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