Why do reits engage in open-market repurchases?

We investigate why real estate investment trusts (REITs) still engage in open-market repurchases given the unique 95 percent payout requirement. We provide evidence that the motivations for REITs to repurchase stocks are different from those of unregulated firms found by the existing literature. Ins...

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Bibliographic Details
Published in:Journal of economics and finance 2005-10, Vol.29 (3), p.313-320
Main Authors: Lee, Chuo-Hsuan, Hsieh, Chengo, Peng, Xiaofeng
Format: Article
Language:English
Subjects:
Capital structure
Dilution
Dividends
Earnings per share
Employees
Institutional investments
Open market operations
REITs
Repurchase
Securities buybacks
Stock options
Studies
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Summary:We investigate why real estate investment trusts (REITs) still engage in open-market repurchases given the unique 95 percent payout requirement. We provide evidence that the motivations for REITs to repurchase stocks are different from those of unregulated firms found by the existing literature. Instead of using funds from operations, REITs appear to finance stock repurchases by issuing new debt and/or selling assets and investments. Unlike ordinary corporations, REITs stock repurchases are not motivated by cash distribution, capital structure, and undervalued equity. However, REITs are more likely to buy back stocks when employees own a higher level of stock options. Also, we find that REITs are more likely to buy back stocks when they have a higher institutional ownership and/or inside ownership. [PUBLICATION ABSTRACT]
ISSN:1055-0925
1938-9744
DOI:10.1007/BF02761577