Journal of Corporate Real Estate Volume 7 Number 4

Corporate real estate and stock performance in the international retail sector
Dirk Brounen*, Gustaf Colliander** and Piet M. A. Eichholtz
*RSM Erasmus University, Department of Financial Management Room F-4.30, P.O. Box 1738, 3000 DR, Rotterdam, The Netherlands, E-mail: dbrounen@rsm.nl, Tel. +31 104082371, Fax. +31 104089017. **Maastrich University, The Netherlands

ABSTRACT Purpose To analyse the effect of corporate real estate ownership on the stock performance of rms active in the international retail sector. Design/methodology/approach A sample of 454 retail companies is separated into three geographical regions and six different subsectors. We measure the corporate real estate holdings using balance sheets information and link these to the risk and return characteristics of the individual rms. Findings We nd that corporate real estate ownership varies greatly across subsectors. This variation is explained by differences in location and customisation demands of real estate. Retailers for which the micro-location of real estate is a critical value driver tend to own more of it. In general, corporate real estate ownership for retail companies is associated with a strong relative performance, which contrasts markedly with the negative performance effects found for other industrial sectors. Research limitations/implications Although we include as many rms as possible in our sample, we are still confronted with sample size limitations while performing sub sample comparisons. Practical implications Our results show how owning real estate instead of renting it will impact the long run protability of retailers. Originality/value Where most of the extending literature focuses on sketching the impact of real estate ownership using theory

and isolated cases, we no offer numerical proof based on a international dataset. Keywords: real performance estate, company

INTRODUCTION Deng and Gyourko (2000) and Brounen and Eichholtz (2004) show empirically that the relative level of corporate real estate ownership depends on the industry in which a company is active. The latter authors postulate two main foundations for the corporate real estate ownership decision. The rst one is the existence of an alternative to ownership. Companies that need highly customised properties and companies active in countries without a well-developed institutional rental market are forced to own the real estate they use. For example, customised industrial plants are not very likely to be available for rent, and emerging economies do not have deep and reliable rental markets, while the business service sector in London can rely on rental ofce space offered by blue chip landlords. The second consideration is whether real estate is a key value driver. If that is the case, property ownership could provide a more optimal level of control than leasing. This

Journal of Corporate Real Estate Vol. 7 No. 4, 2005, pp. 287299. Emerald Group Publishing Limited, 1463001X

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implies that cross-sector differences in real estate ownership are likely to be substantial and that in-depth analysis of corporate real estate ownership and performance effects may provide interesting new insights when done on a sectoral level. The retail sector as a research area is interesting for two reasons. First, it has relatively high corporate real estate levels without the need for very customised properties (Brounen and Eichholtz, 2004). A retailer will often be able to rent a suitable building instead of having to build tailor-made property. On the other hand, real estate is likely to be more directly linked to the core business of retail companies than is the case for other sectors (Gibson and Barkham, 2001). This is because the success of retailers, as measured by oor productivity and protability, is strongly related to the micro-location of their shops. To illustrate the importance of location in a specic retail segment the 2002 annual report of H&M the global clothing and fashion retailer can serve as an example. The heading The Location Crucial for Success can be found in the section regarding corporate strategy. The report states: H&M is always on the lookout for the best business locations for its stores. This has been a rm principle since 1947. To be located in the best shopping streets is of crucial strategic importance for an inow of customers. H&M sees it as an advantage to be close to its competitors, since this is considered to be a pulling factor. The fact that the company is present on the hottest shopping boulevards makes H&M able to prole itself as an up-to-the-minute fashion house. The H&M example suggests that real estate and retail companies are integrated more naturally than is the case for other sectors and, therefore, contrary to such sectors, corporate real estate may have

a benecial impact on the performance of these companies. Ownbey, Davis and Sundel (1994) and Simons (1992) have shown that the success of retailers is indeed highly dependent on the location of their stores. They show that the accessibility and visibility of stores are important determinants for retail sales. Different retail segments have different location needs, with very different prices. Rents in city centers tend to be higher than those in suburban areas, especially if these city centers are attractive high-quality shopping locations. Nourse (1990) argues that it may be best to own real estate in such real estate markets, with their limited supply, to avoid continuous competition for highly desired locations. This implies that in segments with strong competition for real estate locations, companies should have more desire to purchase real estate in order to secure space in the right place. This argument is strengthened when retailers have a need to shape stores to t the tastes of their targeted clientele. Making the investments associated with that in a rented property could lead to a hold-up situation when the rental contract expires, giving the landlord an unwanted advantage in the subsequent rent negotiations. This paper aims to shed more empirical light on these issues. The key goals of the paper are to document trends in corporate real estate ownership for retail companies worldwide, and to investigate real estates impact on the risk and return of these companies. We base the analysis on a group of 454 retailers from all over the world. To investigate these issues we organise our study in the following way. After a review of the most relevant literature, we discuss our international data concerning corporate property ownership and present our methodological approach. We will then provide the empirical results. The

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paper will be nalised with summarising conclusions.

LITERATURE REVIEW According to Rodriguez and Sirmans (1996) real estate accounts for around 2540 per cent of total corporate assets. The level of property is however strongly dependent on a companys industry and country. A recent study by DTZ (2003) estimates that approximately 70 per cent of businesses in Europe own real estate. This is very high compared to the United States, where only 30 per cent of the companies own buildings. The sum value of corporate real estate in Germany, France and United Kingdom is estimated to equal e1000 billion, e700 billion and e710 billion, respectively, while the market capitalisation of the institutional property portfolios in these countries are e117 billion, e92 billion and e226 billion.1 Although signicant resources are invested in corporate real estate, empirical evidence suggests that corporate real estate is not managed very efciently. Farragher (1984) reports that half of the rms responding to a survey he conducted did not assess risk associated with their real estate. Of all rms surveyed, 60 per cent did not evaluate real estate performance separately from that of the rest of the rm, despite the fact that real estate has a different risk/return prole than other corporate assets (Han and Liang, 1995). Jensen and Meckling (1976) propose that separation between ownership and control gives managers the opportunity to spend corporate resources and cash ows on negative present value projects. It is possible that managers choose to buy buildings more for their own convenience rather than for shareholder value maximisation. An ofce located on the best spot of the city center, where rents and

prices are highest, may be preferable to maximise shareholder value, but may also be chosen because of its status value for the CEO. Alli, Ramirez and Young (1991) show that agency costs occur in headquarter relocations. They report different stock market reactions to such relocations, depending on the reasons to move. For example, if the incentive for reallocation is cost saving, the news is associated with a positive stock price reaction. If there are non-explainable reasons, the effect is negative. This suggests that active and rational corporate real estate management would be benecial to create shareholder value. Deng and Gyourko (2000), Seiler, Chatrath and Webb (2001), Brounen and Eichholtz (2004), and Liow (2004) all investigate corporate property ownership levels and performance effects. Corporate real estate ownership appears to have signicantly decreased over time, and varies across industries. Furthermore, these authors report that real estate generally has a negative inuence on risk and on risk-adjusted performance, but this relationship also differs across industries. Finally, Brounen and Eichholtz (2004) document that food stores are associated with high corporate real estate levels, probably due to the fact that real estate constitutes a vital strategic asset in this sector. Many researchers have argued the advantages and disadvantages of buying versus leasing property. Manning (1991) reviews much of the existing work, and suggests that there is a trend towards corporate leases with equity residual interests. Ebert (1987) suggests that leasing is more costly than ownership for large companies due to major corporations ability to borrow at low rates. However Ebert concedes that leasing may be benecial since it can offer time and size exibility. His work suggests

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that leasing and debt nancing should be considered substitutes. On average, however, corporate decisions to lease have been well received by the capital markets (Rodriguez and Sirmans, 1996). Slovin, Sushka and Polonchek (1990) and Rutherford (1990, 1992) document positive price reactions to the announcement of sale-leasebacks of corporate real estate. These ndings are consistent with Nourses (1994), who concludes that rms that lease instead of own property tend to link their property decisions more to corporate strategy. This is a clear sign that the nancial markets appreciate management efforts to approve real estate efciency. When reviewing the corporate real estate literature one must conclude that corporate real estate strategies have mainly been analysed on a macro level, but that sector-specic studies are rare. Gibson and Barkham (2001) made several interesting observations about real estate strategies in the retail sector. They undertook an investigation of 100 large retail companies. One of their reasons for investigating retail companies was the notion that real estate may be more strongly related to the core business in the retail sector than in other sectors. The strategic location of a store is considered of major importance in most retail segments. Therefore, Gibson and Barkham argue that retail property has a direct inuence on organisation and business performance in retail. However, their research was of a qualitative and exploratory nature. Our paper builds on their analysis, and complements it with a quantitative performance study.
DATA AND METHODOLOGY The database covers 454 retail companies from all over the world distributed across six different retail segments (Table 1). An international sample is chosen to gather a

sample of retailers large enough to enable drawing meaningful inferences and spotting international differences in the corporate real estate climate. Balance sheet and share price information about these companies was taken from Compustat Global Vantage, provided by Standard and Poors. The items gathered were PPE2 (Property Plant and Equipment), Total Assets, Total Debt, Market Value (number of shares times value of shares), Beta and Market Return. To measure companies performance and calculate abnormal returns, we employ indices of total stock returns from Morgan Stanley Capital International (MSCI).3 The risk-free rate was taken from one-month government t-bills. This paper uses Brounen and Eichholtzs Corporate Real Estate Ratio (CRER). This ratio is computed by dividing PPE by total assets. PPE/Total Assets CRER (1)

The CRER ratio will enable a comparison between sectors, years and also locations in the world. The PPE and Total Assets are both based on book values to eliminate bias of the estimated CRER. The PPE data was collected for 5 years: 1993, 1995, 1998, 2000 and 2002 to be able to spot possible trends during this period. To analyse differences in real estate ownership across different retail segments, we divide the sector into 6 narrow segments. Businesses in each of these segments have different property needs, in terms of quantity, physical nature and location, which should have an inuence on the value and amount of real estate the rms have acquired. The segmentation is done by SIC code classication from Standard and Poors Compustat (see Appendix). Since the segments are quite narrowly dened, we could not disaggregate the geographical regions to the

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Table 1:

Number of companies by segment and region

Asia 75 17 34 31 28 29 214 Europe 29 18 12 10 21 16 106 America 27 30 18 27 21 11 134 Total 131 65 64 68 70 56 454

Segment/Region Food Stores Clothing stores Furniture stores Mixed stores Non store Vehicle stores Total Sample

Firms have been classified in industry-segments according to their primary SIC-code. Please see appendix 1 for a full discussion of these classifications

country level while maintaining sufcient amounts of companies for each region and segment. That is why we distinguish the following three major areas: Asia Pacic, North America and Europe. Stock returns are calculated by using a single index model. This model is quantied by using historical returns as well as risk characteristics in the following equation: Ri,t Rft
i,t i,t i,t

(Rmt

Rft) (2)

In this equation Ri,t represents the average return of the stock i during the period t, Rft is the risk free rate over period t, i,t denotes the systematic risk for the stock and is the movement of the stock price of company i in comparison with the national stock market. Rmt is the national market return over period t. i,t is Jensens alpha, denoting the difference between the mean total return owned by the stock and the equilibrium return that the stock should have earned, given its systematic risk. In the last part of our analysis both beta and abnormal returns (alpha) will serve as dependent variables in two different models. Beta and CRER are likely to be

related in a negative way due to the fact that real estate generally has low systematic risk compared to other industries. It is also possible that low-risk companies tend to buy more real estate, since they can borrow money at lower rates. To test this relationship, CRER will be correlated against debt to see if there is a relationship, and debt is included as a control variable in the multivariate model. Size is also added, because it is generally known that large companies can borrow money cheaper as they are considered less risky. The least square models will look as follows.
segment

1CRER America 3Asia CRER*America 4 5CRER*Asia 2 1CRER Debt ratio

(3)

segment

c
2

log Size (4)

segment

1CRER America 3Asia 4CRER*America 5CRER*Asia 2 1CRER Debt ratio

(5)

segment

c
2

log Size (6)

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EMPIRICAL RESULTS Corporate real estate results The rst analysis regarding the corporate real estate levels in the separate retail segments is a trend analysis over the period 19932002. The corporate real estate ownership ratios reported in the bottom row of Table 2 do not show any general trend, either positive or negative. There are some slight changes over the years but they are not statistically signicant. One could say that the total retail average CRER has been very stable over the decade. The only sectors for which changing property ownership can be documented are Vehicle Stores and Non Store retailers, which both follow a negative trend in CRER over the period. They have decreased from, respectively, 0.40 to 0.33 and 0.24 to 0.21. This can perhaps be explained by the earlier assumption that these shops are less location-dependent than for example clothing shops and therefore nd it easier to rent instead of own. For the other retail segments, where competitive business advantage and real estate are more intertwined, no negative ownership trend is visible. This might be explained by the fact that these companies secure

good locations by purchasing real estate in markets with very limited supply and are reluctant to sell these assets for fear of losing control over these locations. In other words, retail companies, and especially the ones for which location matters, seem to go against the global trend of less property ownership reported in the literature. Table 3 shows the differences in corporate real estate ownership levels, both regionally and between the six retail segments. As mentioned earlier, the geographical areas are rather roughly dened to be able to get a sufcient amount of data for each region and segment. Some of the countries in the same regions are very different in nature and can therefore be presumed to have different CRER levels. Thus, this analysis will not determine exactly which countries have high or low CRER levels. It will still be possible to draw the conclusion that countries have different CRER levels, due to regional differences in CRER levels. Judging from Table 3, the geographical regions differ in average corporate property ownership, especially if the segments are looked upon separately. This is due to many factors, such as differences in corporate real estate struc-

Table 2: Average CRER levels per year and per segment

Segment/Year Food Stores Clothing Stores Furniture Stores Mixed Stores Non Store retailers Vehicle Stores Total sample 1993 0,45 0,27 0,27 0,25 0,24 0,40 0,31 1995 0,47 0,28 0,28 0,26 0,25 0,36 0,32 1998 0,45 0,26 0,27 0,27 0,21 0,34 0,30 2000 0,45 0,28 0,25 0,26 0,20 0,33 0,30 2002 0,45 0,28 0,26 0,24 0,21 0,33 0,29 Average 0,45 0,27 0,26 0,25 0,22 0,35 0,30

Firms have been classified in industry-segments according to their primary SIC-code. Please see appendix 1 for a full discussion of these classifications.The Corporate Real Estate Ratio (CRER) is calculated as the book value of property, plant and equipment as percentage of the total assets.

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Table 3: Average CRER 19992002 per segment and per region

Segment/Region Food Stores Clothing Stores Furniture Stores Mixed Stores Non Store Retailers Vehicle Stores Total Sample Asia 0,45 0,19 0,24 0,28 0,24 0,34 0,29 Europe 0,45 0,31 0,24 0,28 0,13 0,33 0,29 America 0,50 0,33 0,28 0,25 0,21 0,35 0,32 Average 0,47 0,28 0,26 0,27 0,19 0,34 0,30

Firms have been classified in industry-segments according to their primary SIC-code. Please see appendix 1 for a full discussion of these classifications.The Corporate Real Estate Ratio (CRER) is calculated as the book value of property, plant and equipment as percentage of the total assets.

ture traditions, real estate tax law differences, development rental markets, presence of REITs and other institutional property investors, and the general corporate real estate climate. The segments have very different CRER levels, even though all going under the same ag as retailers. The differences in average CRER are all signicant at a 5 per cent condence level. Food stores have the absolute highest level of real estate on the balance sheet with a 0.47 CRER average. This can presumably be caused by the fact that they are very dependent on the specic features of the concerning corporate real estate. It has to be in the right place and of the right size. Where non-food stores tend to cluster in central, higher order centers with more established rental sectors, food stores tend to repel each other and locate in lower order centers where renting space is less of an option. That is why food store managers want to have as much control as possible over this very strategic asset. The high CRER value could also be explained by large values of equipment in the Food Stores. Not surprisingly the Non Store segment exhibits the lowest CRER levels of all the segments with CRER of only 0.19. This suggests that real estate is not a strategic asset in this segment, implying less need

for the tight control that ownership provides. Non-store retailers probably consider real estate more as a necessary cost to support the core business, since most sales are completed electronically or via mail order instead of in a shop. Therefore, these companies will try to rent buildings to avoid unnecessary real estate management costs, while the micro-location of these buildings is of secondary importance only. For now, our main conclusion is that different retail segments have very different degrees of corporate real estate ownership. The strategic importance of corporate real estate seems to be of importance when making ownership decisions. The higher the strategic importance, the more likely it is that a rm will purchase real estate in order to gain control. This notion is supported by the fact that falling CRER levels were detected in the Vehicle and Non Store segments, where strategic location of real estate seems to be least important. Also international differences are seen among the CRER levels, depending on differences between countries in the corporate real estate market structure.
Risk and return The next step is to dene risk and return for the six different retail segments. In

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Table 4 the historical performance of these segments is related to the national index of the companies. This enables insight in the risk and return prole of the segments. As can be noticed, the average equity betas vary quite signicantly from one another. Food retailers have the absolute lowest average beta of 0.37. This can be explained by the fact the demand for basic needs like food is less sensitive to movements in the business cycle. It is also interesting that food stores have the lowest beta and at the same time the highest CRER level. This is in accordance with the earlier assumption concerning the relation between the systematic risk and the level of real estate ownership. This assumption is also supported by the fact that non-store retailers exhibit the highest beta of 1.09, while having the lowest average CRER level. This can be explained by the fact that non-store retailers sell less basic goods and are likely to be more sensitive to market movements. Clothing has a relatively high beta, while still having a quite high real estate ratio. This may be because the sales of fashion clothing are dependent on the overall economy, while real estate is an important strategic asset for clothing stores. The average annual returns in Table 4 also show strong variations across the different retail segments.
Table 4: Average Betas and Returns
Segments Food stores Clothing stores Furniture stores Mixed stores Non store retailers Vehicle stores Average Return 4% 8% 1% 10% 9% 16%

Interaction results We regress average stock returns on CRER values to investigate if a relationship exists. Before that, however, we control for the variation in debt ratios and company size. These relationships are analysed because most corporate real estate is nanced with debt and therefore one can assume a positive relationship between debt and CRER. Added to that is the fact that larger rms may borrow money cheaper, which leads us to believe that a positive relationship exists between the size of the company and CRER. Table 5 does not show a clear association between leverage and the CRER level. This relation can thus not be supported in the retail sector. Some of the correlations are even negative, although none is statistically signicant at a 5 per cent condence level. One explanation is that larger rms buy more real estate, which offsets the relation between debt ratios and CRERs. Much more convincing is the inuence of size on real estate ownership. The total CRER-log size coefcient is both positive and signicant at a 5 per cent condence level. Due to a lower risk it is logical that the larger rms, to nance real estate purchases, get easier access to cheaper capital in comparison to their smaller peers. Another explanation for

Average Beta 0,37 0,82 0,99 0,73 1,09 0,66

The average return is computed as the arithmetic average Total Returns through the whole period of January 1999-December 2002.The Beta is computed as the average equity Beta of each segment from the local stock markets between 1999 and 2002.

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Table 5:
Segments

Univariate regression coefficients between Debt and Size with CRER

CRER-DR 0,00 0,02 0,02 0,04 0,01 0,04 0,04 Prob. 0,65 0,14 0,17 0,13 0,49 0,16 0,03 CRER-log Size 0,79 0,96 0,64 0,64 0,60 1,17 0,43 Prob. 0,01 0,13 0,44 0,50 0,52 0,21 0,53

Total sample Food Stores Clothing Stores Furniture Stores Mixed Stores Non Store retailers Vehicle Stores

DR or Debt Ratio is Total Debt divided by Equity Value (the shares outstanding times Share Price). Size is the number of shares times Share Price in log form.The average of 19992002 is used to eliminate survivorship bias. CRER is the property plant and equipment divided by total assets.

the positive relationship can be that only larger rms can afford the specic management knowledge that is necessary to own corporate real estate. Table 6 shows the correlation of CRER with the average annual return. The result is a statistically signicant positive relationship between CRER and return over the whole sample. Consistent with previous ndings, the segments deviate a lot from each other. The general trend is positive, however, indicating that ownership has a positive inuence on stock performance in the retail sector. Previous ndings have been leaning more towards a negative performance association with corporate real estate ownership. The retail segment appears to be an exception, with
Table 6:
Segments Total sample Food stores Cloth stores Furniture stores Mixed stores Non store retailer Vehicle stores

its positive relationship between CRER and return, probably because of the business dependency on store location. This makes real estate with its close relationship to the core business a strategic asset for retailers. Real estate ownership can create a competitive advantage, conrming the arguments of Gibson and Barkham (2001). This positive relationship between return and CRER can also be interpreted as evidence of the successful vertical integration with positive synergies proposed by Nourse (1990). Off course, we should interpret these results with caution since our sample period does not include a severe recession. Hence, our results may well be inuenced by the boom that has

Univariate regression coefficients between CRER and average return

Coefficient 0,18 0,05 0,17 1,37 -0,07 0,64 0,16 Prob 0,03 0,71 0,54 0,00 0,77 0,05 0,49

Return is the arithmetic average yearly return from 1999 through December 2002. CRER is the property plant and equipment divided by total assets.

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taken place in both the consumer and property market. For a comprehensive analysis of corporate real estates impact on risk and return, we need to run multivariate regressions, in which we can control for the impact of other variables. The least square regression we propose is based on a cross sectional analysis. We include geographic dummies to control for differences in the CRER-Beta and CRERAlpha relationship across regions. Besides that, we add leverage and size as further control variables to the model. In our earlier analysis we did not nd a signicant relationship between debt and corporate real estate ownership in the retail sector, but leverage and size have been shown to be important performance drivers in the literature. The regression results are presented in Table 7. The rst two columns report results concerning corporate real estates inuence on corporate outperformance. We nd a signicantly positive relationship for both model specications. With respect to the cross sectional variation in outperformance we nd that Jensens alpha for U.S. retailers signicantly exceed those of their European counterparts, but
Table 7: Multivariate Regression Results
Jensen's alpha Model (3) Intercept CRER America Asia CRER*America CRER*Asia Debt ratio Log Size R-squared adjusted 0,12** (0,04) 0,27** (0,09) 0,16* (0,05) 0,05 (0,48) 0,30 (0,19) 0,02 (0,91) 0,01

the inuence of corporate real estate on this alpha is similar for each continent.4 The absence of signicant international variation in our result corresponds with previous evidence of Brounen and Eichholtz (2004). The last part of this analysis is that of corporate real estate ownership in relation to systematic risk. The regression results are reported in the last two columns of Table 7. When considering the total sample we discover a strong signicantly negative relationship between Beta and CRER in the total retail sector. Comparing the variable CRER with size and leverage, it can be noticed that CRER has a larger inuence on risk than the former two. This relation also differs in strength between the segments. Again, these sector-specic results strongly corroborate with earlier ndings and beliefs, offering support for the notion that corporate real estate may no longer be ignored.
CONCLUSIONS This paper investigates the impact of corporate real ownership on the performance of 454 publicly listed retail

Model (4) 0,03 (0,53) 0,20** (0,02) 0,03** (0,01) 0,00 (0,93) 0,02

Equity beta Model (5) 0,81*** (0,00) 0,78** (0,03) 0,53** (0,01) 0,08 (0,62) 0,20 (0,71) 0,10 (0,82) 0,10

Model (6) 1,16*** (0,00) 0,82*** (0,00) 0,03 (0,40) 0,05 (0,15) 0,04

The p-values of coefficients are presented between brackets, coefficients marked with *, **, *** are statistically significant at 10%, 5% and 1% confidence level, respectively.

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companies from around the world. The available corporate real estate literature documents a general negative relationship between corporate real estate ownership and risk and return in general, but at the same time this relationship varies strongly across industries, with retail likely to be a sector where real estate is closely integrated with the core business. This is because retailers are highly dependent on the location of their stores for sales. We took a next step in this research area by empirically investigating the issue of corporate real estate ownership and performance for retail companies belonging to six different segments and originating from three different regions. Within the retail industry no signicant trends were noticed when analysing real estate ownership levels over time. When considering the retail segments separately, however, we documented a sharp decrease in real estate levels in the vehicle and non-store segments, between 1993 and 2002. This might be explained by the fact that location is of less strategic importance in these two segments. The segments differ signicantly in real estate ownership levels, with the highest being food stores, and the lowest non-store retailers, respectively 0.45 and 0.19. The assumption explaining this is that segments with more specic property demands, requiring the customisation of the real estate they use, tend to own more corporate real estate than other segments. We also detect differences in real estate levels across geographical regions. It could, however, not be proven that the inuence of corporate real estate inuences risk and return differently between the dened regions. Systematic risk was proven to have a signicant negative relationship with the CRER levels in the total sample. This relation had different magnitudes, dependent on the segments. Risk and CRER have a negative relationship, be-

cause real estate has a lower risk than retailers in general. In the total sample the risk-adjusted return had a signicantly positive correlation coefcient with the CRER levels. This relationship also differed between the segments, but most of the reported correlation coefcients were positive, explained by the assumption that the core business of real estate is highly dependent on real estate for success. This leads to a successful integration between corporate real estate and retail, creating shareholder value.
NOTES (1) IPD provides market values for the national IPD indices for Germany, France and the United Kingdom, and also give estimates for the market coverage of these indices. In December 2002, the German index had a market value of e35 billion, with a coverage of 30 per cent; the French index had a e52.5 billion market value, with a coverage of 57 per cent; and the British index had a market value of e145 billion, with a coverage of 67 per cent. (2) Property Plant and Equipment represents the net cost or valuation of tangible xed property used in the production of revenue. This item is a component of Assets Total/Liabilities and Shareholders Equity Total. Including 1 Fixed Assets (Tangible) Assets for Lease. 2 Fixed Assets (Tangible) Buildings. 3 Fixed Assets (Tangible) Equipment and Other. 4 Fixed Assets (Tangible) Property. 5 Depreciation and Amortization (Accumulated). 6 Investment Grants and Other Deductions. (3) Indexes used for risk adjustment are MSCI EUROPE Total Return Index, MSCI WORLD Total Return Index, and MSCI AMERICAS Total Return Index. (4) We also estimated equations for each retail-segment separately and found the same set of conclusions.

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APPENDIX 1 The retail segments 1. Food stores, SIC code 5400-5499, is one of the largest and most basic retailer groups. It is a retailer whereby the loca-

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tion of the store is crucial, since customers have to be able to shop from a reasonable distance from their homes on a regular basis. Thus, competition for these strategically located spots is likely to be erce. Another specication of food stores is that they need large spaces, which decreases options when deciding a store location. 2. Clothing and fashion stores, sic code 56105699, is also a large retailer group where location has a large inuence but for a somewhat different reason than in the food store sector. In the clothing sector, including shoe stores, it is considered to be important to be located on the hottest spot in the middle of trendy city areas, where many customers can be expected, thus high real estate prices. 3. Furniture and home decoration stores, SIC code 5700-5736, is a group of stores that can both be located in city centers but are equally often situated a short distance from the center along main roads, such as IKEA. These are stores where the location seems to have less importance than clothing and supermarket stores and therefore they are often located in less expensive suburban areas.

4. Mixed stores, SIC code 5910-5949, is the remainder of the shops, which could not be put in one of the larger segments. It ranges from bookshops to opticians and it can be dened as a sample of shops from an ordinary shopping area. The location is obviously of different importance dependent on what exactly the shop is selling. It is worthwhile mentioning that most of these shops benet from being in an area where many other shops of this nature are located, which means, in the shopping street of a city or a shopping mall etc. 5. Non-Store retailers, SIC code 5960-5999, is a group that mainly focuses on post order and delivery instead of selling directly in shops. In this segment it seems that the location is of least importance, compared to the segments mentioned so far. The only argument to why the location might be of importance is a distribution one. 6. Motor and vehicle stores, sic code 55005599, represents the shops selling vehicles driven by motor, with the largest group being car dealers. These shops are often located outside the city where they can acquire large space relatively cheap.

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