"Green" buildings and Real Estate Investment Trust's (REIT) performance

Abstract

Purpose: The paper has the following objectives in mind: to examine whether or not "green" developments have any significant effect on the Real Estate Investment Trust's (REIT) operational and financial performance; to examine whether or not the effects of "green" developments on the REIT's performance is consistent across the different property types namely office, retail and residential. Design/methodology/approach: The paper introduces two variables to measure "greenness" of REIT's. These variables include the percentage of square feet of certified properties and the average "greenness" score. Firm's size as measured by taking natural logarithm of total assets was also included as it serves as an indirect measurement of "greenness". Other financial variables were added to control for the differences in firm's characteristics. This is meant to isolate the variation in performance variable that could be explained by the "green" variables. Following which, regressions (OLS) were estimated for each of the performance variables as measured by ROA, FFO/total revenue and ROE. Findings: The general findings of this paper are: "Green" buildings do impact both the operational and financial performance of REITs. However, different measures of "greenness" of REIT's property portfolio will yield different set of results; the observed impacts of "green" buildings are mainly significant for both the K-REIT and Capitamall Trust (CMT) whereas that for City Developments Limited (CDL) are insignificant; the observed effects vary across the different property types namely office, retail and residential as represented by K-REIT, CMT and CDL. The paper provides evidence to show that "green" buildings are better options given the various benefits, as compared to their counterparts. Practical implications: The findings of this paper should serve as a meaningful guide to look at how investments in "green" and sustainable buildings will create value for real estate investors at the REIT's level. Originality/value: The paper offers insightful information for REIT's managers when they make decisions on the acquisition of "green" properties or retrofitting of the existing properties in their direct real estate portfolios. As such, this paper is meant to extend the body of literature on "green" buildings by investigating the significance of "green" buildings on REIT's performance. © Emerald Group Publishing Limited.