US REIT Internationalization and Firm Value (Real Estate Investment Trust‪)‬

INTRODUCTION U.S. real estate investment has become increasingly competitive in the last few years due to increased capital flows and improving industry fundamentals. Real estate sales to institutional investors, including hedge funds, overseas investors, private equity funds, partnerships, pension funds, and endowments, surged 50 percent in 2004 to $180 billion (PNC Real Estate Finance, 2005). The market capitalization of U.S. Real Estate Investment Trusts (REITs) increased 34% in 2004 to $275 billion as investors were attracted by high dividend yields and stable cash flows (National Association of Real Estate Investment Trusts, 2005). The weakening of the dollar against other western currencies has made U.S. real estate an attractive target for foreign capital (Froot and Stein, 1991). Foreign investment rose 59% in 2003 to $385 million and increased another 11.9% in 2004 to reach $431 million (Association of Foreign Investors in Real Estate, 2004). This increased competitive environment has resulted in high property values and lower returns, making it more difficult for investors to achieve the same returns as in the past.