Real Estate Ownership, Leasing Intensity, and Value:
Do Stock Returns Reflect a Firm’s Real Estate
David C. Ling
Published online: 21 September 2010
Springer Science+Business Media, LLC 2010
Abstract Little is known about the effects of real estate ownership and leasing on
the stock return characteristics of public firms. In this study, we first examine the
sensitivity of retail firm returns to a real estate factor over the period 1998–2008.
The retail industry is chosen because of the significant use of real estate in a typical
retail firm’s production function. Consistent with our expectations, retail stocks
exhibit positive real estate risk exposure, even after controlling for sensitivity to
general market risk as well as other standard risk factors. The second part of our
analysis examines whether the intensity of real estate ownership and the use of off-
balance operating leases to finance real property holdings are reflected in the market
and real estate betas of retail stocks. We find that greater use of off-balance sheet
operating leases is associated with higher market betas. In fact, the use of operating
leases appears to have a larger impact on sensitivity to market risk than does the use
of on-balance sheet debt. Our findings also confirm our hypothesis that real estate
intensive firms display significantly greater exposure to a real estate factor.
Moreover, our results strongly suggest that investors are fully aware of the risk
associated with off-balance sheet operating leases.
Real estate exposure
Off-balance sheet financing
Real property is a significant component of the production function of many non-
real estate firms. Roulac (2003) estimates that the book value of real property owned
by non-real estate corporations was approximately $8.6 trillion in the early 2000s.
Moreover, $3.2 trillion of this total represents “core” (i.e., non-specialized) business
J Real Estate Finan Econ (2012) 44:184–202
D. C. Ling (*)
Department of Finance, Insurance, and Real Estate, Hough Graduate School of Business,
University of Florida, Gainesville, FL 32611-7168, USA