Global Real Estate Investment Trusts Research Articles

Quantile dependence and asymmetric connectedness between global financial market stress and REIT returns: Evidence from the COVID-19 pandemic

Using daily data for the financial stress index of the US and real estate investment trusts (REITs) returns from February 2, 2020, to January 20, 2022, we investigate the frequency-dependent and asymmetric connectedness between global financial market stress and REIT returns for the top 12 REIT regimes in America, Europe, and Asia. We use a novel asymmetric, noise-reducing-domain EEMD-based quantile connectedness and quantile-on-quantile regression technique and the quantile vector autoregression (QVAR) connectedness approach. The findings divulge that at the upper quantile financial market stress is a major risk transmitter, transmitting risk towards Germany, France, Netherlands, New Zealand, the UK, and Canada. The findings of the study explicate the pivotal role of the financial soundness on the housing market, which is one of the main drivers of the economy. Investors and market participants should observe the conditional state of market dynamics and its associated policies for risk management and diversification strategies in real estate investment.

Quantile connectedness among real estate investment trusts during COVID-19: evidence from the extreme tails of distributions

PurposeGiven the evolving market integration, this study aims to explore the connectedness of 12 real estate investment trusts (REITs) during the COVID-19 period.Design/methodology/approachThe connectedness of 12 REITs was examined by considering three sample periods: full period, COVID peak period and COVID recovery period by using the quantile vector autoregressive (VAR) approach.FindingsThe findings ascertain that REIT markets are sensitive to COVID, revealing significant connectedness during each sample period. The USA and The Netherlands are the major shock transmitters; thus, these countries are relatively better options for the predictive behavior of the rest of the REIT markets. In contrast, Hong Kong and Japan are the least favorable REIT markets with higher shock-receiving potential.Research limitations/implicationsThe study recommends implications for real estate industry agents and investors to evaluate and anticipate the direction of return connectedness at each phase of the pandemic, such that they can incorporate those global REITs less vulnerable to unplanned crises. Apart from these implications, the study is limited to the global REIT markets and only focused on the period of COVID-19, excluding the concept of other financial and health crises.Originality/valueThis study uses a novel approach of the quantile-based VAR to determine the connectedness among REITs. Furthermore, the present work is a pioneer study because it is targeting different time periods of the pandemic. Additionally, the outcomes of the study are valuable for investors, policymakers and portfolio managers to formulate future development strategies and consolidate REITs during the period of crisis.

Exploring a Three-Factor Dependence Structure of Conditional Volatilities: Some Quantile Regression Evidence from Real Estate Investment Trusts

We propose a simple three-factor pricing model, consisting of a local stock market index, a global REIT market index, and a global stock market index, to examine the dependence structure of conditional volatilities in the real estate investment trust (REIT) market from 11 countries over the sample period from 1 June 2008 to 30 April 2021. The main quantile regression results reveal that a simultaneous dependence structure exists between each REIT market and local stock, global REIT market, and global stock market. There is a positive and significant dependence between REITs and three factors for every part of the quantiles. Across each quantile, Asia-Pacific REIT markets have a consistently higher average degree of dependence with their local stock markets than with the global stock and global REIT markets, whereas European REIT markets are generally more globally integrated. Furthermore, the lower and upper quantile estimates for over half of the REIT-quantiles for the three market factors are statistically different. Additionally, some REIT markets display asymmetric co-movement with at least one of the three factors as the degree of dependence increases when these markets are booming, but the dependence level declines when the markets are bearish. This evidence of dependence across the three influential factors and REIT markets provides meaningful insights into REIT market growth, international asset pricing, risk management, and dynamic linkages in the global economy.

Institutional Investors and Home-Biased REITs

Real estate investment trusts (REITs) are frequently considered an investment opportunity for institutional investors due to their above-average returns with respect to other financial instruments. Due to the unique characteristics of the real estate market, geographically specialized (home-biased) REITs can normally benefit from higher-quality information for selecting investment opportunities and from a reduction of the cost of monitoring and servicing asset owners. Home-biased REITs can be particularly appealing for institutional investors because the addition of this type of asset to an already diversified investment portfolio can optimize the risk–return of their investment strategy and mitigate the concentration of real estate investments. This paper considers all the REITs in Standard & Poor’s Global REIT Index and evaluates the percentage of investment released by (domestic and foreign) institutional investors and its change over time. Focusing on REITs’ international real estate exposure, this paper shows that geographical diversification matters for investment decisions made by international investors and the results are robust with respect to the time horizon and the proxy for ownership concentration.

글로벌 상장 리츠의 운용 효율성 추정과 제도효과 연구

This research aims to present a conceptual model on the efficiency of global real estate investment trusts (REITs). Based on Data Envelopment Analysis approach (DEA), output-oriented distance function is used to construct a input/output production frontier that defines best-practice operational technology for the REITs industry. The results suggest that global REITs have experienced discriminative growth between countries and sectors, and scale inefficiencies have consistently maintained for the sample periods. The results also find that size of REITs’s properties (market capitalization) show strong positive relationship with operational efficiency scores which implies that the effect of economies of scale still strongly exits. Lastly, with country comparison analysis, the findings reveal that leverage restriction regimes force to efficient management of REITs through reducing debt and interest expenses.

A truly global crisis? Evidence from contagion dependence across international REIT markets

This study examines the global nature of the recent crisis under bivariate Markov-switching models for pre- and post-crisis periods using the breakpoint of August 9, 2007. It quantifies international synchronization of boom-bust regime switches to investigate contagion-type dynamic comovements of Real Estate Investment Trusts (REITs). Global REIT markets display persistent bust regimes from September 2008 to May 2009, whereas the regime-switching patterns are not significant in the pre-crisis period. The results provide new evidence for global REIT contagion phenomena and suggest greater difficulties in diversifying risks across global REIT markets during the post-crisis period.

Impacts of Water Stress on Physical Assets Using REITs as a Case Study

We find evidence that water stress of physical assets is an additional component of risk for investors. The World Resources Institute (WRI) found that 1 in 5 people are living in areas at high risk of water scarcity. Recently, the WRI Aqueduct 3.0 model provided new data and insights for measuring water stress globally. We leverage this framework to understand the connection between water risk exposure and financial risk using the global Real Estate Investment Trust (REIT) sector as a case study. We first develop a definition of water stress that incorporates changes in water supply and water demand. Next, we geolocate over 84,000 REIT properties and map them to over 590 publicly listed REITs. Finally, we study the impacts of water stress exposure on REIT financial measures. We find evidence that water stress is connected with market risk and financials of REITs. Using WRI water stress projections for 2030, we find that REITs will experience a substantial increase in exposure to water stress.

Combining realized measures to forecast REIT volatility

Purpose This study aims to show that the best-performing realized measures vary across markets when it comes to forecast real estate investment trust (REIT) volatility. This finding provides little guidance for practitioners on which one to use when facing a new market. The authors attempt to fill the hole by seeking a common estimator, which can study for different markets. Design/methodology/approach The authors do so by drawing upon the general forecasting literature, which finds that combinations of individual forecasts often outperform even the best individual forecast. The authors carry out the study by first introducing a number of commonly used realized measures and then considering several different combination strategies. The authors apply all of the individual measures and their different combinations to three major global REIT markets (Australia, UK and US). Findings The findings show that both unconstrained and constrained versions of the regression-based combinations consistently rank among the group of best forecasters across the three markets under study. None of their peers can do it including the three simple combinations and all of the individual measures. The conclusions are robust to the choice of evaluation metrics and of the out-of-sample evaluation periods. Originality/value The study provides practitioners with easy-to-follow insights on how to forecast REIT volatility, that is, use a regression-based combination of individual realized measures. The study has also extended the thin real estate literature on using high-frequency data to examine REIT volatility.

The US Term Structure and Return Volatility in Global REIT Markets

This paper examines the information content of the U.S. term structure of interest rates on the market for real estate investment trusts (REITs) by decomposing the term structure of U.S. Treasury yields into two components that reflect the expectations factor and the maturity premium. We show that the expectations factor component of the U.S yield curve has significant explanatory power over return volatility in REIT stocks, both in the U.S. and globally, even after controlling for stock market trading activity. The expectations factor is generally found to have a positive effect on REIT market volatility, more significantly for the U.S. and Japanese REITs, highlighting the role of global funding conditions (via expected short rates) on return fluctuations in real estate markets. Comparing the findings for the pre- and post-global crisis periods, however, we find that the U.S. term structure has largely lost its explanatory power over global REIT markets, implied by largely insignificant effects during the post-global crisis period. The findings highlight the changing dynamics in REIT investments in the aftermath of the 2018 global credit crunch, possibly due to the slowdown of investments in the real estate sector globally, and suggest that investors will have to focus more on the idiosyncratic risk factors that drive these markets.

Modelling return behaviour of global real estate investment trusts equities

PurposeThis paper aims to contribute to knowledge by investigating the return behaviour of seven global real estate investment trusts (REITs) with respect to the appropriate distributional fit that captures tail and shape characteristics. The study adds to the knowledge of distributional properties of seven global REITs by using the generalised lambda distribution (GLD), which captures fairly well the higher moments of the returns.Design/methodology/approachThis is an empirical study with GLD through three rival methods of fitting tail and shape properties of seven REIT return data from January 2008 to November 2017. A post-Global Financial Crisis (GFC) (from July 2009) period fits from the same methods are juxtaposed for comparison.FindingsThe maximum likelihood estimates outperform the methods of moment matching and quantile matching in terms of goodness-of-fit in line with extant literature; for the post-GFC period as against the full-sample period. All three methods fit better in full-sample period than post-GFC period for all seven countries for the Region 4 support dynamics. Further, USA and Singapore possess the strongest and stronger infinite supports for both time regimes.Research limitations/implicationsThe REITs markets, however, developed, are of wide varied sizes. This makes comparison less than ideal. This is mitigated by a univariate analysis rather than multivariate one.Practical implicationsThis paper is a reminder of the inadequacy of the normal distribution, as well as the mean, variance, skewness and kurtosis measures, in describing distributions of asset returns. Investors and policymakers may look at the location and scale of GLD for decision-making about REITs.Originality/valueThe novelty of this work lies with the data used and the detailed analysis and for the post-GFC sample.

THE IMPACT OF OPERATING ENVIRONMENT FACTORS ON REITS’ DEVELOPMENT AND PERFORMANCE IN NIGERIA

In spite of the decades’ long global acceptance and adoption of the real estate investment trusts (REITs) as a rewarding investment vehicle with dual advantage of liquidity and market stabilisation for real estate, the pace of REIT adoption and development in the Africa continent is low. Perhaps, the growth and performance of African REITs in term of number of firms, capitalisation and return have made Africa REIT not to feature in Global REIT reports. This paper assess the performance of Nigeria REIT (N-REIT) and the influence of the operating environment on N-REIT The study adopted risk adjusted return analysis based on index computation of REITs weekly trading report for the period July 2010 to May 2014 with Nigerian Stock Market All Share Index (ASI) as benchmark. A questionnaire survey was employed for the effect of operating environment on N-REIT performance. The study found that N-REIT underperforms the ASI. The Informal factors of political risk, infrastructure and security risk are contributing factors to low performance and by extension less developed REIT market in Africa. The study recommends transparency in political leadership and African market, infrastructure development and social security for the growth of the REIT regime in the continent.

Investigation into the Relatively Low Uptake of Residential Stock within South African Real Estate Investment Trusts

Since the establishment of the first South African Real Estate Investment Trust (REIT) in 2013, the listed property sector has seen significant growth with a current market capitalisation of R400 billion in comparison to 1998 where the market capitalisation was R5 billion. However, South African REITs invest less in the residential sector when compared to the global REIT market. The purpose of this research was to determine the factors that have attributed to this low uptake of residential stock. This was achieved using a qualitative survey consisting of semi-structured interviews with listed property fund managers and upper management from four REITs listed on the South African stock exchange. The findings indicated a number of factors that have influenced the low uptake of residential stock. These have been identified as the financial performance of residential real estate in South Africa, the nature of residential real estate, and the maturity of the REITs sector in South Africa. These findings make a valuable contribution to the very limited literature on REITs in South Africa. Furthermore, understanding these factors is crucial in further developing the REITs sector in South Africa which has the potential to catalyse broader developments for housing and the economy.

The dynamics of volatility connectedness in international real estate investment trusts

Using a sample of ten real estate investment trusts (REITs) from July 2004 to June 2017, we find a less similar integration process is taking place in the global REIT markets. The local stock market is a major source of REITs’ volatility connectedness shocks in 80 percent of time. Moreover, the REITs’ volatility connectedness effects are crisis-sensitive and decline more quickly than stocks when the crises went off. Finally, we remind investors to pay attention to economic policy uncertainty, interest rate movements, implied volatility and world stock market returns on REITs’ volatility connectivity over time.

The emergence and performance of German REITs

PurposeGerman real estate investment trusts (REITs) are a small but important property investment vehicle in the European REIT landscape, offering German commercial property investment exposure in a liquid format, compared to the more property development-focused German listed property companies and the popular German open-ended property funds. The purpose of this paper is to assess the emergence of the German REIT market and the risk-adjusted performance and portfolio diversification benefits of German REITs in a mixed-asset portfolio over 2007-2015. The post-global financial crisis (GFC) recovery of German REITs is highlighted. Enabling strategies for the ongoing development of the German REIT market are also identified.Design/methodology/approachUsing monthly total returns, the risk-adjusted performance and portfolio diversification benefits of German REITs over 2007-2015 are assessed. Efficient frontier and asset allocation diagrams are used to assess the role of German REITs (and German property companies) in a mixed-asset portfolio. Sub-period analysis is used to assess the post-GFC recovery of German REITs.FindingsGerman REITs delivered lesser risk-adjusted returns compared to German stocks over 2007-2015, with limited portfolio diversification benefits. However, since the GFC, German REITs have delivered strong risk-adjusted returns, but with continued limited portfolio diversification benefits with German stocks. German REITs also out-performed German property companies. Importantly, this sees German REITs as strongly contributing to the German mixed-asset portfolio across the portfolio risk spectrum in the post-GFC environment.Practical implicationsGerman REITs are a small but important market at a local, European and global REIT level. The results highlight the major role of German REITs in a German mixed-asset portfolio in the post-GFC context. The strong risk-adjusted performance of German REITs compared to German stocks sees German REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as many investors (e.g. small pension funds) use German REITs (and German listed property companies) to obtain their German property exposure in a liquid format, as well as the increased importance of blended property portfolios of listed property and direct property.Originality/valueThis paper is the first published empirical research analysis of the risk-adjusted performance of German REITs, and the role of German REITs as a listed property vehicle in a mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision making regarding the strategic role of German REITs in a portfolio.

The international REIT’s time-varying response to the U.S. monetary policy and macroeconomic surprises

International real estate markets and the ever increasing role of the U.S. economic and policy developments have played a central role both in international portfolio management as well as broader economic policy making. In this paper, we measure the extent of time-varying impact of the U.S. monetary policy and macroeconomic news on the international Real Estate Investment Trusts (REITs) stock returns. Results suggest that there has been significant variation both across time and across countries in the impact of U.S. news on the global REIT stocks. Further, the country’s stock market capitalization to GDP ratio has strong connections with the time-varying nature of the impact of the U.S. news on the global REIT stock returns.

Examining the Dynamic Linkages of Performance and Volatility of REIT Returns

This article extends the literature on the financial performance of real estate investment trusts (REITs) by examining whether U.S. REIT returns are impacted by global REITs and other real estate subsectors, such as the U.S. Real Estate Index (USRE) and the U.S. Mortgage Finance Index (USMF). The authors also explore the issue of volatility transmission and the asymmetric effect of volatility spillover on U.S. REIT returns from innovations originating in other real estate subsectors and Global REITs. Results suggest that U.S. REITs are impacted by USRE and USMF returns. There is also evidence of volatility spillover from key real estate constituents—that is, USRE and USFM returns and global REIT markets. These results can be attributed to the changing dynamics of the real estate sector and the gradual integration of the global real estate sector as an asset class. These findings have strong implications for constructing global portfolios including REITs.

The global REIT market: initial-day performance of IPOs

PurposeThis paper aims to investigate whether real estate investment trust (REIT) initial public offerings (IPOs) are exposed to abnormal initial-day performance. Previous studies have predominantly focused on REITs listed in the USA and Australia, only a few studies have utilised a multi-country approach and only one study has used a multi-region approach. This paper adds to the literature by, for a global sample, analysing variables proven important in explaining REIT IPO performance but never used in a global sample before by extending the investigation of initial-day return patterns for new REIT types and by offering the first insights from emerging REIT markets.Design/methodology/approachInitial-day raw and abnormal returns were calculated for a sample of 445 IPOs in 26 countries over the period from 1996 to 2014. The returns were partitioned according to a select set of themes and multiple regression analysis was used to isolate the relationship between the explanatory factors and underpricing.FindingsFor the sample as a whole, the mean initial-day raw return is 3.94 per cent and the mean market-adjusted initial-day return is 4.01 per cent. Even though the initial-day return for a REIT IPO typically is positive, negative mean returns are observed for a few countries and during certain years. Investors should note that for European markets, new property type exhibited a robust positive association with abnormal return, and underwriter reputation exhibited a robust negative relationship with abnormal return.Originality/valueThis paper fulfils the need to test important concepts on global REIT IPO markets.

International Real Estate Review

Real estate investment trusts (REITs) are a niche alternative investment class. Since their introduction in Asia at the turn of the millennium, the REIT market in the region has experienced phenomenal growth. In particular, the Malaysia REIT (M-REIT ) market capitalisation has seen a spectacular growth of close to 20 folds from its inception in 2005 until the end of 2013. This paper chronicles the development of the M-REIT market which is rather unique as it provides a common platform for the existence of both conventional and Islamic REITs. Empirical tests are also conducted to uncover the returns characteristics of the M-REIT market. M-REIT returns are significantly correlated with domestic stock markets but only weakly correlated with changes in interest rate, with long-term proxies having a stronger impact than short-term proxies. The results from a correlation analysis are further confirmed by regression testing which shows that M-REIT returns are most significantly driven by domestic stock market returns while only mildly by changes in interest rates and not significantly driven by returns in regional REIT markets. These findings possibly imply that M-REITs (i) subscribe more to the characteristics of equity than those of bonds, (ii) are not 'pure' yield-play instruments, (iii) are often regarded as long-term investment, and (iv) may not be fully integrated with global and regional REIT markets.

A multivariate analysis of United States and global real estate investment trusts

Using daily data for the period February 2006 to July 2013 we examine the return and volatility linkages between the two main United States REIT sub-sectors and global linkages between the Americas, Europe and the Asia Pacific regions using the BEKK-GARCH and the DCC-GARCH models. We find that there is no evidence of any volatility spillovers between the US sub-sectors. By contrast, we find evidence of volatility spillovers between the Asia Pacific and the Americas, the Asia Pacific and Europe but no spillovers between the United States and Europe. Our results suggest that the REIT market is becoming increasingly globalized and that investors need to consider time varying volatility and correlations across different regions of the world when forming their optimal portfolio-allocations.

English

The global survey of Real Estate Investment Trusts (REITs) has indicated a high performance nature of REIT as an investment vehicle for the real estate sector. Studies have been conducted across the REIT markets of America, Europe and Asia-Pacific with similar result of high income yield to the investors. However, there have been no report of the Africa REIT except South Africa Property Unit Trust and Property Loans Stock that features in the EPRA Global REIT survey. In an attempt to assess performance of Nigeria REIT and bring it to global awareness, this paper investigates the performance of Nigeria REIT (N-REIT) in its 7 years of existence (2007 to 2014) using Malaysia REIT (M-REIT) as a benchmark and possible improvement. The study adopted risk adjustment return analysis of the dividend distribution over the period of the REITs establishment. The study found that Nigeria REIT underperforms the benchmark, Malaysia REIT, both in terms of average return 4.8% and risk adjusted return -6.77% per annum against the Malaysia REIT 7.5% and 2.47% respectively. There is no significant differences in the risk return ratio for the two REITs. The underperformance of the Nigeria REIT suggest that the superior performance of REIT does not apply across all REIT markets, suggesting that differences in REIT structure and features can be a determining factor(s) in investment performance. The study recommends an increased capitalisation, market transparency and external management option for N-REITs performance enhancement. The non-evaluation of multivariate effect of these factors in this study is considered to be a limiting factor. Such study could be a future research focus. Key words: Dividend return, Malaysia, Nigeria, REIT performance, risk adjusted return.