THE FINANCIAL PERFORMANCE OF SUCCESSFUL REAL ESTATE INVESTMENT TRUSTS : AN INTERNATIONAL PERSPECTIVE

Abstract

This study explores the key financial performance of global Real Estate Investment Trusts (REITs) listed on the Global Property Research REIT Index 250 over the period from 2004 – 2006. We use 11 commonly used financial indicators to analyze the performance of REITs. For this study, the Sharpe index and the Jensen Alpha are used as indicators of financial success of the REITs. Univariate statistical financial analysis was performed. In a separate analysis, we found significant differences between the means of global REITs before and during the 2008 global financial crisis. Subsequently, we hypothesize the value of REITs to be contributed by the growth, profitability and financial leverage. The weighted two stage least square model indicated that successful REITs are generally large and are associated with higher sustainable growth, a positive spread and with higher fixed assets. Successful REITs are also profitable and are more likely to take on a balanced amount debt to balance operating risk and financial risk. In the long run, this may increase their profitability and sustainable growth rate at a steady rate. Lastly, a stepwise regression method was used to examine the nature of interaction between the investment performance and financial ratios of REITs. REITs with strong market valuations and highly profitable can generate superior investment performance. Other factors such as the capital structure of the firm (Debt ratio) and the sustainable growth rate (SGR) also contribute to REITs stock market success.