AN ANALYSIS OF REIT PERFORMANCE

Abstract

This dissertation purports to study the sensitivities of real estate investment trust (REIT) to macroeconomic events (specifically economic recessions and inflation). Analysis of risk-adjusted returns of 91 United States Equity REITs including 6 different REITs sectors which are Diversified REITs, Hotel and Lodging REITs, Industrial and Office REITs, Residential REITs, Retail REITs and Specialty REITs, during the period Q4 1999 – Q3 2009 has revealed that REITs possess the hedging ability to economic downturn and inflation. These results still persist in different sectors of REITs during the sampled period. The study also found that diversified REITs do not outperform property type specific REITs in response to those macroeconomic events. On the other hand, average REITs returns including nominal return and excess return during the sampled period is greater than S&P 500 returns. Moreover, the correlation between nominal return and Stock is sustainable, whilst the risk –adjusted return of REITs indicated by Sharpe Ratio has a low correlation with S&P500. Strong return exceeding stocks return, low correlation between risk-adjusted return and GDP growth rate as well as the hedging ability to the bad state of economy and inflations suggest that REITs should be included as an asset in investment portfolios together with stock and bonds for diversification purpose.