ASSET MANAGEMENT ACTIVITIES AND IMPACT ON REIT PERFORMANCE

Abstract

This dissertation empirically analyses how the activities of REIT managers can affect the performance of REITs. To begin the study, the activities of REIT managers were classified into acquisition, divestment and asset enhancement. Then, financial data such as Alpha, ROE, Tobin's Q ratio and beta were collected and used as different indicators to measure performance and risk. In contrary to most research studies, this paper uses asset level information, whereby every underlying properties in the REIT portfolio was traced from year 2002 to 2011, instead of REIT level information, thus providing a more robust analysis.

Through the tests, the coefficient on alpha showed a positive relationship between activity level and excess returns. This implies that an increase in the level of activity will bring about a higher abnormal return. The test shows that acquisition is one of the key factors that generate abnormal returns. In addition, compensation level was found to be positively related to abnormal returns.

In the regression against Tobin's Q ratio and ROE, many similarities were observed whereby an increase in acquisition enhances both the firm value and the returns on equity. It was also found that divestment can also increase the Returns on Equity.

Finally, in the tests on beta also showed favourable results. A negative relationship was found between activity level and beta. It appeared that acquisition is one of the key activities that could reduce beta.

In summary, it has been found in this paper that actively managed REITs can improve their performance and reduce the overall risk in the portfolio. Notably, acquisition has been found to improve the performance of REITs. In addition, compensation level has also been found to have a positive impact on excessive returns.