Performance Of Real Estate Investment Trusts Research Articles

Navigating Real Estate Investment Trust Performance Dynamics: The Role of Style (Equity vs. Mortgage Real Estate Investment Trusts) and Diversification Amidst the COVID-19 Pandemic

In this paper, we investigate the impact of COVID-19 on different performance measures and the risk of US Real Estate Investment Trusts (REITs) with different styles. Our findings suggest a phenomenon with compelling evidence of reduced performance without any significant changes in risk profile amidst the COVID-19 pandemic. Particularly, mortgage REITs (MREITs) appear to be more adversely affected compared to equity REITs (EREITs). We further explore and analyze the performance of specialized REITs in contrast to diversified REITs in the distinctive conditions presented by COVID-19. We find that diversification creates value for the entire sample period, whereas, during the COVID-19 pandemic, property type specialization helps, although the results are weakly significant. The findings on risk suggest investors’ short-run outlook on market reaction. These results remain robust to additional tests. The implications provide insight for investors as a reference to reallocate assets in their portfolios during uncertain times.

Market context matters: the impact of corporate diversification on REIT performance in Malaysia and Singapore

PurposeThis study aims to investigate the impact of corporate diversification and growth opportunities on the performance of real estate investment trusts (REIT) in Malaysia and Singapore before and during the pandemic.Design/methodology/approachThe sample consists of 33 public-listed REITs across Singapore and Malaysia. A dynamic panel system generalized method of moments (DPS-GMM) estimation is used to account for unobservable factors and a relatively short sample period (2009–2022).FindingsResults indicate that the impact of diversification is contingent on the market where the REIT is based and other institutional factors. The estimates also show that diversified REITs are better able to weather period of economic uncertainty.Practical implicationsWe provided a definitive answer as to why corporate diversification leads to conflicting outcomes – market and institutional factors, strategic intent and the overall economic environment. We also show that the impact of typical firm controls (i.e. free cash, size) can differ. Future firm-level work should thus study similar phenomenon more contextually and carefully consider these varying effects.Originality/valueThe literature is divided on the impact of diversification on firm performance. By using a two-country sample, we show conclusive evidence that this contradictory outcome is due to market and institutional factors. We also show evidence that strategic intent is an important factor that influences the outcomes of diversification, regardless of market. We also infer that excess cash aids the resilience of the firm, contrary to the negative perception of excess cash during normal times. Firm size, in contrast, does not contribute to firm performance during a crisis.

REIT Leverage Puzzle

Real Estate Investment Trusts (REITs) utilize significant financial leverage, with a typical REIT employing around 40 percent of debt financing. For non-taxable entities like REITs, the absence of tax benefits raises questions about the optimal level of financial leverage. This study explores the effects of leverage on shareholder returns in REITs and provides empirical evidence supporting the trade-off theory of capital structure. Our findings indicate that some REITs may have reached their optimal level of financial leverage, beyond which the marginal benefit diminishes. Additionally, the study reveals that high leverage can create agency conflicts between managers and shareholders, leading to a market penalty on REITs with excessive financial leverage. Importantly, we also find that the impact of financial leverage on REIT performance varies depending on the economic context, showing divergent trends pre- and post-financial crisis and during the COVID-19 pandemic recovery phase. The implications of these findings are critical for understanding REITs’ governance and financial management.

A fuzzy model for financial performance measurement of real estate investment trusts: comparison of investment areas

PurposeThis study aims to present the financial performance of companies and investment areas in the real estate investment trust (REIT) industry.Design/methodology/approachA fuzzy model for financial performance measurement (FM-FPM) was proposed through the collaboration of fuzzy axiomatic design (FAD) and fuzzy entropy weighting (FEW). For the data, financial ratios were used, and their importance and functional requirements were collected via a questionnaire survey.FindingsThe FM-FPM is a beneficial model to be used for a REIT industry based on the structured procedures of FAD and FEW techniques. It can be suitable to regularly evaluate the performance of REITs and their investment areas in financial means, especially in today’s turbulent business environment. The Turkish market that was considered to show the practical applicability of the FM-FPM demonstrated specifically that diversified real estate was found to rank first, followed by mixed-buildings, warehouses, shopping malls and hotels, respectively.Research limitations/implicationsThe FM-FPM can be employed for REIT industries in other countries and adapted to different industries. However, more respondents or a different set of criteria might lead to different outputs.Practical implicationsThe FM-FPM may guide REIT managers and investors while making their decisions and controlling the performance of REITs and investment areas.Social implicationsThe FM-FPM may encourage low- and middle-income investors to make good use of their savings.Originality/valueThe research is first (1) to offer a FPM model in order to determine investable areas in a REIT industry and (2) to employ multiple criteria decision-making tools in order to measure the financial performance of individual companies and investment areas in a REIT industry.

Predicting the returns of the US real estate investment trust market: evidence from the group method of data handling neural network

PurposeThe Group Method of Data Handling (GMDH) neural network has demonstrated good performance in data mining, prediction, and optimization. Scholars have used it to forecast stock and real estate investment trust (REIT) returns in some countries and region, but not in the United States (US) REIT market. The primary goal of this study is to predict the US REIT market using GMDH and then compare its accuracy with that derived from the traditional prediction method.Design/methodology/approachTo forecast the return on the US REIT index, this study used the GMDH neural network and the generalized autoregressive conditional heteroscedasticity (GARCH) model. In this test, the training samples, testing samples, and kernel functions of the GMDH model are controlled to investigate their impact on the accuracy of the machine learning approach. Corresponding experiments were performed using the GARCH model, and the accuracies of these two approaches were compared.FindingsCompared with GARCH, GMDH’s accuracy is much higher, indicating that the machine learning approach can provide a highly accurate prediction of REIT prices. The size of the training samples and the kernel functions in the GMDH model affect the accuracy of the prediction results. In particular, the kernel function has a significant impact on prediction accuracy. The linear and linear covariance kernel functions are simple to train and yield accurate predictions, whereas the quadratic function is difficult to train. Even with small training samples, GMDH can outperform GARCH in prediction accuracy.Research limitations/implicationsAlthough GMDH shows good performance in predicting the US REIT return, it is still a black-box model, and the algorithm is difficult for financial analysts to develop and customize. The data used in this study come from the US REIT market, which is the world’s largest and most liquid market.Social implicationsThis research shows that the GMDH model outperforms the GARCH model in forecasting REIT returns. Hence, investors can use the machine learning approach to make more accurate predictions of the target REITs’ returns and thus better investment decisions. Future investors and researchers may use GMDH to forecast the performance of REITs in other markets.Originality/valueThis is the first study to apply the GMDH neural network to the US REIT market and determine the impact of the two factors on its performance. For example, this research first discusses the impact of kernel functions on the US REIT market using the GMDH neural network. It also includes short-term daily prediction returns that were not previously considered, making it a valuable reference for financial industry analysts.

Research Trends and Directions on Real Estate Investment Trusts’ Performance Risks

The status of real estate investment trusts (REITs) rose in investment decisions and research since 2008, after the global financial crisis (GFC) and the surge in REITs. However, the sector is still in its infancy in most emerging markets and African countries. The current study examines the literature on the performance of REITs and the related risks using bibliometric and content analyses. The study’s objectives were to determine the research trends on the topic since 2008, the prominent authors, countries, and sources, the knowledge trend and themes associated with the existing research to date, and future or new directions for research. Materials from 2008 to 2022 indexed in the Scopus database were retrieved and visualised using VOSviewer software. The findings revealed that publications were mostly in Australia, Italy, Singapore, and Canada. The co-authorship links were dominant among the Australian authors. The themes that emerged were centred around REITs’ portfolio measurement, risk management in diversified portfolios, capital structure, efficiency measurement, corporate governance, portfolio risk assessment, portfolio construction, and asset allocation strategies. The findings are envisaged to be beneficial in informing further research directions on the subject. The performance threats are also highlighted for industry stakeholders’ decision-making and strategic planning around REITs’ sustainability.

The Financial Performance of Newly Launched Chinese Infrastructure REITs

This paper explores the financial performance of the first group of nine infrastructure real estate investment trusts (REITs) that went public in mainland China in June 2021. Under the short-term event study framework, this research compares the abnormal returns and correlations of nine Chinese REITs with three groups of competitors (i.e., 49 quasi-REITs, 54 infrastructure asset-backed securities (ABSs), and 132 Wind utility firms). Three approaches are used to evaluate the performance of REITs: Risk-return indicators (e.g., Sharpe ratios and Jensen’s alphas) and raw returns measure the preliminary results, and panel data analyses capture the relative advantages of REITs over their competitors within the infrastructure industry. REITs are small-cap firms with the largest Sharpe ratios and greater diversification potential than the ABSs. Despite beating the market, they did not start to trade with a premium until the first month after their initial public offerings (IPOs). Post-event annualized abnormal returns are more than 15% against the ABSs and close to zero against Wind utility firms after controlling for key financial variables, and three mechanisms behind the REIT IPOs (i.e., asset type, taxation, and liquidity) are verified. Therefore, REITs outperform quasi-REITs and infrastructure ABSs as well as the market proxies, and their launch brought out favorable outcomes.

THE IMPACT OF FINANCIAL DETERMINANTS ON MALAYSIAN REITS’ PERFORMANCE

Property investment in Malaysia has experienced tremendous growth and is considered one of the prime investments by investors due to its stable return growth over the years. This study examined the effects of six financial determinants (earnings per share, debts to assets, price-to-book value, dividend yield, market capitalisation, and return on equity) on the annual return of Malaysian Real Estate Investment Trusts (REITs). The common performance indicator of company can be seen in the percentage change in stock price plus when the dividend paid at the end of the year is used to measure the annual return performance of REITs. A total of 154 firm year observations for a sample of 14 Malaysian REIT companies were examined for a period of 11 years (2008-2018) from the Bloomberg terminal. Multiple regression analysis was used to analyse the data. Findings showed that there is a positive relationship between earning per share, price-to-book value and dividend yield and REITs’ annual return. On the other hand, this study showed that there is no significant relationship between debts to assets and REITs’ annual return. The results also showed that market capitalisation and return on equity are negatively related to Malaysian REITs’ annual returns. Overall, the results highlighted two key features. First, earnings per share and return on equity should be used by investors and management to assess the profitability and operational efficiency of REITS. Second, the investors should use dividend yield as one of the key investment criteria when assessing REIT investment decisions. This study contributed to the literature in REITs by increasing the effects of the explanatory power of financial determinants on REITs’ annual returns.

Practice Briefing Analysis of the emergence and initial performance of REITs in India

PurposeIn 2014, real estate investment trust (REIT) emerged as a new alternative investment option in India. This research aims to give an empirical authentication of the Indian REITs performance from April 2019 to July 2022 across a range of investment variables.Design/methodology/approachUsing monthly total returns in Indian Rupee, risk-adjusted Indian REIT performance and investment portfolio characteristics are examined. Indian REITs' potential in a diversified multi-asset portfolio is analysed using the mean-variance analysis, asset allocation diagram and efficient frontier.FindingsDuring April 2019–July 2022, Indian REITs provided a lower return than stocks but outperformed bonds despite coronavirus disease 2019 (COVID-19) lockdowns, which hurt the traditional working from office concept. The study also examined REIT allocation to an Indian mixed-asset portfolio and the benefits of a diversified portfolio.Practical implicationsIndian REITs provide a liquid, transparent alternative to direct property for investors seeking exposure to Indian real estate markets. Indian REITs gave real estate companies an extra funding source and investors an alternate asset. This paper explores Indian REITs' potential opportunities, given that domestic and foreign investors' demand for transparent property investment in India. The analysis found a positive early performance despite a challenging environment.Originality/valueThis paper offers the first empirical performance validation of Indian REITs as a way to obtain exposure to commercial property in India and the REITs' role in a diversified asset portfolio. The authors' study improves investors' decision-making abilities by providing empirically validated, valuable and practicable property investing insights.

Non-Traded REIT Performance: A Response to Mallett and McCann

In their Winter 2021 article, “Further on the Returns to Non-Traded REITs,” Joshua Mallett and Craig McCann claimed to have found significantly lower performance for non-traded real estate investment trusts (REITs) as compared to the performance that investors would have earned in a portfolio of traded REITs. The authors’ analysis suffers from at least four fundamental errors. First, the article erroneously compares the performance of non-traded REITs to a mutual fund that is closed to new investors and that tracks an index of publicly traded REITs. Second, it inappropriately combines data about two types of non-traded REITs: “lifecycle REITs” and “NAV REITs.” Third, it uses a limited time period ending before the COVID pandemic. Fourth, the article arbitrarily discounts the appraised value of the non-traded REITs in its sample.

ESG, operational efficiency and operational performance: evidence from Real Estate Investment Trusts

PurposeThe purpose of the paper is to examine the relationship between the Environmental, Social and Governance (ESG) performance of Real Estate Investment Trusts (REITs) and their operational efficiency and performance.Design/methodology/approachThe authors use S&P Global (formerly SNL Real Estate) for the study analyses and examine all publicly traded REITs based in the United States over the 2019–2020 sample period. The authors regress the measures of REIT operational efficiency and operational performance on REIT ESG scores while controlling for REIT characteristics and use an ordinary least squares (OLS) estimation model with heteroscedasticity-robust standard errors. The authors also run additional regressions to examine the implications of operational efficiency on the relationship between ESG and operational performance.FindingsThe authors find that REITs that perform well on the ESG scale have higher operational efficiency. In addition, the authors find that REITs with better ESG scores are associated with better operational performance. Finally, the authors find that the positive association between ESG scores and operational performance is stronger in REITs with higher operational efficiency.Practical implicationsFirst, the adoption of ESG adds value to the REIT in terms of increased operational performance and efficiency. Second, the value addition of ESG to an REIT is driven by the better operational efficiency of some REITs over the others. Therefore, the authors’ findings suggest that REITs that currently score poorly on ESG performance would first need to focus on all the possible avenues to improve economies of scale and hence operational efficiency. This approach would help ensure that when those REITs adopt ESG initiatives, they get the most bang for their buck.Originality/valueTo the best of the authors’ knowledge, this is the first study that relates operational efficiency and operational performance of REITs to their ESG scores.

Location density, systematic risk, and cap rates: Evidence from REITs

AbstractA property's location is often considered to be the ultimate determinant of its investment performance. But how exactly does a property's location influence its risk and return? We focus on the effects of location density on the risk and return of commercial real estate investments. We do this by studying the geographical characteristics of the property portfolios of U.S. equity Real Estate Investment Trusts (REITs). We show that REITs with property holdings in high‐density locations experience higher rental growth and carry higher systematic risk than their otherwise comparable peers in low‐density locations. Consistent with those higher rental growth rates, high‐density REITs also have lower implied cap rates. Our results suggest that location density is an important determinant of REIT performance outcomes, implying that geographical characteristics can drive investment risk and return across commercial real estate markets.

Rewarding a Long-Term Investment Strategy: REITs

The initial structure of real estate investment trusts (REITs) was predicated on real estate as a long-hold asset that would benefit from an ownership structure that fosters property portfolios held and managed for the long-term. Using a sample of publicly traded U.S. REITs from 1995 to 2018, we find that REIT performance is positively associated with previous-year property holding period. The results support the original broad policy goals associated with the REIT structure to allow for broad ownership of commercial real estate assets held for the long-term. The results further show that REITs adopting long-term investment and management strategies suggested by the enabling laws allowing the REIT structure are more profitable with better shareholder returns. The benefits related to portfolio construction and management shown in this study are complementary to studies related to property location and other portfolio construction strategies. Our findings are attributed to enhanced operational efficiency, property-level cash flow, and managerial effort.

Monetary Policy Shifts, Dividends and REIT Momentum

Real estate investment trusts (REITs) provide a unique setting to study the impact of aggregate funding on momentum. REITs provide many of the same features of common stocks, but also include a dividend provision mandate, which may mitigate the illiquidity concerns that drive momentum patterns in common stocks. Overall, we found that REIT momentum was associated only with restrictive funding conditions. However, unlike in common stock, this effect can be explained by particularly strong performance of winner REITs during restrictive periods. Furthermore, we found that the strong performance of winner REITs in restrictive states was related to strong dividend performance. These results suggest that the unique income provision feature of REITs generates momentum patterns as aggregate funding availability is diminished.

Development and performance of timber REITs in the United States: a review and some prospects

Timber real estate investment trusts (REITs) are companies that own and manage timberland and generate revenue by harvesting and selling timber or other forest-related products. Due to their popularity with investors, timber REITs in the United States have attracted growing research interest in the recent decades. This necessitates a review of existing knowledge on the evolution of timber REITs and their financial performance over the years. In this review, we summarize the history and development of timber REITs, discuss the tax policies applicable to timber REIT growth and their implications. We also review past studies that focused on the financial performance of timber REITs and synthesize the methodologies used in those studies. At the end, we posit the possibility of consolidation waves in the timber industry and identify some opportunities for future research. This review can shed some new light on the evolution of public timber REITs and their financial performance.

The relative performance of green REITs: Evidence from financial analysts’ forecasts and abnormal returns

The aim of this study is to analyze and compare the financial analysts’ forecasts accuracy and bias, and the abnormal earnings announcement returns of “green” and “non-green” U.S. real estate investment trusts (REITs) from 2010 to 2018. First, we document the accuracy and the bias of financial analysts’ earnings and FFO forecasts on “green” and “non-green” REITs. Our results report that the level of accuracy and the level of optimism are different for both categories. Second, we observe that abnormal stock returns could be related to the adoption of “green” and sustainable measures. Our results shed a new light on the relative performance of REITs and highlight the potential link in the U.S. REIT industry between “greenness” analysts’ forecasts and abnormal returns on stock markets.

REIT Operational Efficiency: External Advisement and Management

This paper examines the operational efficiency of equity Real Estate Investment Trusts (REITs) with respect to external advisement and management. We employ data envelopment analysis (DEA), a non-parametric statistical procedure that tests whether decision-making units are operating on their efficient frontier, to measure the relative performance of REITs before, during, and after the 2008–2010 financial crisis. Annual observations of both advising and management status of each REIT allow us to parse efficiency by these groups in various combinations. Our evidence suggests the inefficiency of externally-advised REITs has diminished in recent years, and the structure is no longer strictly inferior. External management of property operations, however, remains less efficient than self-management. General and administrative expenses, external advisory fees and property management fees are the main sources of inefficiency over the study period. In a difference-in-difference specification we find industry-wide operational efficiency was higher in the post-crisis than the pre-crisis period, indicating efficiency gains following the crisis.

The Rewards of a Long-Term Investment Strategy: Case of REITs

The initial structure of real estate investment trusts was predicated on real estate as a long hold asset that benefits from ownership in a portfolio context. Using a sample of U.S. publicly traded equity real estate investment trusts (REITs) from 1995 to 2018, we find that REIT performance is positively correlated with the previous-year property holding periods. The results suggest that adopting long-term investing perspectives is profitable for REITs and their shareholders and highlight that the benefits related to portfolio construction and management are complementary with studies related to property location. Our findings are attributed to enhanced operational efficiency, property-level cash flows, and managerial efforts.

Greenness and financial performance of European REITs

PurposeThe purpose of this paper is to investigate the link between greenness and the operating performance in 50 listed European real estate investment trusts (REITs).Design/methodology/approachUsing a sample of 50 listed European REITs, the analysis leverages on Ordinary least squares models to investigate the relationship between greenness and operating performance indicators. In particular, it examines three types of greenness indicators: the overall Green Real Estate Sustainability Benchmark (GRESB) rating, its two components (management and policy [MP] and implementation and measurement) and the seven aspect scores; return on equity (ROE) and return on assets (ROA) are the fundamental measures of REITs operating performance.FindingsThe results demonstrate a positive relationship between greenness indicators and operating performance in European REITs, but the impact on ROE and ROA differs depending on the GRESB variable analyzed. If the GRESB rating proved to be significant on ROE and ROA, none of its two components has an impact on ROA, and only the MP score has a positive relationship with ROE. Finally, of the seven aspect scores, only the stakeholder engagement is significant on the two dependent variables.Originality/valueThe commercial real estate sector has a significant role in tackling climate change issues. To incentivize the market to increase the investments in green buildings, it is essential to find a link between their sustainability characteristics and the improvements they deliver in terms of operating performance. Despite there being a substantial body of literature investigating this connection in the US REITs market, there is still limited knowledge on the relationship between green and operating indicators in the European REITs market.

Women directors’ effect on firm value and performance: the case of REITs

PurposeThe purpose of this paper is to assess the effect of women directors on US Real Estate Investment Trusts (REITs) value and performance.Design/methodology/approachArchival financial and board of director data for the 1999–2019 period are collected and analyzed using panel data regression analysis.FindingsThe main findings indicate that women directors’ presence renders a modest positive effect on REIT performance but only when they reach critical mass on REIT boards; and that women directors have no effect at all on REIT value. Additional findings indicate that women directors are more common on REIT boards after the enactment of the Sarbanes–Oxley Act but less common on boards in which the REIT founder is the chief executive officer.Originality/valueTo the best of the author’s knowledge, this is the first research on the effect of a gender diverse board on REIT value. It is also the first paper documenting a positive relationship between board gender diversity and REIT performance. This paper fills a research gap, as it is one of the few papers focused on gender diversity within the REITs board composition literature.