U.S. REIT INDUSTRY PROFITABILITY: A BENNET DECOMPOSITION OF INDUSTRY DYNAMICS

This paper considers the aggregate profitability performance of the REIT industry. The aggregate performance depends on the underlying microeconomic dynamics within an industry – the growth of individual REITs (the within effect), the reallocation between existing REITs (the between effect), the entry of new REITs (the entry effect), and the exit of the existing REITs (the exit effect). We apply an extended Bennet (1920) dynamic decomposition on the REIT industry’s return on equity (ROE) and study the annual data on U.S. Equity REITs for the 1989 to 2015 period and various REIT industry specific sub-sample periods. Bailey et al.’s (1992) and Haltiwanger’s (1997) dynamic industry performance decompositions are special cases of the Bennet decomposition. The “within” and “between” effects dominate the annual changes in this industry’s ROE. To the extent that our Equity REIT sample proxies for the FTSE NAREIT All Equity Index, our conclusions also relate to this index’s profitability performance between 1989 and 2015.

International equity REITs: five major future directions

Purpose The purpose of this paper is to analyze chapters from the recently published Routledge REITs Research Handbook to identify five major future directions for international equity REITs. Design/methodology/approach Literature review and critical analysis of chapters from the recently published Routledge REITs Research Handbook. Findings The five major future directions for international equity REITs are proposed to comprise an increasing focus on people and on cash flow rather than on property (with the cognitive risk attaching thereto), the changing nature of REITs as they respond to changes in society globally, the evolution of the global flagship REIT and the emergence of global regulation of REITs (particularly in the spheres of debt and leverage). Research limitations/implications While five major future directions for international equity REITs are identified which may have an impact on the risk/return profile, further research is required to determine which directions may be significant and which trivial and which may be independent and which interactive. Practical implications Identification of five major future directions for international equity REITs provides managers and promoters with guidance concerning potential areas of focus for future product development in the REIT sector. Originality/value While quantitative research concerning international equity REITS abounds, qualitative research is limited with little academic research undertaken into possible future directions for the sector.

REIT Operational Efficiency and Shareholder Value

A real estate investment trust (REIT) is an intermediary that passes its cash flows and income to its shareholders. Hence, the efficiency of a REIT in providing this service should affect shareholder value. Using a sample of U.S. equity REITs from 1995 to 2017, we find a strong positive correlation between REIT value (measured by firm Q, market-to-book equity ratio, and capitalization rate) and lagged operational efficiency measures. The results also show that more efficient REITs are associated with average stock returns that are up to 3.88% higher than less efficient REITs. These results are robust across REIT sectors and common risk factors.

International Real Estate Review

We investigate the long- and short-term interrelationships between equity and mortgage real estate investment trusts (REITs) by focusing on decomposed income and appreciation components. We find that the previously documented long-term cointegration relation between equity and mortgage REIT prices stems exclusively from their income components and subsequently, the appreciation components contribute nothing to such a long-term relationship. We also find that the previously documented short-term causal relation between equity and mortgage REIT returns is due to the causality that runs from the appreciation returns of equity REITs to those of mortgage REITs while their income returns do not lead to causality. Lastly, we show that the income returns of both equity and mortgage REITs are influenced by the same equity market factor while their appreciation returns are responsive to different macroeconomic factors, which explain the heterogeneous performance between them.