HOW SIZE AFFECTS THE PERFORMANCE OF A REIT? EVIDENCE FROM ASIAN REITS

Abstract

Asian REITs have undergone tremendous changes since the first REIT listed in Japan in 2001. One of the common features of Asian REITs is that they all grow larger and more diversified in terms of property types or geographical locations. Is bigger always better? The paper uses 657 data of 91 Asian REITs from 2001 to 2013 via four regression models to test the existence of scale economies and examine the relationships among size, costs, revenue and profitability in the Asian REIT industry. The results confirm the existence of economies of scale in Asian REIT market and also conclude that the relationship between size and performance is complex. It is found that property operating expenses and interest expenses increase at a decreasing rate, and revenue and net operating income increase at an increasing rate as large REITs increase in total asset size. However, the return on assets and return on capital decrease as REITs increase in size. The study also reveals that there is no positive leverage effect and diversification effect on Asian REITs market, indicating that non-diversified REITs performs better than diversified REITs in Asian REIT industry.