payout. In the U.S.A. jurisdiction, the degree
of debt leveraging by REIT firms is superintended by bond-rating agencies. In addition, REIT
entities are permitted to detain taxable REIT subsidiaries to grasp entrepreneurial activities while
conducting administrative and fund management.
The blossoming integration of non-traditional REIT gained momentum in the years 2000s to
achieve greater tax efficiency and increase shareholder’s wealth. The following axes portray
non-traditional REIT investments: health care, data storage, and lastly, energy transmission
businesses.
The beta coefficient depicts the sensitivity of each REIT unit price to price fluctuations in the
stock market. Furthermore, a beta coefficient less than one reflects a REIT investment vehicle
that holds an inferior risk movement in REIT stock compared to movements in the financial
market index that trades the underlying. The volume value of REIT investments is equal to the
total yearly amount traded in the security’s currency. The value of a REIT is characterized by the
sum of the values of all trading prices multiplied by the number of shares relating to each price.
The annualized dividend yield for American and Canadian REIT entities is expressed as a
percentage of the security’s price. However, the annualized dividend yield for REIT firms
headquartered outside North America is measured in percentage of the security’s price as the
trailing annual actual dividend.
The REIT architecture as a medium of equity financial instrument serviced in the 1990s as a
route to bundle capital in order to finance maturing mortgages and to cease opportunities in
acquiring new properties in the real estate platform. The private real estate market in the 1990s
as well as the capital constraint environment cemented the involvement of the securitization
process of commercial as well as residential real estate assets in form of equity and debt.
However, the real estate building saturation that occurred in the 1990s also triggered private real
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Montreal, Quebec, H2X 2E2, Canada
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
estate entities to recapitalize their balance sheets with the following actions: entering into private
equity joint ventures or raise equity through initial public offers (IPO). In essence, the market
environment and survival constraints forced real estate private firms to go public.
Following, the successful entrance of these real estate private entities in the stock market, the
prices of REIT securities in the U.S.A. increased drastically which forced the competing
remaining private real estate firms to emulate and go public with IPOs. Investment bankers
snatched opportunities to arbitrage private and public real estate markets during the prolonged
episodes of low interest rates and bond yield at interesting prices. In light, the participation of
investment banking operators interfered with the REIT true Net-Asset-Values (“NAV”) from
premium to discount with the changing nature of REIT institutional ownership.
The clientele effect states that shares of closed-end funds that are held in majority by individual
investors drive the underlying shares to trade at discount because they act upon sentiments (Lee
and al., 1991). However, the clientele argument is invalidated with a significant ratio of REIT
listed and unlisted stocks held by institutional investors who transact like Wall Street strategists.
Precisely, since individual ownership is more concentrated in REIT shares than in direct property
investment, then individual investor sentiment could only partially influence premium and
discount to NAV because individuals and institutions hold different expectations in their utility
curves. Furthermore, the growth of institutional ownership in the REIT market is dominantly
linked to burgeoning REIT mutual funds (Kallberg and al, 2000). In fact, the rapid growth of
open-ended REIT mutual funds also occurred during the emerging dot-com stock phenomenon.
The REIT stock prices then collapsed with the start of the NASDAQ dot-com debacle. Ergo, the
reasoned explanation to REIT stocks trading at NAV differential is rather that the detainers of
the REIT funds are not the owners of the REIT underlying assets.
The securitization process therefore cements a robust public REIT investment medium and
promotes commercial mortgage-backed securities (CMBS). These financial instruments have
also bonded sound exchanges between private real estate assets and global capital markets. REIT
entities became dynamic organizations that are proactively operating quality properties in both
public and private real estate conglomerates. The following features characterize efficient REIT:
diversified capital structure from private and public sources, sound internal management,
expertise knowledge on property types, vertically integrated operating platforms, moderate debt
leverage, and lastly, value growth-oriented. Furthermore, the dynamic operational REIT systems
implemented is a key parameter to REIT stocks increasing demand by individual as well as
institutional investors. The legislative REIT context aligns shareholder interests with REIT
managers thus enhances the efficiency of REIT administrators operating decisions.
REIT entities in the U.S.A. jurisdiction are entitled to select between internal or external
management. The internal administration route seems more appealing to a majority of REIT
entities due to more integrated and actively managed operations. However, REIT firms also
acquire income-producing properties to expand growth while other REIT organizations focus on
the construction and development of new buildings. The vertical integration remains a
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
dominating feature for REIT entities to survive in hazardous economic conditions but also at
times of changes in the relative valuations between the stock and the property market. In essence,
vertical integration permits REIT organizations to profit by selling real estate units evaluated at
NAV exceeding stock market valuation while holding ownership of operational management to
gain geographical scope. However, the era of globalization forces REIT entities to concentrate
on the specialization of property types and regions in order to secure profitable operations
regardless evolving real estate markets and new real estate investment instruments.
Investors also acquire risk reduction in a REIT stock investment through the process of REIT
specialization by retaining REIT stocks that hold underlying diversified real estate portfolios.
Furthermore, sophisticated investors also enhance diversification by purchasing different types
of REIT stocks. Institutional investors also seek REIT entities that are skillfully managed and
thus boost the potentiality of shareholder wealth maximization.
In addition, non-traditional REIT organizations also developed unique niches in self-storage and
manufactured housing. The increase in market capitalization in non-traditional as well as
traditional REIT arises from growth through property acquisitions and development. The
consolidation phenomena in REIT also enabled various REIT firms to grasp economies of scale
and compete with other peer entities (Ambrose and al., 2005). On the one side, economies of
scale are linked to major fixed expenses and, on the other side, diseconomies of scale are bonded
to administering ever-expanding firms operating in various markets (Yang, 2001).
The global financial crisis and the credit risk correction that occurred in 2008 crunched REIT
stock prices as well as shrunk the appraisal of REIT properties in various geographical locations.
The implementation of rigid new regulations in capital markets and the economic expansion
enabled to heighten REIT stock prices and real estate property estimates back to appealing
levels. However, REIT organizations that specialize in regional segments or niche property types
grow rapidly because they retain advantage in value-creating opportunities.
In conclusion, the REIT architecture and its market environment remain appealing features for
individual as well institutional investors to participate in acquiring liquid real estate securities
through REIT stocks while collecting dividends. The ongoing challenge for equity REIT remains
to administer investment decisions and secure asset growth in uncertain economic conditions
such as lagging production boom and hazardous unemployment rate. In light, recognition delay
in economic downturns in the equity as well as debt market thus when investors and capital
providers transact under uncertainty. In consequence, the risks linked to investing in REIT vary
across property sectors and geographical markets.
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
3. Fundamental and Technical Frameworks
The third section umbrages the fundamental and technical frameworks integrated in modeling as
well as evaluating REIT equity securities.
REIT investment vehicles are predominantly detained by institutional investors who seek to
maximize shareholder wealth therefore not bonded to individual investor sentiment. REIT stock
prices diverge from NAV thus permit arbitrage opportunities in capital markets. Aggregate NAV
appear to be stationary and mean-reverting therefore leads to potential profitable trading
strategies that capture market timing rather than cross-sectional stock selection. Closed-end
funds portray investment mediums that transact securities distant from NAV due to various
factors: tax liabilities, market segmentation, and lastly, management costs. The REIT financial
instrument shares similarities with closed-end funds whereas market operators can generate
profit from various trading strategies in managing stocks that pool illiquid real estate assets.
However, REIT stocks trade at lower discount than closed-end funds due to higher dividends
(Pontiff, 1996).
REIT organizations operate in similar environments as multinational corporations whereas REIT
administrators raise capital from external markets and then invest funds in operating assets to
foster stock value growth. REIT entities also depict attractive investment vehicles due to the
double taxation avoidance in equity-financed mediums. However, the tax liability element
interferes with price-to-NAV (“P/NAV”) valuation (Clayton and al., 2003). High P/NAV
securities show low subsequent returns, and on the other hand, low P/NAV stocks expose high
historical returns. In addition, stocks with hefty P/NAV tend to be dominating securities with
significant market capitalization and that are slightly more liquid. Furthermore, REIT entities
obtain an annual tax deduction for dividend distributed to shareholders. In fact, REIT are
confined by law to earn at least 75% of income from real-estate related investments as well as
gauge 95% of their income from their operating assets, dividends, and finally, from interest and
capital gains. REIT are compelled to distribute 90% of their taxable income in form of dividends.
However, depreciation allowances considerably reduce taxable income in the case of REIT
investment vehicles which also jeopardizes the capability of a REIT entity to finance from
internally generated funds. Finally, REIT entities are also ruled to invest 75% of their assets in
real-estate, REIT shares, mortgages, government securities, and lastly, liquidity. The legal rigid
REIT infrastructure as well as its equity-linked feature encourages REIT managers to soundly
and efficiently administer the underlying assets.
The disquisition aspires to cement a REIT valuation model that prices REIT stock returns in line
with fundamental value. The mathematical framework used is a regression model to adjust the
beta coefficient in line with economic as well as firm-specific variables that greatly impact true
systematic risk. In fact, cyclical economic factors in a frictionless world greatly impact true
fundamental REIT values (Stambaugh, 1999). The proposed technique therefore thwarts
potential conflicts of interest arising from entities pricing the values of REIT underlying assets.
In light, entities that value REIT investment vehicles blend public data accessible to all investors
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
with private information available only for managers as well as insiders. The cherry-picking
methodology implemented by firms designated to price REIT NAV as well as their commissions
on trading business lead to an environment that induces potential conflicts of interest.
Firm-specific and external economic factors influence REIT price volatility (Knight et al., 2005).
Various techniques have been tested in the past to value REIT stocks such as the Fama and
French (1993) five-factor model as well as customized macroeconomic driven pricing
methodologies (Chan and al., 1990). Furthermore, past experimental results have demonstrated
that securitized real estate volatility is highly correlated with stock market risk in the short
horizon compared to unsecuritized real estate volatility (Liow and Ibrahim, 2010). Past studies
have also concluded that the maturity of the market plays a determining factor in anticipating
REIT stock returns (Serrano and Hoesli, 2010). There seems to be a general consensus that
active trading practices generate acute forecasts compared to conventional strategies. Liquidity
issues greatly impact REIT investment vehicles compared to momentum returns (Hung and
Glascock, 2010). The dynamic between monthly REIT data and market factors efficiently
captures REIT returns (Cotter and Stevens, 2006).
Inflated volatility levels serve as tax purposes to firms by heightening the cost of debt/equity
capital that negatively impact REIT firm values. Stock return volatility is closely entangled with
macroeconomic variables and financial leverage which leads to enhanced stock return variability
during financial market downturns (Fama and Schwert, 1977). The determinant of time-series
return behavior relies on how investors and market operators interpret new information
integration in security prices (Chen and Wei, 2007). The blossoming exchange traded-fund
(“ETF”) market influences volatility in the REIT stock sector. Precisely, significant and positive
changes in the risk associated to an index, such as the S&P 500, impact REIT stock returns. The
impulse to transact public real estate is enhanced in down markets due to the narrowing of
illiquidity in the private sector (Li, 2011).
The Capital Asset Pricing Model (“CAPM”) depicts an international reference framework to
value the expected return on a security by segmenting the underlying into two main components:
the systematic risk measured by the beta coefficient bonded to a risk premium return, and, the
other component depicts the unsystematic volatility represented by a Treasury bond risk-free
return. Empirical tests have demonstrated that REIT betas increase during periods of market
distress therefore market operators are recommended to consider a REIT valuation model
whereas the beta coefficient efficiently captures variables that play a role in systematic risk. The
proposed model considers dividend and earnings data that help predict security market returns
for time horizons extending to five years (Fama and French, 1988).
The Modigliani-Miller (“M&M”) methodology articulates that the volatility of REIT financial
instruments is impacted by the following parameters: risk linked to the firm’s total value, debt
price volatility, and lastly, Debt-to-Equity (“D/E”) ratio. Therefore, the leverage effect greatly
influences the volatility of a REIT stock. There is also a positive correlation between inflation
shocks with REIT return sigma which leads to the conclusion that unanticipated changes in
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
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actual inflation impact REIT stock valuation. In precise terms, an unexpected drop in inflation
induces a larger consequence on REIT return volatility than an unanticipated jump in inflation.
During the global financial crisis that occurred in 2008, empirical tests have demonstrated that
REIT stock volatility jumps were nearly twice compared to common stock risk (Li, 2011). The
recommended REIT valuation model encapsulates asymmetric effects of various economic and
firm-specific factors with a beta coefficient that integrates these effects.
The CAPM model measures the expected return of a security with the following mathematical
expression:
E(Ri,t) = αi + βi,t*(Rm,t – Rf,t) + εi,t
Variable nomenclature:
E(Ri,t): The expected return on a security
αi: The constant security return in excess of systematic risk
βi,t: The beta coefficient of the security
Rm,t: The market return rate at horizon t
Rf,t: The risk-free return at horizon t
εi,t: The error term at horizon t
The expected return for a portfolio containing n securities can therefore be solved with the
equation:
E(Rp) = ∑𝑛𝑖=1 𝑋i,t*E(Ri,t)
Variable nomenclature:
E(Rp): The expected return on a portfolio containing n securities.
Xi,t: The weight of a security in the portfolio whereas the sum of all weights is equal to 1.
E(Ri,t): The expected return of a security bundled in a portfolio.
The variance (Var) of the expected return on a security is measured by the following
mathematical solution:
σ2p = ∑𝑛𝑖=1 𝑋i,t * ∑𝑛𝑗=1 𝑋j,t * σi,j
σ2p = ∑𝑛𝑖=1 𝑋i,t2 * σ2i + ∑𝑛𝑖=1 𝑋i,t * ∑𝑛𝑗=1 𝑋j,t* σi,j
Var (E(Ri,t)) = βi,t2Var((Rm,t – Rf,t)) + Var(εi,t) + 2Cov(βi,t*(Rm,t – Rf,t),εi,t)
Variable nomenclature:
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
E(Ri,t): The expected return on a security
βi,t: The beta coefficient of the security
Rm,t: The market return rate at horizon t
Rf,t: The risk-free return at horizon t
εi,t: The error term at horizon t
(Rm,t – Rf,t) : The risk premium of a security
Cov(.): The covariance between two variables.
Empirical studies have shown that the variance of American stocks can be partitioned in three
main components (Liu and Mei, 1994): one third is attributed to the variance of changes in
anticipated dividends, one third is characterized by the variance of unexpected stock return, and
lastly, the remaining tierce is explained by the covariance of the two stated factors. The REIT
return volatility also increases with the use of short-term debt which leads to a cascade of
consequences such exposing the firm to rollover risk and heightening credit risk (He and Xiong,
2010).
Staggering inflation impacts REIT stock returns by inducing a weaker economy and reducing
firm profits. Furthermore, steep inflation accentuates the overall riskiness of real estate assets.
The effect of inflation shocks on REIT return volatility is steepened for property sectors such as
hotel and industrial markets. Therefore, the proposed REIT valuation model captures the positive
and negative asymmetric effects of inflation that are integrated into the beta coefficient.
In brief, the technical framework and the REIT market environment umbrage the general features
and characteristics that need to be considered when modeling a valuation protocol for REIT
stocks.
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
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4. The REIT Valuation Model Implementation
This segment presents an empirical study of the REIT valuation model and describes the steps to
implement the protocol.
4.1 The Instructions to Execute the REIT Valuation Protocol
The proposed technique adjusts the beta coefficient to adequately encapsulate economic and
firm-specific factors that impact the true expected return on REIT equity securities. The
correction of the beta coefficient and the reconciled anticipated return on the stock then enable to
harmonize the true dividend. In essence, the modus operandi secures a robust framework that
captures all the risks linked to REIT equity investments to cement a transparent transacting
environment between market operators and investors.
The cascade instructions to execute the delivered REIT stock valuation model are:
1. Gather the following monthly data about retained REIT listed stocks and the affiliated
financial index for a 48-months window frame: Stock and index closing prices, REIT
market value, T-Bill 12-months, the inflation rate, the financial leverage index,
unemployment rate, and lastly, the housing starts.
2. Calculate the descriptive statistics such as the standard type for the REIT stock and the
affiliated financial index to measure the covariance between these two variables.
3. Compute the adjusted beta by expressing the systematic risk parameter with a rolling
window based on 24-months. This step therefore corrects the cyclical and seasonal risks
that interfere between the REIT stock and the market (that is represented by the financial
index).
4. Integrate the following variables to examine linear ANOVA regressions at 95%
confidence level: the adjusted beta (calculated in step 3) is the dependant variable while
the independent variables are the REIT market value, the financial leverage index, the
unemployment rate, the housing starts, and lastly, the inflation rate.
5. Assemble the linear ANOVA regression equation for each REIT stock and then
incorporate the mean of each independent variable used in step 4 to obtain the corrected
beta (ßα,β).
6. Calculate the REIT stock expected return (ROEα,β) with the following parameters
integrated into the Capital Asset Pricing Model (CAPM): the corrected beta (ßα,β)
obtained in step 5, historical risk premium for investing in publicly traded equity REITs,
and lastly, the mean T-bill 12-months rate.
7. Compute the corrected dividend (Dα,β) with the following expression:
Dα,β = (ROEα,β - Gα,β)*REIT stock Price close monthly whereas Gα,β depicts the corrected
growth rate.
8. Analyze the results to assess the risk-return relationship.
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
4.2Empirical Study with the Designed REIT Valuation Model
This sub-section describes the main findings and results following the implementation of the
proposed REIT valuation technique. The data source is Compustat, Research Insight. The data
window is from December 2008 until December 2012 with information on a monthly basis. The
selected index is the S&P 500 used to compute the covariance between the market and each
REIT stock.
The empirical study is performed with the following selected REIT stocks:
1- American Campus Communities Inc. (NYSE:ACC)
2- Apartment Investment & Management Co. (NYSE: AIV)
3- AvalonBay Communities Inc. (NYSE: AVB)
4- BRE Properties Inc. (NYSE: BRE)
5- Camden Property Trust (NYSE: CPT)
6- Equity Lifestyle Properties Inc. (NYSE: ELS)
7- Home Properties Inc. (NYSE: HME)
8- Mid-America Apartment Communities Inc. (NYSE: MAA)
9- Post Properties Inc. (NYSE: PPS)
10- UDR Inc. (NYSE: UDR)
Figure I
Adjusted beta coefficient for a rolling window 24-months from
December 2008 until December 2012 for the examined REIT stocks.
Rolling window beta
ACC
AIV
3
AVB
2
BRE
CPT
1
ELS
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
MAA
Dec12
sept-12
Jun12
Dec11
sept-11
Jun11
mars-11
mars-12
Date
Dec10
HME
sept-10
Dec08
mars-09
Jun09
sept-09
Dec09
mars-10
Jun10
0
PPS
UDR
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Real Estate Investment Trust (REIT) Valuation Model
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Awad
Please refer to appendixes 1 to 10 for elaborated information about ANOVA regressions for each
REIT stock.
Table 1
Descriptive Statistics following the implementation
of the REIT Valuation Model for December 2012
REIT stock
ticker
R2
ßα,β
ROEα,β
ACC
91,8% 0,9611
9,1210%
Dα,β
(in U.S. $)
for Q4 2012
0,5499
AIV
AVB
BRE
89,6% 2,0651
88,4% 1,1394
85,8% 1,2068
15,7450%
10,1908%
10,5952%
-0,1079
1,3098
0,6791
Stock Price
Close monthly
(in U.S. $)
46,13
Dividend
payout*
27,06
135,59
50,83
-0,2538%
0,9477%
1,2605%
1,3073%
CPT
93,8% 1,3894 11,6908%
0,7039
68,21
0,8830%
ELS
91,4% 1,1187 10,0666%
0,3725
33,65
1,0989%
HME
92,7% 1,4059 11,7898%
1,4169
61,31
1,9605%
MAA
91,3% 1,4092 11,8096%
2,1264
64,75
2,7811%
PPS
87,0% 1,3912 11,7016%
0,2947
49,95
0,5044%
UDR
83,5% 1,1693 10,3702%
-0,1836
23,78
-0,7449%
*Dividend payout obtained from Compustat used to adjust the calculation of the other variables.
The historical risk premium for investing in publicly traded equity REITs (as measured by the
FTSE NAREIT Equity Total Return Index) in excess of the 10 year treasury from February 1,
1972 to December 31, 2012 is around 6%. The mean risk-free rate for the entire data window
obtained from the Treasury bill 12-months rate is 3,3544%.
The Pearson squared coefficient (R2) for all ANOVA regressions exposes a strong linear
relationship. The corrected beta coefficients range from 0,9611 (ACC) to 2,0651 (AIV) which
infuses firm-specific and economic parameters. The REIT entities AIV and UDR had a negative
payout in Q4 2012 following Research Insight information however corrected return on equity
(ROEα,β) still remains positive because the underlying is used to be harmonized with the
instructions of the protocol. Also, the dividend (Dα,β) for Q4 2012 does consider the dividend
payout as formalized in the table.
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
5-Conclusion
Successful REIT stocks portray real-estate conglomerates that adequately manage underlying
real estate properties and grow due to profitable operational growth which in return lead to
reliable dividend distribution and enhance shareholder wealth. The REIT playground remains a
highly competitive environment whereas individual investors and institutional ownership hold
divergent preferences as well as requirements in their utility curves.
A significant proportion of REIT entities focus on internal growth through sound property
administration, cost reduction, and lastly, by increasing residential or corporate occupancy.
However, the REIT firms that concentrate efforts on external development complete the function
by acquiring investments in other REIT. Although REIT investment vehicles have victoriously
restructured their operational methodologies, some REIT entities still struggle in recapitalizing
their balance sheets. Regardless the costly property infrastructure linked to REIT conglomerates,
REIT organizations strive to face challenges in an era of globalization and blossom growth
opportunities to enhance shareholder value.
The proposed REIT valuation model encapsulate economic and firm-specific parameters that
greatly impact the systematic risk linked to a REIT investment. The execution of the REIT
protocol exposes the importance to capture risk parameters in the beta coefficient and then adjust
the true dividend.
In conclusion, a REIT valuation model enhances the transparency of a trading environment
whereas investors and market operators examine a clear picture frame of all the risks entangled
to REIT stocks regardless economic conditions and geographical locations.
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
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Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Paper: “Real Estate Valuation Model” (2014)
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Paper: “Real Estate Valuation Model” (2014)
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Paper: “Real Estate Valuation Model” (2014)
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Paper: “Real Estate Valuation Model” (2014)
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Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Jamila
Awad
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Appendix 1: ACC Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
,6756
,33550
49
2266,5089
1108,14691
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
R
R Square
,958a
1
Adjusted R
Std. Error of the
Square
Estimate
,918
,909
,10126
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
(Constant)
Std. Error
-1,085
,404
market_value_monthly
,000
,000
1 financial_leverage_index
,374
unemployment_rate
housing_starts
inflation_rate
t
Sig.
95,0% Confidence
Interval for B
Beta
-
Lower
Upper
Bound
Bound
,010
-1,900
-,271
,003
,000
,000
,168
,313 2,231 ,031
,036
,713
,124
,033
,269 3,819 ,000
,059
,190
,318
,278
,101 1,142 ,260
-,244
,879
-,050
,012
-,075
-,026
2,689
-,417
-,228
3,099
4,166
,000
a. Dependent Variable: beta_corrected
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,1264
1,1522
,6756
,32152
49
-,17105
,31046
,00000
,09584
49
Std. Predicted Value
-1,708
1,482
,000
1,000
49
Std. Residual
-1,689
3,066
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y= -1,085+ 0,374Xb +0,124Xc +0,318Xd - 0,050Xe
Y= -1,085+ 0,374*(2,1830) +0,124*(8,9429) +0,318*(0,6321) - 0,050*(1,6053) = 0,9611
Appendix 2: AIV Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
2,0641
,84609
49
2498,0597
958,40265
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
1
R
,947a
R Square
,896
Adjusted R
Std. Error of the
Square
Estimate
,884
,28809
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
Std.
t
Sig.
Interval for B
Beta
Error
(Constant)
market_value_monthly
1 financial_leverage_index
-4,733
-
1,088
-9,405E-
-,107
Lower
Upper
Bound
Bound
,000
-6,927
-2,539
-,945 ,350
,000
,000
4,351
,000
005
95,0% Confidence
2,028
,457
,673 4,434 ,000
1,106
2,950
unemployment_rate
,254
,102
,218 2,486 ,017
,048
,460
housing_starts
,778
,681
,098 1,142 ,260
-,596
2,151
-,098
,039
-,176
-,021
inflation_rate
-,176
2,556
,014
a. Dependent Variable: beta_corrected
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,8877
3,2042
2,0641
,80094
49
-,50999
,42524
,00000
,27268
49
Std. Predicted Value
-1,469
1,423
,000
1,000
49
Std. Residual
-1,770
1,476
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y= -4,733-9,405E-005Xa+ 2,028Xb + 0,254Xc+0,778Xd - 0,098Xe
Y= -4,733-9,405E-005*(2498,0597) + 2,028*(2,1830) + 0,254*(8,9429) + 0,778*(0,6321)
- 0,098*(1,6053) = 2,0651
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Appendix 3: AVB Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
1,1403
,29096
49
9861,8597
3466,91364
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
1
R
R Square
,940a
Adjusted R
Std. Error of the
Square
Estimate
,884
,871
,10470
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
(Constant)
market_value_monthly
1
Std. Error
-,972
-4,730E005
t
Sig.
Interval for B
Beta
,460
95,0% Confidence
Lower
Upper
Bound
Bound
-2,116
,040
-1,899
-,045
,000
-,564
-3,473
,001
,000
,000
financial_leverage_index
,539
,195
,520
2,756
,009
,144
,933
unemployment_rate
,078
,037
,195
2,113
,040
,004
,153
housing_starts
1,159
,247
,423
4,689
,000
,661
1,658
inflation_rate
-,018
,015
-,093
-1,159
,253
-,049
,013
a. Dependent Variable: beta_corrected
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,7321
1,5472
1,1403
,27357
49
-,18601
,22144
,00000
,09910
49
Std. Predicted Value
-1,492
1,487
,000
1,000
49
Std. Residual
-1,777
2,115
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y= -0,972-4,730E-005Xa+ 0,539Xb +0,078Xc+ 1,159Xd - 0,018Xe
Y= -0,972-4,730E-005*(9861,8597) + 0,539*(2,1830) +0,078*(8,9429)+ 1,159*(0,6321) 0,018*(1,6053) = 1,1394
Appendix 4: BRE Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
1,2025
,22202
49
2854,7872
1000,44058
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
1
R
,926a
R Square
,858
Adjusted R
Std. Error of the
Square
Estimate
,842
,08838
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
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Real Estate Investment Trust (REIT) Valuation Model
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Awad
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
Std.
t
Sig.
Interval for B
Beta
Error
(Constant)
market_value_monthly
1
-,739
-
,389
-9,983E-
1,901
,000
005
-,450
95,0% Confidence
2,703
Lower
Upper
Bound
Bound
,064
-1,523
,045
,010
,000
,000
financial_leverage_index
,486
,160
,615 3,042 ,004
,164
,808
unemployment_rate
,078
,031
,254 2,473 ,017
,014
,141
housing_starts
,737
,208
,352 3,534 ,001
,316
1,157
inflation_rate
,004
,014
,027
-,025
,033
,277 ,783
a. Dependent Variable: beta_corrected
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,8742
1,4871
1,2025
,20566
49
-,17062
,16739
,00000
,08365
49
Std. Predicted Value
-1,596
1,384
,000
1,000
49
Std. Residual
-1,931
1,894
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y= -0,739 -9,983E-005Xa+0,486 Xb + 0,078Xc+0,737Xd +0,004Xe
Y= -0,739 -9,983E-005(2854,7872)+0,486 (2,1830) + 0,078(8,9429)+0,737(0,6321)
+0,004(1,6053) = 1,2068
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Appendix 5: CPT Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
1,3851
,39296
49
3808,3659
1390,54273
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
R
R Square
,968a
1
Adjusted R
Std. Error of the
Square
Estimate
,938
,931
,10355
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
Std.
t
Sig.
Interval for B
Beta
Error
1 (Constant)
-1,088
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
,470
95,0% Confidence
2,315
,025
Lower
Upper
Bound
Bound
-2,036
-,140
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
market_value_monthly
-9,075E-
,000
005
-,321
2,698
Jamila
Awad
,010
,000
,000
financial_leverage_index
,689
,217
,492 3,173 ,003
,251
1,126
unemployment_rate
,129
,040
,238 3,252 ,002
,049
,208
housing_starts
,358
,243
,097 1,473 ,148
-,132
,849
-,038
,013
-,064
-,012
inflation_rate
-,146
2,903
,006
a. Dependent Variable: beta_corrected
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,8242
1,8960
1,3851
,38055
49
-,21297
,18461
,00000
,09801
49
Std. Predicted Value
-1,474
1,342
,000
1,000
49
Std. Residual
-2,057
1,783
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y= -1,088-9,075E-005Xa+ 0,689Xb +0,129Xc+0,358Xd - 0,038Xe
Y= -1,088-9,075E-005*(3808,3659)+ 0,689*(2,1830) +0,129*(8,9429)+0,358*(0,6321) 0,038*(1,6053) = 1,3894
Appendix 6: ELS Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
,7857
,17127
49
2017,7320
680,46801
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
R
R Square
Adjusted R
Square
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Std. Error of the
Estimate
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
,956a
1
,914
,904
Jamila
Awad
,05320
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
Std. Error
(Constant)
,587
,232
market_value_monthly
,000
,000
1 financial_leverage_index
,188
unemployment_rate
housing_starts
inflation_rate
t
Sig.
95,0% Confidence
Interval for B
Beta
2,535 ,015
Lower
Upper
Bound
Bound
,120
1,055
,000
,000
,000
,096
,307 1,964 ,056
-,005
,380
,016
,018
,070
,909 ,369
-,020
,053
-,070
,129
-,043
-,541 ,592
-,329
,190
,014
,008
,124 1,863 ,069
-,001
,029
-,663
4,724
a. Dependent Variable: beta_corrected
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,4874
,9836
,7857
,16371
49
-,11546
,14690
,00000
,05035
49
Std. Predicted Value
-1,822
1,209
,000
1,000
49
Std. Residual
-2,170
2,761
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y=0,587+ 0,188Xb + 0,016Xc - 0,070Xd +0,014Xe
Y=0,587+ 0,188*(2,1830) + 0,016*(8,9429) - 0,070*(0,6321) +0,014*(1,6053) = 1,1187
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Appendix 7: HME Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
1,0231
,32067
49
2201,3510
717,95572
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
R
R Square
,963a
1
Adjusted R
Std. Error of the
Square
Estimate
,927
,919
,09135
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
1 (Constant)
-,600
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Std. Error
,433
t
Sig.
95,0% Confidence
Interval for B
Beta
1,386
,173
Lower
Upper
Bound
Bound
-1,472
,273
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
market_value_monthly
,000
,000
financial_leverage_index
,636
unemployment_rate
housing_starts
inflation_rate
-,394
-
Jamila
Awad
,006
,000
,000
,181
,557 3,512 ,001
,271
1,001
,053
,032
,121 1,652 ,106
-,012
,119
,245
,215
,081 1,140 ,261
-,189
,679
-,007
,013
-,033
,020
-,031
2,880
-,494 ,623
a. Dependent Variable: beta_corrected
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,5515
1,3977
1,0231
,30880
49
-,22694
,21473
,00000
,08646
49
Std. Predicted Value
-1,527
1,213
,000
1,000
49
Std. Residual
-2,484
2,351
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y= -0,600+ 0,636Xb + 0,053Xc+0,245Xd -0,007Xe
Y= -0,600+ 0,636*(2,1830) + 0,053*(8,9429)+0,245*(0,6321) -0,007*(1,6053) = 1,4059
Appendix 8: MAA Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
,9157
,31094
49
2036,4674
642,20718
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
R
R Square
Adjusted R
Square
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Std. Error of the
Estimate
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
,956a
1
,913
,903
Jamila
Awad
,09677
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
(Constant)
Std. Error
-,598
,438
market_value_monthly
,000
,000
1 financial_leverage_index
,399
unemployment_rate
housing_starts
inflation_rate
t
Sig.
95,0% Confidence
Interval for B
Beta
-
Lower
Upper
Bound
Bound
,179
-1,481
,285
,000
,000
,000
,184
,360 2,169 ,036
,028
,770
,099
,035
,232 2,813 ,007
,028
,170
,473
,228
,161 2,072 ,044
,013
,933
-,030
,013
-,056
-,004
1,365
-,503
-,146
4,161
2,325
,025
a. Dependent Variable: beta_corrected
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,4968
1,3537
,9157
,29714
49
-,15801
,17774
,00000
,09159
49
Std. Predicted Value
-1,410
1,474
,000
1,000
49
Std. Residual
-1,633
1,837
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y= -0,598+ 0,399Xb +0,099Xc+0 ,473Xd - 0,030Xe
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
Y= -0,598+ 0,399*(2,1830) +0,099*(8,9429) + 0,473*(0,6321) - 0,030*(1,6053) = 1,409
Appendix 9: PPS Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
1,3912
,30294
49
1702,1153
759,46920
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
1,6053
1,51635
49
market_value_monthly
housing_starts
inflation_rate
Model Summaryb
Model
R
R Square
,933a
1
Adjusted R
Std. Error of the
Square
Estimate
,870
,855
,11548
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
Std.
Error
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Beta
t
Sig.
95,0% Confidence
Interval for B
Lower
Upper
Bound
Bound
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
(Constant)
-
-2,122
,546
4,395E-005
,000
,110
,929
unemployment_rate
Jamila
Awad
,000
-3,223
-1,020
,649 ,520
,000
,000
,233
,861 3,995 ,000
,460
1,398
,135
,040
,323 3,366 ,002
,054
,216
housing_starts
,301
,271
,105 1,111 ,273
-,245
,847
inflation_rate
,008
,015
,042
-,022
,039
market_value_monthly
1 financial_leverage_index
3,884
,558 ,580
a. Dependent Variable: beta_corrected
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,9396
1,7314
1,3912
,28254
49
-,21341
,32795
,00000
,10930
49
Std. Predicted Value
-1,598
1,204
,000
1,000
49
Std. Residual
-1,848
2,840
,000
,946
49
Residual
a. Dependent Variable: beta_corrected
Y= -2,122+4,395E-005Xa+ 0,929Xb +0,135Xc+ 0,301Xd + 0,008Xe
Y= -2,122+4,395E-005(1702,1153)+ 0,929(2,1830) +0,135(8,9429)+ 0,301(0,6321) +
0,008(1,6053) = 1,3912
Appendix 10: UDR Regression
Descriptive Statistics
Mean
beta_corrected
Std. Deviation
N
1,1663
,30957
49
4172,6559
1691,72350
49
financial_leverage_index
2,1830
,28073
49
unemployment_rate
8,9429
,72629
49
,6321
,10611
49
market_value_monthly
housing_starts
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
inflation_rate
1,6053
1,51635
Jamila
Awad
49
Model Summaryb
Model
R
R Square
,914a
1
Adjusted R
Std. Error of the
Square
Estimate
,835
,816
,13272
a. Predictors: (Constant), inflation_rate, unemployment_rate,
housing_starts, market_value_monthly, financial_leverage_index
b. Dependent Variable: beta_corrected
Coefficientsa
Model
Unstandardized
Standardized
Coefficients
Coefficients
B
Std.
t
Sig.
Interval for B
Beta
Error
(Constant)
market_value_monthly
1 financial_leverage_index
-2,366
-
,627
-9,038E-
-,049
Lower
Upper
Bound
Bound
,000
-3,630
-1,102
-,255 ,800
,000
,000
3,775
,000
006
95,0% Confidence
,893
,269
,810 3,319 ,002
,350
1,436
unemployment_rate
,120
,048
,281 2,508 ,016
,023
,216
housing_starts
,947
,313
,324 3,024 ,004
,315
1,578
-,030
,019
-,068
,009
inflation_rate
-,147
1,568
,124
a. Dependent Variable: beta_corrected
Residuals Statisticsa
Minimum
Predicted Value
Maximum
Mean
Std. Deviation
N
,7111
1,5705
1,1663
,28294
49
-,23021
,26693
,00000
,12561
49
Std. Predicted Value
-1,609
1,429
,000
1,000
49
Std. Residual
-1,735
2,011
,000
,946
49
Residual
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]
Real Estate Investment Trust (REIT) Valuation Model
Jamila
Awad
a. Dependent Variable: beta_corrected
Y= -2,366-9,038E-006Xa+ 0,893Xb + 0,120Xc+0,947Xd - 0,030Xe
Y= -2,366-9,038E-006*(4172,6559) + 0,893*(2,1830) + 0,120*(8,9429)+0,947*(0,6321) 0,030*(1,6053) = 1,1693
Paper: “Real Estate Valuation Model” (2014)
Author: Jamila Awad
Date: May 13, 2014
Rights Reserved: JAW Group
JAW Group, 3440 Durocher # 1109
Montreal, Quebec, H2X 2E2, Canada
Mobile: (1) 514 799-4565
E-mail: [email protected]