Performance of hotel real estate investment trusts: a comparative analysis of Jensen indexes

Abstract

This empirical study investigated the performance of hotel real estate investment trusts (REITs) over the 1993–1999 period in comparison with the overall market and six other REIT sectors. The Jensen Index was employed to measure the performance of each REIT sector relative to the market portfolio. A one-way analysis of variance (ANOVA) was conducted and the Tukey multiple comparison method was used to enable performance comparisons across the REIT sectors. The results indicate that hotel REITs carried the highest market risk as compared to other REIT sectors. The risk-adjusted return of hotel REITs was in line with that of the overall market. Moreover, as a portfolio, the hotel REIT sector underperformed office, industrial, and diversified REIT sector. In terms of individual stock performance, the average performance of hotel REITs was inferior to those of office, industrial, residential, and diversified REITs. These findings suggest that a conservative growth strategy accompanied by an internally oriented financing policy may help lower hotel REITs’ risk and improve their return, thus improving their risk-adjusted performance.