Does corporate real estate create wealth for shareholders?
| Published date | 01 October 2004 |
| DOI | https://doi.org/10.1108/14635780410556870 |
| Pages | 386-400 |
| Date | 01 October 2004 |
| Author | Kim Hiang Liow,Joseph T.L. Ooi |
| Subject Matter | Property management & built environment |
Does corporate real estate create
wealth for shareholders?
Kim Hiang Liow and Joseph T.L. Ooi
Department of Real Estate, National University of Singapore, Singapore
Keywords Real estate, Value added, Assets management
Abstract This study examines the influence of corporate real estate (CRE) on shareholder value
using two value-based measures: economic value added (EVA) and market value added (MVA).
We find that CRE has impacted negatively on non-real estate firms’ EVA and MVA in the period
1997-2001. This happens for the non-real estate corporations from different industries. Further,
the higher the real estate asset intensity, the greater the negative impact on the firms’ EVA and
MVA. Our results have important implications for the traditional notion that there is a competitive
advantage in owning CRE by diversified conglomerates. Specifically, more studies are needed to
explore and compare the main reasons and motivations as to why Asian non-real estate firms are
still more involved with real estate activities than their counterparts in Europe and USA even
though ownership of CRE appears to destroy shareholders’ wealth.
Introduction
Corporate real estate (CRE) refers to the land and buildings owned by companies not
primarily in the real estate business. In today’s business environment, many non-real
estate firms are investing significantly in properties that are used for operational and
investment purposes. In some cases, real estate has become the corporations’ largest
asset. From an international perspective, the ownership of significant number of real
estate by corporations in the United States ( Johnson and Keasler, 1993; Seiler et al.,
2001), UK (Liow, 1995), Singapore (Liow, 1999) and European countries (Laposa and
Charlton, 2001) has been well documented. Additionally, many property analysts have
also noted that Asian companies are more deeply exposed to real estate than their
counterparts elsewhere in the world.
In this paper, we consider a broader perspective of CRE to comprise both business
(operational) properties and other non-business (i.e. investment) properties of a non-real
estate company. This is an expansion of the definition adopted by Manning and
Roulac (1999) that defines CRE as “real property that house productive activities of
a traditional corporation”. There are four main reasons to adopt a broader definition
of CRE. First, changing business, property and capital market conditions have prompted
many traditional non-real estate companies to re-examine their property holdings, and in
particular commercial real estate, both as an operating business and as an asset class.
Consequently, real estate has been increasingly viewed as having investment and
operating characteristics that render it both as an asset class within the investment
world and as a distinct business area within the economy. Second, some major non-real
estate companies combine primary (non-property) business with property business
in order to diversify risk. CRE in these corporations comprises both operational
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/1463-578X.htm
The authors would like to thank Mr Chew Chee Song for providing valuable research assistance
with data collection and processing.
JPIF
22,5
386
Received February 2004
Accepted March 2004
Journal of Property Investment &
Finance
Vol. 22 No. 5, 2004
pp. 386-400
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780410556870
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