Firm value, growth, profitability and capital structure of listed real estate companies: An international perspective

Abstract

This study explores the key financial performance characteristics of successful listed real estate companies in an international context over 2000-2006. Financial success is measured using two different measures, i.e. the Sharpe ratio and Jensen's alpha. We consider the three main determinants of firm value for real estate companies to be growth, profitability and leverage, and investigate a total of 11 different company specific characteristics as potential indicators of superior performance. We find that successful real estate companies are generally of larger size and command attractive market valuation relative to their underlying book value. They are usually profitable and are more likely to take advantage of positive financial leverage effects, contributing to higher sustainable growth rates as well as profitable growth in the longer term. In addition, the financial variables that influence successful performance are largely similar for all countries and regions, but they differ in degree and in some cases the influence works in the opposite direction. This indicates a potential gain in portfolio diversification across the global real estate markets. Our results provide practical insights to global investors and fund managers in including successful real estate companies in their investment portfolios. © 2010 Taylor & Francis.