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Determinants and Dynamics of Dividend Payouts by REITs
by Milena Petrova, Syracuse UniversityAndrew Spieler, Hofstra University
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Background and MotivationBackground and MotivationBackground and MotivationBackground and Motivation Large body of theoretical & empirical research on
corporate dividend policy, most of which is focused on the relationship between firm value and level, and form of payout and dividend signaling.
However, empirical research on the determinants of dividend payouts and signaling effects for REITs is limited. Excess dividends examined by Hardin and Hill (REE, 2008) Handful of dividend policy studies (Wang, Erickson and Gao, 1993;
Bradley, Capozza and Seguin, 1998; Ghosh and Sirmans, 2006) Recent REIT earnings management (Edelstein, Liu and Tsang, WP;
Ambrose and Bian, WP)
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Why REITs?Why REITs?Why REITs?Why REITs? US REITs are required by law to distribute at least 90% of
their taxable income to maintain status REITs attract investors for their high dividend yields and any
unexpected increase/decrease in dividends may have significant effects on price
Historically, REITs have been known to pay on average significantly more than 90% of TI On average REITs pay more than 120% of pretax income What determines excess dividends and does the investor identity
matter? More recently during 2007-2008 REITs have lost more than
50% of their market valuation This begs the question whether dividend payout by REITs and
signaling effects change in times of crisis?
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What Questions Do We Address? What Questions Do We Address? What Questions Do We Address? What Questions Do We Address? 1. Are there any patterns in the dividend payout policy by REITs
over time and by property focus?2. What characteristics are associated with higher dividend
payout? We compare REITs with publicly traded companies and examine whether the
unique restrictions, REITs face, have impact on their dividend payout policy
3. What REIT characteristics are associated with higher excess dividend payout? Excess dividend – dividend in excess to the 90% (95% prior to 2001) of
the taxable income Specifically we test whether institutional investors impact REIT
managers’ decisions to pay dividends over and above the mandatory requirement by IRS.
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What Questions Do We Address? What Questions Do We Address? What Questions Do We Address? What Questions Do We Address? 4. Do shareholder wealth effects differ for REITs and non-REIT
publicly traded property firms? Distinguish between irregular and regular dividends; dividend
increases and decreases
5. What are the determinants of dividend announcement wealth effects and do they differ for REITs and non-REITs?
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Data & SourcesData & SourcesData & SourcesData & Sources Dividend announcements by REITs and publicly traded
property firms acquired from SNL for the years of 1990-2008 Final announcement sample includes: 10171 dividend
announcements by REITs and 735 announcements by property firms
Obtained annual dividend payment data and additional accounting data from COMPUSTAT Final annual data sample consists of 1877 REIT years and 138
property firm years Institutional ownership data from Thomson Financial REIT type and property concentration data from CRSP Ziman
Summary StatisticsSummary Statistics
Variable Obs Mean Std. Dev. Obs Mean Std. Dev.Total Dividends 1,877 70.64 105.03 138 37.92 48.25Excess Dividends 1,877 15.11 23.00 138Excess Dividends/Share 1,872 0.45 1.27 138Total Assets 1,877 1,559.92 2,741.48 138 3,125.39 3,606.99Cash & Cash Equiv/TA 1,877 0.03 0.07 138 0.06 0.07LTD/TA 1,877 0.42 0.20 138 0.41 0.20Pretax Income/Total Assets 1,877 0.04 0.13 138 0.06 0.09Inst. Ownership (%) 1,877 0.48 0.31 138 0.44 0.33Number of Inst. Investors 1,877 80.33 69.84 138 103.62 101.46CAPEX/TA 1,877 0.00 0.02 138 0.06 0.06LTD Issuance/TA 1,877 0.18 0.17 138 0.14 0.16
Non-REITsREIT-s
Sample Distribution over Time and by Sample Distribution over Time and by Property FocusProperty Focus
Sample Distribution over Time and by Sample Distribution over Time and by Property FocusProperty Focus
Year Obs Mean Obs Mean Property Focus Obs Mean Obs Mean1990 1,877 0.02 138 0.01 Diversified 1,877 0.10 138 0.311991 1,877 0.02 138 0.01 Health Care 1,877 0.09 138 0.011992 1,877 0.03 138 0.02 Hotel 1,877 0.07 138 0.571993 1,877 0.03 138 0.02 Industrial 1,877 0.06 138 0.031994 1,877 0.05 138 0.01 Manufactured Homes 1,877 0.03 138 0.001995 1,877 0.07 138 0.03 Multi-Family 1,877 0.16 138 0.021996 1,877 0.06 138 0.04 Office 1,877 0.13 138 0.061997 1,877 0.06 138 0.04 Regional Mall 1,877 0.07 138 0.001998 1,877 0.07 138 0.07 Retail (Other) 1,877 0.05 138 0.001999 1,877 0.07 138 0.07 Self-Storage 1,877 0.06 138 0.002000 1,877 0.07 138 0.07 Shopping Center 1,877 0.12 138 0.002001 1,877 0.06 138 0.06 Specialty 1,877 0.05 138 0.002002 1,877 0.06 138 0.062003 1,877 0.06 138 0.082004 1,877 0.06 138 0.092005 1,877 0.06 138 0.092006 1,877 0.06 138 0.092007 1,877 0.05 138 0.092008 1,877 0.04 138 0.04
REIT-s Non-REITs REIT-s Non-REITs
Dividend Payout StatisticsDividend Payout Statistics
Variable Obs Mean Std. Dev. Obs Mean Std. Dev.Total Dividends 1,877 70.64 105.03 138 37.92 48.25Excess Dividends 1,877 15.11 23.00Excess Dividends/Share 1,877 0.45 1.27Percent Divident of Pretax Income 1,877 1.24 0.75 138 0.37 0.65
Percent Dividend of FFO 1,877 0.73 0.26 138 0.28 0.32
REIT-s Non-REITs
Dividend Payout by REITs over TimeDividend Payout by REITs over TimeDividend Payout by REITs over TimeDividend Payout by REITs over Time
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000Observations 34 37 49 61 96 130 120 117 131 134 132Total Dividends 17.09 16.23 13.00 14.63 19.12 22.66 30.80 43.98 61.85 71.16 73.01
17.72 20.16 17.07 16.97 18.57 19.72 24.73 36.14 63.48 82.25 88.23Percent Dividend of Pretax Income 1.29 1.34 0.97 1.14 1.21 1.25 1.21 1.22 1.17 1.13 1.10
0.83 0.83 0.88 0.72 0.66 0.60 0.59 0.47 0.58 0.59 0.68Percent Dividend of FFO 0.85 0.82 0.71 0.77 0.76 0.77 0.75 0.75 0.70 0.69 0.63
0.37 0.33 0.33 0.30 0.25 0.23 0.22 0.17 0.20 0.23 0.21Excess Dividends/Share 0.67 0.32 0.61 0.27 0.39 0.35 0.29 0.31 0.27 0.24 0.36
1.41 0.80 0.94 0.57 0.79 0.62 0.57 0.69 0.64 0.83 1.17
Year 2001 2002 2003 2004 2005 2006 2007 2008Observations 115 109 110.00 109 115 107 90.00 81Total Dividends 79.66 85.66 93.11 104.04 107.65 117.71 140.56 139.21
108.00 120.92 121.43 124.64 141.11 146.86 170.19 147.19Percent Dividend of Pretax Income 1.16 1.25 1.23 1.52 1.39 1.34 1.40 1.32
0.77 0.73 0.83 0.88 0.95 0.87 0.87 1.03Percent Dividend of FFO 0.70 0.70 0.71 0.79 0.76 0.77 0.74 0.78
0.25 0.23 0.23 0.25 0.28 0.25 0.25 0.28Excess Dividends/Share 0.51 0.86 -0.06 0.70 0.60 0.63 0.68 0.83
0.83 2.31 3.58 0.80 0.64 0.70 0.64 0.67
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Regression AnalysisRegression AnalysisRegression AnalysisRegression Analysis1. We estimate determinants of dividend payouts by elected
REIT status and use robust clustered standard errors to account for potential heteroscedasticity and lack of independence between same firm observations We include year fixed effects and property focus fixed effects
2. We use the same methodology to examine determinants of excess dividends
Determinants of Dividend Payout by REITsDeterminants of Dividend Payout by REITsDeterminants of Dividend Payout by REITsDeterminants of Dividend Payout by REITs
Coef. T-Stat P>t Coef. T-Stat P>t Coef. T-Stat P>t Coef. T-Stat P>tLagged Dividends 1.01 36.33 *** 0.68 8.79 *** 0.68 8.68 *** 0.66 8.87 ***Total Assets 0.01 2.81 *** 0.01 2.79 *** 0.01 2.90 ***Cash & Cash Equiv/TA -12.58 -0.79 -9.74 -0.62 1.51 0.09LTD/TA -21.79 -4.03 *** -24.21 -4.62 *** -20.13 -4.54 ***Pretax Income/TA 30.27 1.52 27.71 1.35 27.11 1.41Inst. Ownership (%) -6.67 -1.29 -8.59 -1.68 * -7.65 -1.50Number of Inst. Investors 0.21 3.28 *** 0.23 3.54 *** 0.28 4.10 ***CAPEX/TA -79.74 -1.64 * -52.77 -1.31LTD Issuance/TA 8.53 1.65 * 0.96 0.171996 4.31 1.99 **1997 8.31 3.78 ***1998 11.04 3.47 ***1999 6.22 2.05 **2007 -9.65 -2.37 **2008 -26.40 -3.04 ***Property Focus Fixed Effects YESConstant 8.04 4.78 *** 8.16 2.70 *** 8.14 2.74 *** 2.96 0.82
Model 3 Model 4Model 1 Model 2
Determinants of Dividend Payout Determinants of Dividend Payout by Non-REITsby Non-REITs
Determinants of Dividend Payout Determinants of Dividend Payout by Non-REITsby Non-REITs
Coef. T-Stat P>t Coef. T-Stat P>t Coef. T-Stat P>t Coef. T-Stat P>tLagged Dividends 0.75 4.75 *** 0.56 3.36 *** 0.54 3.02 *** 0.36 1.44Total Assets 0.00 2.66 ** 0.00 2.75 ** 0.00 1.81 *Cash & Cash Equiv/TA -21.21 -0.88 -29.59 -0.97 -25.98 -0.71LTD/TA -22.73 -2.03 * -27.24 -2.29 ** -38.35 -2.42 **Pretax Income/TA 51.19 4.22 *** 59.69 4.12 *** 61.95 2.84 ***Inst. Ownership (%) -10.33 -1.38 -8.12 -0.98 -28.64 -3.53 ***Number of Inst. Investors 0.01 0.28 0.01 0.19 0.09 2.01 *CAPEX/TA -70.23 -1.56 -73.85 -0.91LTD Issuance/TA -1.11 -0.12 2.30 0.201996 -10.92 -1.491997 6.86 0.721998 -4.13 -0.531999 -11.95 -1.132007 9.45 0.732008 5.16 0.26Property Focus Fixed Effects YESConstant 10.29 2.18 ** 14.70 2.07 ** 20.53 2.38 ** 27.44 3.84 ***
Model 1 Model 2 Model 3 Model 4
Determinants of Excess DividendsDeterminants of Excess DividendsDeterminants of Excess DividendsDeterminants of Excess Dividends
Excess Dividends Coef. T-Stat P>t Coef. T-Stat P>t Coef. T-Stat P>tTotal Assets 0.00 -1.56 0.00 -2.15 ** 0.00 -1.27Cash & Cash Equiv/TA 13.64 1.88 * 16.40 2.28 ** 10.43 1.41LTD/TA 13.47 2.99 *** 12.46 2.69 *** 9.15 1.70 *Pretax Income/TA -16.95 -1.97 ** -17.96 -2.06 ** -14.17 -1.70 *Inst. Ownership (%) -6.92 -1.80 * -8.04 -2.19 ** -10.08 -2.57 ***Number of Inst. Investors 0.20 6.23 *** 0.21 7.71 *** 0.15 5.29 ***CAPEX/TA -140.46 -2.52 ** -97.94 -2.24 **LTD Issuance/TA 2.44 0.62 3.11 0.761991 -0.51 -0.311992 0.70 0.291993 -2.60 -1.311994 -1.63 -0.761995 -1.64 -0.791996 -4.00 -1.97 **1997 -2.13 -0.891998 -2.44 -0.951999 -7.12 -2.69 ***2000 -5.32 -1.72 *2001 1.62 0.512002 4.86 1.68 *2003 4.53 1.492004 10.12 3.13 ***2005 7.80 2.61 ***2006 13.11 3.93 ***2007 9.58 2.72 ***2008 18.97 4.82 ***Property Focus Fixed Effects YESConstant -1.26 -0.57 -0.91 -0.42 7.13 1.53 0.13
Model 1 Model 2 Model 3
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Event StudyEvent StudyEvent StudyEvent Study Use standard event study methodology to examine
whether stock price announcement effects differ for REITs vs. non-REITs and for dividend changes
Use standard regression analysis to determine whether factors driving REIT dividend announcement effects differ from those for non-REITs
Dividend Announcement Returns Dividend Announcement Returns by REITs and non-REITsby REITs and non-REITs
Dividend Announcement Returns Dividend Announcement Returns by REITs and non-REITsby REITs and non-REITs
REITsNumber
Mean T-Stat Mean T-Stat Mean T-Stat Mean T-Stat Mean T-StatCAR(-1,0) 0.27% 6.59 *** 0.22% 4.69 *** 0.61% 7.99 *** -0.60% -1.93 * 2.47% 4.76 ***CAR(-1,1) 0.22% 6.92 *** 0.16% 4.53 *** 0.59% 9.63 *** -0.56% -1.85 * 1.87% 5.06 ***CAR(-2,2) 0.07% 2.63 *** 0.02% 0.64 0.29% 5.78 *** -0.28% -1.30 0.63% 3.30 ***
Non-REITsNumber
Mean T-Stat Mean T-Stat Mean T-Stat Mean T-Stat Mean T-StatCAR(-1,0) 0.14% 0.74 0.18% 0.88 0.45% 1.08 -0.67% -0.74 3.93% 2.56 **CAR(-1,1) 0.14% 0.91 0.24% 1.43 0.34% 1.10 -1.14% -1.59 3.46% 3.45 ***CAR(-2,2) 0.03% 0.28 0.11% 0.83 0.07% 0.27 -0.73% -1.87 * 1.21% 1.55
Irregular32
Irregular314
Increase131
Increase2128
Decrease62
Decrease468
All735
10171All
Same510
Same7261
Determinants of Dividend Announcement Determinants of Dividend Announcement Effects - REITsEffects - REITs
Determinants of Dividend Announcement Determinants of Dividend Announcement Effects - REITsEffects - REITs
Coef. T-Stat P>t Coef. T-Stat P>tTotal Assets 0.00 -1.49 0.00 -1.33Dividend/Share($) 0.00 0.54 0.00 0.22Dividend Increase 0.00 3.83 *** 0.00 5.85 ***Dividend Decrease 0.00 -3.07 *** -0.01 -2.93 ***Cash & Cash Equiv/TA 0.01 -0.23 0.00 0.61LTD/TA 0.00 -2.61 *** -0.01 -2.84 ***Pretax Income/TA 0.02 -1.32 -0.02 -1.52Tobin's Q 0.00 -1.38 0.00 -0.95Property Focus Fixed Effects YES YESYear Fixed Effects YES YESConstant 0.01 1.58 0.00 0.91
REIT-sCAR(-1,0) CAR(-1,1)
Determinants of Dividend Announcement Determinants of Dividend Announcement Effects – non-REITsEffects – non-REITs
Determinants of Dividend Announcement Determinants of Dividend Announcement Effects – non-REITsEffects – non-REITs
Coef. T-Stat P>t Coef. T-Stat P>tTotal Assets 0.00 -0.29 0.00 0.87Dividend/Share($) 0.00 0.17 0.00 1.50Dividend Increase 0.00 1.17 0.00 0.57Dividend Decrease -0.01 -0.96 -0.02 -1.88 *Cash & Cash Equiv/TA 0.05 1.62 0.06 2.36 **LTD/TA 0.03 2.18 ** 0.01 1.49Pretax Income/TA 0.06 1.31 0.05 1.55Tobin's Q -0.01 -2.40 *** 0.00 -1.86 *Property Focus Fixed Effects YES YESYear Fixed Effects YES YESConstant -0.02 -0.84 -0.01 -0.76
CAR(-1,0)Non-REITs
CAR(-1,1)
In SummaryIn SummaryIn SummaryIn Summary We find that although the dollar amount of dividends that REITs pay has increased
over time dividend payout ratio is sensitive to market conditions and is cyclical in nature.
Total dividends by REITs are almost fully explained by the previous period dividends. REITs do not like to change dividends – dividends are sticky Long-term leverage is negatively associated with div. payout
Consistent with findings by Bradley, Capozza, Seguin, 1998 and Hardin and Hill 2008 Pre-tax income is negatively related to excess dividends paid by REITs Higher and less dispersed institutional ownership related to lower total and excess
dividend payout by REITs Capital expenditures are negatively related to excess dividends When REITs do announce dividend changes, there is a significant positive (negative)
price impact associated with dividend increases (decreases) In contrast non-REITs do not observe such significant announcement effects
In addition, leverage adversely affects dividend announcement returns by REITs.
Determinants and Dynamics of Dividend Payouts by REITs
by Milena Petrova, Syracuse UniversityAndrew Spieler, Hofstra University
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