خطر دارایی واقعی شرکت های مهمان نوازی: بررسی حساسیت بازگشت سهام به ارزش املاک

The value of a hospitality firm is often believed to be dependent on the market price of the properties they own. However, the core business of a hospitality firm is the production of products and services. Since the real estate assets are depreciated throughout their useful life, short-term covariance of firm value with real estate prices seems implausible. Using a two-factor model, the current study examined the real estate exposure of US hospitality firms through daily stock return data from 2005 to 2009. Results indicate that the majority (88%) of the hospitality firms were exposed to real estate risk at some point during the sample period, while the second-stage analysis of real estate betas suggests that exposure is conditional on the financial status of the hospitality firm. Implications and suggestions for future research are presented with the findings of the study.

Real estate is an essential asset for hospitality businesses. The extent to which a business uses its real estate is directly linked with the production capacity and demand accessibility of all hospitality firms. In order to expand sales, a hospitality firm must increase real estate inputs at a certain point. Further, to tap into remote demand hospitality firms must acquire or lease real estate at the geographic location of interest. Accordingly, many researchers have proposed that the value of hospitality firm is dependent on the value of their properties. For example, Gyourko and Keim (1993) posited that stock returns on vacation and restaurant businesses should be related to real estate returns since the companies own valuable properties. Parrino (1997) argued that Marriott's unfavorable financial status in the 1990s was due to a decline in operating cash flows and a weak market in the properties it owned. Ling and Naranjo (1999) implicitly suggested that returns on hotels and motels are related to property appreciation returns. More recently, Newell and Seabrook (2006) asserted that hotels comprise both a business and a property risk. Formally, the supposition that a hospitality firm's value is correlated with property prices can be interpreted as the firm's exposure to real estate risk. The return series on real estate assets is generally regarded as exhibiting random walk behavior (Kleiman et al., 2002). If the firm value is influenced by random changes in the price of assets it owns the firm would be perceived as susceptible to this specific uncertainty or risk, hence being exposed to the asset price of interest (Adler and Dumas, 1984). With real estate risk exposure, the stock returns of hospitality firms become a function of the real estate return factor, as well as other random return-generating factors. However, as intuitive as the above reasoning may seem a critical question remains. Hospitality firms’ real estate assets are primarily deployed to produce the products and services that constitute their core business and generate recurrent earnings. The acquisition and construction of properties are based on the premise that these book assets will be depreciated throughout their useful life in order to generate cash flow from operating activities (Dalbor and Upneja, 2004 and Upneja and Dalbor, 1999) just as manufacturing firms utilize their property, plant, and equipment. Since hospitality firms have rather long depreciation schedules or lease agreements, temporary (i.e. daily) shifts in property prices do not affect a firm's balance sheet (book value of assets) or income statement (user cost of capital). Thus, a theoretical gap is identified. If the core business of hospitality firms requires the use of real estate as factor inputs, temporary variations in the market price of properties should not affect firm value. Theoretically, a firm could sell its real estate assets if the realization of the sale was more desirable than the expected operating cash flows from utilizing the asset. However, this is not expected to significantly influence firm value, as valuation of the hotel is likely to be made based on the sum of future cash flows it provides through operations (Corgel and deRoos, 1993). Moreover, if hospitality firms do not carry real estate assets with the primary objective of selling them at a profit, firm value should not be systematically related to the market price of these assets. Thus, in an asset-pricing scheme, unexpected returns from property transactions, such as gains from salvage value, are best explained by the abnormal return (alpha) rather than exposure to systematic risk (beta). Meanwhile, the limited empirical evidence to date allows only an inconclusive perspective. Using national data from Singapore, Ong and Yong (2000) found that hotels and restaurants had the highest positive (increasing returns from property appreciation) real estate exposure among non-real estate industries. On the other hand, using U.S. data, Hsieh and Peterson (2000) reported that the lodging industry was not exposed to real estate risk, while the restaurant industry was negatively exposed (decreasing returns from property appreciation). Nevertheless, understanding this prominent risk is important. If the returns on hospitality firms are correlated with property prices, corporate financial managers should take the variations in property prices into consideration, as the firm values would be dependent on the random movements of the real estate market. Furthermore, since real estate risk is likely to be systematic (Tuzel, 2010), valuation by investors and portfolio managers of a firm's capital assets would be dependent on real estate prices. Therefore, this study intends to fill in this theoretical and evidentiary gap by examining hospitality firms’ exposure to real estate risk and the potential determinants of exposure. Specifically, the objectives of this study were to (1) examine individual and time-variant exposure of hospitality firms to real estate risk at the firm-level and (2) test potential determinants of real estate exposure based on hypotheses developed from a review of the previous literature. Implications, limitations, and suggestions for future research are discussed along with the findings of the study.

Real estate risk is a common, non-diversifiable, and macroeconomic risk that is priced in the capital market (Tuzel, 2010). According to Ross's Arbitrage Pricing Theory (1976), such systematic risk should be a return-generating factor. Accordingly, ownership of the capital asset with a greater exposure requires a higher return. While the recent stream of studies has advocated the presence of real estate risk premium in the capital market, the actual evidence is limited and mixed. It offers little insight into the hospitality industry, despite being arguably the most real estate-intensive industry among the various industries that constitute the market. In an attempt to address some of the limitations identified in prior studies and further investigate the real estate exposure of hospitality firms, the current study utilized daily, firm-level data and Jorion's (1990) two-factor model to allow for firm-specific and time-varying real estate exposure. The real estate betas estimated from the two-factor models were collected for a second-stage analysis that matched the coefficients with potential determinants of real estate exposure. The results largely supported our ex ante expectations. Real estate exposure was pervasive among the sampled hospitality firms, highlighted by the large proportion of hospitality firms (88%) that were exposed to real estate risk at some point during the data period. However, no firm was consistently exposed to real estate risk throughout the 5-year horizon. This motivated a second-stage analysis on firm-specific, time-variant determinants of exposure. In the second stage analysis, the conditional nature of real estate exposure was revealed; property prices only affected the hospitality firms’ returns if they were subject to potential asset sales driven by financial or liquidity constraints. The theoretical contribution of this study can be summarized two-fold. First, our results contradict the findings of the past study which reports that return of hospitality industries are not positively exposed to real estate risk. Second, we reveal the conditional nature of real estate risk exposure for hospitality firms. Utilizing daily data to estimate the real estate betas for respective hospitality firms, we found that the majority of stock returns were significantly and positively exposed to real estate returns. This result contradicts Hsieh and Peterson's (2000) argument that hotels and restaurants may not be (or negatively) exposed to real estate risk. The current study also attempted to provide an answer to the conceptual question of whether a firm's stock returns are correlated with real estate returns even though the real estate is a factor input with an extended useful life. In examining possible motivations for real estate transactions by hospitality firms, this study discovered that hospitality firms’ exposure to real estate risk is conditional, and largely related to financial and liquidity constraints. These results have some meaningful implications for the industry, especially for hospitality financial managers. Since hospitality firms that own more real estate risk are perceived as riskier, shareholders are likely to require higher returns. Thus, hospitality firms with a significant portion of their asset portfolio in real estate will be required to provide higher returns than their non-owning counterparts. Equivalently, the capital assets of these firms will be less valuable even if their cash flows are comparable. In this regard, utilization of the sales–leaseback option, off-financing tools, management contracts, or franchise agreements may help increase firm value (Slovin et al., 1990 and Combs et al., 2004), as it would reduce the exposure to real estate risk that would inevitably follow property ownership. Also of importance is the conditional nature of real estate exposure. If a firm's liquidity is maintained and there is no immediate need to liquefy the book assets, the firm's exposure to real estate price decreases; the firm is viewed as less risky, and hence the investors may accept lower returns. In this regard, the joint role of corporate asset and financial managers are important in managing the real estate exposure of hospitality firms by maintaining liquidity and reserve cash. Furthermore, investors and portfolio managers should also manage real estate exposure when constructing their portfolios (Hsieh and Peterson, 2000), either through hedging or diversification. Hedging seems to be of limited value as the means to short-sell real estate assets seems obscure, even though some related approach may be feasible such as using the real estate investment trust securities (REITs) or the interest rate derivative securities to hedge against real estate risk (Hartzell et al., 1987). The firm-level beta results show that although scarce, there may be some gaming and restaurant firms exhibiting a negative covariance with the real estate factor, which allows for a complete hedging of portfolio real estate risk. As real estate risk is likely to be common across industries and firms, these capital assets (REITs, interest rate derivative securities, and all other securities of negative historical covariance with the real estate market) will be of great investment value in mitigating real estate the risk and constructing a mean–variance efficient portfolio. Despite the significance of this study, it is not without limitations. The sample size is limited, and the number of firms traded on a daily basis is even smaller. The time span (one 5-year period) is relatively short as the hospitality firms are frequently listed and delisted in the stock market. For example, the 5-year period starting from January 2000 lacks data on 17 of the firms sampled for current study. Firms reported in the Compustat cannot effectively represent an industry that consists of many small-sized, independent operations. Although numerous studies have found theoretical justification for and evidence of real estate risk, the efforts to empirically estimate real estate exposure cannot completely avoid the complicated effects of greater macroeconomic movements. All capital and real estate markets will be integrated to some extent (Ling and Naranjo, 1999), and suspicion persists that there are unobserved communality and return-generating factors that continue to be difficult to isolate out. In the future, further investigation into real estate risk using different multifactor models, a broad examination of related and other real estate asset-intensive industries, and refined real estate sales price data will all contribute to improvement of understanding on this area. A joint study with exposure to other factor input prices, such as wage and raw materials, would yield meaningful implications for corporate managers, while identification of sectors or firms that allow hedging or diversification of real estate risk will be of great value to investors and portfolio managers. Due to its pivotal role in economic theory and asset pricing, quantifying, diversifying, and hedging real estate risk are important tasks for managers, investors, and researchers alike. Since real estate risk is priced, ignoring the risk implies that the firm or the investor may not be pricing the risk correctly, and hence pursuing a suboptimal strategy for maximizing firm or portfolio value. Although real estate risk is common and pervasive throughout all sectors of the economy, the real-estate intensive nature of the hospitality industry demands further research efforts on this topic.