IMPACT OF DEVELOPMENT ACTIVITIES ON REITS' PERFORMANCE IN THE APAC REGION

Abstract

The onset of crises and pandemics has persistently challenged the resilience of the performance of Real Estate Investment Trusts (REITs). This has led to a push factor for REITs to look towards organic growth strategies such as undertaking property development and Asset Enhancement Initiatives (AEIs), within the boundaries of regulatory frameworks. This study aims to shed light on the effect of undertaking such development activities on the REITs’ stock performance, specifically in the Asian Pacific (APAC) region. Existing literature is mostly focused on the Americas and Europe but research in this region is scarce. The selected markets are Australia, Singapore and Hong Kong. More explicitly, after classifying the sample REITs into developing, AEI and non-developing groups, a comparative analysis is first carried out on the basis of annual and monthly total returns to find out if there are significant differences. To allow for cross-sectional analysis, a Single Index Model regression analysis is conducted to find risk-adjusted excess returns and volatility of the sample REITs. Lastly, a multivariate analysis is undertaken to isolate the effects of development ratio on total returns. The outcomes of this study generally point towards a positive relationship between property development activities and REITs’ returns, coupled with higher risks when development ratio increases. However, the results for effects of AEI are mixed and further studies are required. This study aims to provide a first look into the association between development activities and performance of APAC REITs. It serves as a guidepost for REIT managers and investors who wish to understand this relationship better. Additionally, with upward amendments in regulatory frameworks to favour property development, this research thread has opportunities for growth.