Real Estate Investment Trust Sector Research Articles

Real Estate Portfolio Diversification by Sectors Using a RAL Approach

We propose a cointegration-based method for evaluating the long-term independence of sectoral Real Estate Investment Trusts (REITs) within a portfolio. We employ this innovative approach to construct diversified portfolios. Our argument is that sectors contributing less to cointegration provide greater risk reduction benefits to the portfolio. To gauge the level of independence, we use the reciprocal of the aggregate likelihood ratio (RAL) statistics. Based on these statistics, we introduce a novel allocation strategy that assigns a higher weight to a sector with a larger RAL. Using CRSP/Ziman REIT sector data, we demonstrate that this new strategy outperforms traditional methods and the real estate market benchmark. Our paper introduces a fresh framework for REIT portfolio management and provides guidance on sector allocation.

POST-PANDEMIC ANALYSIS FOR VALUE AT RISK OF REAL ESTATE INVESTMENT TRUST IN MALAYSIA UNDER QUANTITATIVE APPROACH

A Real Estate Investment Trust (REIT) is a fund or trust that owns and manages commercial real estate and generates revenue. After two years of the COVID-19 pandemic, the whole REITs sector suffered from lockdown, diminishing revenue from office and shopping mall rentals. Hence, investors may lose more than expected on invested capital without further analysing this situation. This highlights the importance of investors knowing the risk of investing in REITs to plan their investment strategies appropriately. The Value at Risk (VaR) is widely employed to calculate the investment risk under a mathematical model to achieve this. A past review suggested that two approaches had been utilised for modelling, i.e., parametric and non-parametric methods. The methods under non-parametric include historical simulation, Monte Carlo simulation, and bootstrapping simulation. Thus, comparing parametric methods, historical simulation, Monte Carlo simulation, and bootstrapping simulation is essential in determining the best method to analyse the VaR in the Malaysia REITs (M-REITs) sector, which particularly focuses on Malaysia. Actual previous five-year history raw price data for each REIT in Malaysia are extracted from Yahoo Finance, Refinitiv Eikon, and DataStream via University Utara Malaysia’s (UUM) e-resources database. The result of VaR from those methods is compared and validated using backtesting. Other than that, the result reveals that the parametric method and Monte Carlo simulation are good methods for REIT’s VaR calculations in Malaysia, which are close to the current value for 12 from 17 M-REITs companies.

REIT Sector Implied Volatility Index: Liquidity and Information of Option Trading

An accurate volatility forecast is essential in financial investments and risk management. Existing literature finds that the implied volatility from options trading best predicts the realized volatility in various financial products. In 2016, real estate was added to the S&P 500 as the eleventh sector; however, a reliable implied volatility measure for the real estate sector has not been developed yet. The existing literature in real estate investment trusts (REITs) relies primarily on insufficient volatility forecasts, such as implied volatility for a broader market or time series analysis. In this research, we develop a REIT sector implied volatility index derived from options on the US Real Estate exchange-traded fund, IYR. As Whaley, the creator of the VIX (implied volatility on S&P 500), points out, enough liquidity in option trading is critical in developing an implied volatility index. This study shows that IYR option trading is liquid enough and informative that our REIT sector implied volatility index outperforms other volatility forecast measures. Our findings suggest that the REIT sector implied volatility index from option trading data can be utilized in future research and industry risk management.

REITs impact on typical investment portfolio – further evidence of the sector split importance

The REIT (Real Estate Investment Trust) returns demonstrate a time-varying linear correlation with various equity indexes, therefore they are fit for multi-asset portfolio enhancement. On the one hand, each REIT sector is characterised by a unique set of return properties, and on the other, companies within those sectors remain homogenous. The aim of this research is twofold: firstly, to verify the earlier studies on how adding REITs to mixed equities/bonds portfolios affects their risk and return characteristics, and secondly, to contribute to these studies by examining the impact of adding different REIT sectors to such portfolios over a relatively long and more up-to-date sample, i.e. the period of 1990–2019. The results indicate that, in contrast to what some previous studies suggested, adding the REIT index exposure leads to a limited portfolio enhancement only. More significant and consistent effects can be achieved by the inclusion of individual REIT sectors in an investment portfolio. Apartment REITs offered diversification benefits across the entire spectrum in all the periods, while Industrials were useful across the curve in 1990s and 2010s. Self-storage exposure, on the other hand, improved the investment portfolio performance in each of the studied decades. In general, it was enough for investors who strived for portfolio improvement over the three decades between 1990 and 2019 to have a small portion of their Value holdings replaced with the REIT sector exposure to obtain a positive impact on both the returns and the risk.

The Impact of Initial Public Offerings’ Characteristics on Real Estate Investment Trusts’ Underpricing: The Saudi Context

In recent years, many Real Estate Investment Trusts (REIT) have issued to initial public offerings (IPO) in the Saudi Stock Exchange “Tadawul.” Occasionally, trust fund issuers such as REITs may face challenges in selling their shares to the public. One of the challenges related to underpricing is trading the stock on the first day of the market. This study investigates the relationship between REIT characteristics and share underpricing for a sample of REITs that are listed on the Saudi Stock Exchange “Tadawul.” The purpose of the study is to focus on one of the challenges that is related to the IPOs of REITs. Using a sample of 17 IPOs of REITs listed on the Saudi Arabian Stock Exchange “Tadawul” for the period between 2016 and 2020, we show significant negative associations between the number of IPO underwriters, number of shares subscribed, and the firms’ dividend payouts and REITs’ underpricing. The result also shows a significant positive association between the number of subscription days and REITs’ underpricing. The research should provide significant implications for regulators and market participants in the light of the public offering and the REIT sector. KEYWORDS public offering, financial performance, real estate, investment trusts, stock exchange, Tadawul

Narrative Investment-Risk Disclosure & REIT Investment

We study narrative investment-risk disclosure, applying computational linguistic analysis to the qualitative discussions of risk throughout 10-K filings. Our sample covers the real estate investment trust (REIT) sector, where firms rely heavily on external capital sources to fund new investment. Using granular investment data from a source that is independent from annual filings, we document a positive relation between changes to investment-risk disclosure and changes to actual investment. Such linkage previously evades the disclosure-informativeness literature, but is feasible in our study based on data advantages to the REIT sector. Changes to risk disclosure do not appear to increase simply the perception of risk among investors. Unlike evidence from the broader market, we find no significant relation to the volatility of stock returns or the volatility of analyst forecast revisions following the filing. Instead, changes to investment-risk disclosure appear informative as they are followed by a pronounced enhancement to market liquidity. The average increase in post-filing trading volume for firms that increase acquisitions is 8%, conditional on a top-tercile increase to investment-risk disclosure; or 0%, when disclosure is non-increasing.

PERFORMANCE COMPARISON OF REAL ESTATE INVESTMENT TRUST SECTOR AND VENTURE CAPITAL INVESTMENT TRUST SECTOR IN TURKEY

The aim of this study is to compare performance of the real estate investment trust (REIT) sector and venture capital investment trusts (VCIT) sector in Turkey. In order to accomplish this purpose, Data Enveloped Analysis is utilized by using the data of 32 REIT and 7 VCIT for the yearly term of 2014-2019. In addition, while net profit amount and profit per share are used as output variables, risky investment amount, total equity amount, total asset amount are used as input variables. At the end of the analysis, in general it is concluded that the real estate investment trust sector hashigher efficiency than venture capital investment trust sector has. Besides, according to the Malmquist Productivity results, again real estate investment trust sector has more productivity than the venture capital investment trust sector has.

Sustainability Reporting of REIT Companies in Malaysia

Although there is growing awareness of corporate social responsibility, sustainability reporting is still not commonly practiced by companies in Malaysia. Sustainability reporting consists of three dimensions, which include economic, environmental and social sustainability disclosure. The objective of the present study is to examine the extensiveness of sustainability reporting by 17 public listed real estate investment trust (REIT) companies. REIT sector has been chosen because it is closely related to construction activities, which could affect the environment but still plays an important role in boosting the country’s economic growth. Besides, sustainability reporting of REIT companies will also be examined based on application level of GRI. GRI is a corporate sustainability reporting framework that provides various indicators to measure these aspects comprehensively. The findings from content analysis reveals that economic aspect is highly disclosed as compared to environmental and social aspects of sustainability reporting by REIT companies. It also shows that REIT companies in Malaysia do not apply GRI in annual reports for sustainability reporting as they fail to achieve minimum application level of GRI. As there are only a few papers investigating the use of GRI for sustainability reporting by REIT sector in Malaysia, the findings from this study contribute to increase awareness among companies in REIT sector to make active contribution and increase their disclosure for economic, environmental and social aspects. Additionally, the regulators have the responsibility to enforce rules and regulations for higher disclosure of sustainability information as one mean of delivering accountability to wider stakeholders.

Macroeconomic Shocks and Changing Dynamics of the U.S. REITs Sector

Unlike the existing literature, which primarily studies the impact of only monetary policy shocks on real estate investment trusts (REITs), this paper develops a change-point vector autoregressive (VAR) model and then analyzes, for the first time, regime-specific impact of demand, supply, monetary policy, and spread yield shocks, identified using sign-restrictions, on US REITs returns. The model first isolates four major macroeconomic regimes in the US since the 1970s and discloses important changes to the statistical properties of REITs returns and its responses to the identified shocks. A variance decomposition analysis revealed aggregate supply shocks to have dominated in the early part of the sample period, and monetary policy and spread shocks at the end. Our results imply that ignoring other possible shocks in the model is likely to lead to incorrect inferences, and over-reliance on (conventional) monetary policy in correcting for possible bubbles in the REITs sector, which it will fail to rectify, given the importance of other shocks driving the REITs sector.

The emergence of data centres as an innovative alternative property sector

PurposeAs one of the increasingly important alternative property sectors, data centres are a technology-focused property sector that is taking advantage of the growing investment intensity in technology-related infrastructure, against the backdrop of constant innovation and advancement in technology. The purpose of this paper is to assess the preliminary risk-adjusted performance and portfolio diversification benefits of data centre Real Estate Investment Trusts (REITs) in the USA, Australia and Singapore. The strategic implications going forward for data centres as an innovative property sector in the property investment space are also highlighted.Design/methodology/approachUsing monthly total returns, the average annual return, annual risk, risk-adjusted performance and portfolio diversification benefits of data centre REITs in the USA, Australia and Singapore over 2016–2018 are assessed. Optimal asset allocation analysis is performed to investigate the value-added role of data centre REITs in a mixed-asset portfolio.FindingsData centre REITs delivered strong average annual return performance, outperforming the composite REITs in all three markets. This also sees data centre REITs being riskier than the overall REIT sector due to the non-traditional and maturing status of the data centre property sector. On a risk-adjusted basis, competitive performance was recorded for data centre REITs, with data centre REITs in the USA and Singapore outperforming their respective composite REITs. This performance is also delivered with significant portfolio diversification benefits with the stock market, resulting in data centre REITs contributing to the US mixed-asset portfolios across a diverse risk spectrum.Practical implicationsInstitutional investors are now giving increased emphasis to alternative property sectors with better risk-return trade-offs. Improved performance and diversification benefits are achieved by supplementing existing property portfolios with non-traditional property sectors with counter-cyclical risk-return profiles, one of which is the data centre property sector. This sees data centres as an important alternative property sector, having technology-based drivers and being recognised as having a clear path towards institutionalisation with the major investors in the near future.Originality/valueThis paper is the first published empirical research analysis that specifically assessed the preliminary performance and diversification benefits of data centre REITs in the USA, Australia and Singapore. This research enables empirically validated, more informed and practical property investment decision making by institutional investors regarding the future strategic role of the data centre property sector as an innovative sector in the institutional property investment space.

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.

Decomposing Industry Leverage: The Real Estate Investment Trust (REIT) Debt Puzzle

Different industries exhibit significantly different leverage - the REIT sector is an extreme example. Their leverage ratio is twice as high as that of non-real estate firms in the U.S. We theoretically and empirically analyse why we observe a leverage ratio difference of 25.5 percentage points between these two groups. Firstly, we find that tangibility and operating risk are the most important capital structure determinants for deviation. By decomposing the difference into three channels (differences in determinants’ average values, varying sensitivities to changes in the values of the determinants and an industry-specific fixed effect), we find that the industry-specific channel explains around 67% of the difference. The value-based channel is mostly responsible for the remaining part. However, when comparing samples of REITs and non-real estate firms matched according to tangibility and operating risk in order to take non-linear influences of extreme values into account, the relevance of the industry-specific channel is considerably reduced. Therefore, the REIT debt puzzle is not mainly a consequence of an unexplainable industry-specific fixed effect but, with careful analysis, can ultimately be traced back almost completely to a value-based effect driven by the characteristics of tangible assets and stock returns’ risk.

The Performance of REIT Acquirers in the Post-Merger Period

Executive SummaryMergers and acquisitions (M&As) are a feature of modern economies. However, research on conventional bidding firms in M&As has shown, on average, shareholders are worse off in the long-run (Alexandridis, Mavrovitis, and Travlos, 2012). We examine the long-term post-merger performance of U.S. equity real estate investment trusts (REITs) to see whether this underperformance extends to the largest REIT sector in the world. In contrast to the earlier REIT data samples used by Campbell, Giambona, and Sirmans (2009), we find, prior to the macroeconomic event of the financial crisis, that existing shareholders of bidding firms earn significant and positive abnormal returns. This outcome supports the synergy motive for M&As in the REIT sector. Results from announcements occurring after the onset of the financial crisis show signs of negative and significant abnormal returns, suggesting these M&As were driven by the agency and/or hubris motive.

Mind the Gap in REITs

Executive Summary. Portfolio diversification is a fundamental tenet of modern portfolio theory. Statman and Scheid (2008), however, argue that while correlation is the common indicator of diversification, correlation coefficients alone do not provide an intuitive indicator of diversification benefits. The authors demonstrate that portfolio diversification also depends on the standard deviation of asset returns and introduce the idea of return gap. Return gap is basically a gap between the returns of two assets. Statman and Scheid (2008) conclude that “the relative ranks of assets by benefits of diversification are quite different when measured by correlation and by return gap.” I investigate this claim in the U.S. real estate investment trust (REIT) industry using monthly data from January 1994 to December 2014. I find that, while correlation coefficients suggest little diversification benefits within the REIT sector, return gaps indicate that there still is scope for diversification across REITs, even during down markets and periods of financial crisis.

How is the Equity REIT Sector Related to Other Major Equity Sectors in the Presence of Abnormal Returns and Volatilities? A Tail Effect Study

Executive Summary. Using the quantile regressionmethod, this paper investigates the dynamic relationshipsof the equity real estate investment trust (REIT)sector to S&P 500, S&P 400 Mid Cap, S&P 600 SmallCap, NASDAQ, U.S. Small Cap Pure Value, and U.S.Small Cap Pure Growth sectors in the presence of abnormalreturn and volatility, respectively. The findingsconsistently show that the tail effects on the dynamic relationshipsbetween the equity REIT sector and othermajor equity sectors are remarkable when its return andvolatility are extremely high or low. Moreover, the impactsof the major equity sectors on the equity REITs areasymmetric in the presence of extremely high and lowreturn and volatility.

Consolidation within the Australian real estate investment trust sector: an evaluation of the impact on unitholder returns

Mergers and acquisitions within the Australian‐real estate investment trusts (A‐REITs) sector have become a noticeable trend in the last decade. Utilising event study methodology, 36 successful A‐REIT mergers and acquisitions between January 1995 and December 2008 were examined. Both target and bidding shareholders experience positive excess returns of 4.27% and 0.54% respectively over the 41 day event window [−20, +20]. Analysis indicates that the cumulative abnormal returns (CARs) for bidding firms are considerably greater than previous research suggests. This study finds higher bidder CARs when scrip or a combination of scrip and cash is used to finance the acquisition. We also find that the relative size or the size of the acquirer have a positive and significant impact on the excess returns of bidding A‐REITs. This suggests that the synergistic benefits from the acquisition are a result of economies of scale and increased market power. There is also some evidence that the relative size and method of payment influence the CARs of target firms during the event window.

Lodging REIT Performance and Comparison With Other Equity REIT Returns

This study investigated the performance of lodging real estate investment trusts (REITs) over a 13-year period. The study period was highlighted by economic growth, decline, geopolitical, and social events. These conditions and events affected lodging demand, and consequently the performance of the underlying REIT asset, the lodging facility. The results of the study indicated that overall, the performance of lodging REITs was inferior to the market portfolios as a whole. Lodging REITs' performance was also inferior to other equity REITs except for retail and specialty REITs. These findings suggest that the lodging REIT sector might not be as resilient as other equity REIT subsectors.

Uncovering Volatility Dynamics in Daily REIT Returns

Executive Summary. Using a time-varying approach, this paper examines the dynamics of volatility in the real estate investment trust (REIT) sector. The results highlight the attractiveness and suitability of using GARCH-based approaches in the modeling of daily REIT volatility The paper examines the factors that influence REIT volatility, documenting the return and volatility linkages between REIT sub-sectors. It also examines the influence of other U.S. equity series. The results contrast with previous studies of monthly REIT volatility. Linkages within the REIT sector and with related sectors such as value stocks are diminished, while the general influence of market sentiment, coming through the large cap indices, is enhanced. This indicates that on a daily basis general market sentiment plays a more fundamental role than more intuitive relationships within the capital markets.

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

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.