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The Long-Term Advantages to Incorporating Indirect Securities in Direct Real Estate Portfolios Simon Stevenson This study examines the longterm diversification opportunities potentially available to real estate managers from using firstly real estate investment trusts and secondly international real estate securities as a diversification tool. The results show that when optimal direct real estate portfolios are used as the base, while indirect securities do gain allocations in the extended optimal portfolios, the improvement in performance is not statistically significant. However, when the national NCREIF Index is used, thereby assuming a diversified direct market portfolio, significant results are obtained.   Return to the top of this web page |
The Role of Private and Public Real Estate in Pension Plan Portfolio Allocation Choices Timothy M. Craft This article examines the portfolio allocation decision within an asset/liability framework. Here portfolio weights are chosen not just by an asset’s return and variance but also by its correlation with pension liabilities. This results in assets that arehighly correlated with pension liabilities being weighted higher in the portfolio. Typical mean-variance models estimate allocations to both public and private real estate as high as 40%. In the asset/liability model, allocations to both private and public real estate are lower and closer to what is actually observed in pension plan portfolios. Return to the top of this web page |
Can Private Real Estate Portfolios Be Rebalanced/Diversified Using Equity REIT Shares? Michael J. Seiler, James R. Webb, and F. C. Neil Myer The purpose of this study is to determine whether or not private real estate portfolios can be diversified or rebalanced using public real estate (equity real estate investment trust stocks). An examination of resulting efficient frontiers and their corresponding optimal portfolio weights across various levels of expected return reveals that the ability of public real estate to rebalance private real estate only portfolios, using either long or short positions, is very much in doubt. The results found in a mixed-asset setting are more promising, but not convincing. Hence, if institutional investors wish to continue to hold public real estate, they should do so for reasons other than rebalancing or diversifying their private real estate portfolios. Return to the top of this web page |
The Time-Varying Nature of the Link between REIT, Real Estate and Financial Asset Returns Jim Clayton and Greg MacKinnon This study examines the sensitivity of equity real estate investment trust (REIT) returns to returns on other asset classes, including real estate, using an estimation method that explicitly allows for variation over time in the sensitivities. The results show that the relationship between REIT returns and returns to bonds, small cap stocks, large cap stocks and unsecuritized real estate has changed over time. During the 1990s, REITs began to exhibit a direct link to real estate returns, indicating that REITs do provide portfolios with some exposure to the real estate asset class. The strength of this link, however, is cyclical in nature. The sensitivity of REIT returns to large cap stocks has declined through time. REIT returns exhibit a sensitivity to small cap returns that has a strong cyclical component, with the two becoming more closely linked in REIT market downturns. Return to the top of this web page |
Real Estate Ownership and Operating Businesses: Does Combining Them Make Sense for REITs? Glenn
R. Mueller and Michael A. Anikeeff |
Is Bigger Better? A Re-examination of the Scale Economies of REITs Shiawee X. Yang This study re-examines economies of scale for the equity real estate investment trust (REIT) industry, particularly the use of the translog model in empirical tests. Three cost functional forms are tested using data from 120 equity REITs in 1997: translog, simple quadratic and quadratic semi-log. The commonly utilized translog model is found to have little significance in explaining the scale effect, which suggests that the economy-of-scale parameter results derived from a translog model are irrelevant. However, the simple quadratic and quadratic semilog functions are found to be significantly concave, supporting the existence of economies of scale in equity REITs. Return to the top of this web page |
Dividend Policy and Firm Performance: Hotel REITs vs. Non-REIT Hotel Companies Is Bigger Better? A Re-examination of the Scale Economies of REITs Robert M. Mooradian and Shiawee X. Yang This article investigates whether the greater reliance of real estate investment trusts (REITs) relative to non-REIT corporations on external equity financing suggests greater capital market discipline of REIT management, or greater access to capital, overpaying for assets, overbuilding and overinvestment. Our analysis is based on a sample of sixteen hotel REITs and fifty-one non-REIT hotel corporations from 1993 to 1999. We examine differences in performance and whether free cash flow can explain the differences. The findings suggest that hotel REITs retain a significantly smaller amount of free cash flow than non-REIT hotel companies. Market valuation reflected in the market-to-book ratio is clearly negatively related to free cash flow measured at both before and after dividend levels. In addition, relatively small hotel REITs enjoy significantly higher excess market values than their non-REIT counterparts at similar sizes, suggesting greater growth opportunities for REITs. Return to the top of this web page |
