IMPACT OF CORPORATE REAL ESTATE OWNERSHIP: EVIDENCE FROM HOSPITALITY INDUSTRY

Abstract

The hotel and lodging business is relatively unique among the non-real estate industry, noted to have one of the highest corporate real estate intensity (CREI). The discrepancy amongst theoretical and empirical evidence in literature prompted for further research on the influence of corporate real estate ownership (CREO) on international hospitality firms’ performance, its exposure to real estate risk and possible determinants of such risk. By analysing these relationships, this paper hopes to aid companies’ strategy in corporate real estate management. The first part of the methodology follows a multivariant regression model using company’s performance proxies (P/B Ratio and Tobin’s Q) against firm-level variable data. The result affirms the ex-ante expectation of the negative impact of CREO on company’s performance, in particular market’s perception of company’s future performance (βpb = -1.57 & βQ = -1.06). Coefficient of company size were also found highly significant to the company’s performance. The second part of the methodology follows Jorion (1990) two-stage regression to estimate the significance in real estate risk exposure and its possible determinants . The results failed to find an overall significant exposure of real estate risk on returns of hotel and lodging businesses (20%). However, upon breakdown across countries, positive real estate exposure was found significant in the US hospitality companies (63.3%). Further regression analysis of the determinants of real estate exposure found that real estate risk exposure (βre) is conditional on companies’ fundamental variables such as size (β = 0.037, current ratio (β = 0.031) and regional location (β = -0.214).