Global REIT Securities

Investment Consultant: REITs Are Real Estate
Sean Ruhmann – NEPC
August 2015

In this NAREIT Podcast, Sean Ruhmann, director of real assets research for Boston-based investment consulting firm NEPC, analysed the benefits of REIT investment for institutional investors. NEPC published a paper earlier this year on the investment attributes of REIT stocks. NEPC’s researchers concluded that REITs behave like core real estate investment. Ruhmann noted that, as is the case with direct real estate investment, REIT investors need to have long-term time horizons.

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Trend Following And Momentum Strategies For Global REITs
Alex Moss, Andrew Clare, Steve Thomas And Dr. James Seaton
June 2015

This study investigates whether the risk adjusted returns of a global REIT portfolio would be enhanced by adopting a trend following strategy (which is an absolute concept), a momentum based strategy (which is a relative concept and requires individual country allocations), or indeed a combination of the two. The authors examine the results in terms of both a dedicated Global REIT exposure, and the impact on a multi-asset portfolio. The authors find that the main improvements arise when the broad index is replaced with one of the four trend following (TF) strategies. The portfolios deliver similar returns but volatility is reduced by up to a quarter to the 8-9% range, the Sharpe ratios increase by 0.1 to 0.5 with the main benefit being the reduction in the maximum drawdown to under 30% compared to 43% when the broad index was used. We thus find that a combined momentum and trend following Global REIT strategy can be beneficial for both a dedicated REIT portfolio and adding REITs to a multi-asset portfolio.

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The Financial Rewards Of Sustainability: A Global Performance Study Of Real Estate Investment Trusts
Franz Fuerst
June 2015

This study shows for the first time, that investing comprehensively in sustainability as measured by the GRESB rating) pays off for REITs by enhancing operational performance and lowering risk exposure and volatility. Analysing a sample of REITs from North America, Asia and Europe for the 2011-14 time period, it also appears that there is a great deal of untapped potential, particularly in the REIT community, to improve the sustainability performance of corporate real-estate portfolios. For real estate assets to maintain their competitive positioning, it is critical that their owners invest in measures that improve their sustainability.

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The Role Of Sponsor And External Management On The Capital Structure Of Asian-Pacific REITs: The Case of Australia, Japan, And Singapore
Dong Chen, Yanmin Gao, Mayank Kaul, Charles K. Leung, Desmond Tsang
January 2015

This paper studies how the presence of sponsor and external management affect leverage and debt maturity decisions in three major Asian-Pacific REIT markets: Australia, Japan and Singapore. The results indicate that sponsored REITs opt for higher levels of leverage and loans with longer maturity. On the contrary, externally managed REITs are associated with lower leverage and loans with shorter maturity. The results are robust to the inclusion of other firm variables and to alternative specifications. Subsequent to the financial crisis, the impact of sponsorship on debt financing decisions has diminished, and borrowing of externally managed REITs is further constrained.

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The Impact Of Liquidity On The Valuation Of European Real Estate Securities
Alex Moss And Nicole Lux
2014

The purpose of this paper is to test the hypothesis that the valuations of European real estate securities are, in part, determined by the relative liquidity in the companies’ shares.

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Asia Pacific Listed Real Estate: A Contextual Performance Analysis
Alex Moss & D R Annisa Dian Prima
July 2014

This paper seeks to provide a better understanding of the performance of listed Asia Pacific real estate, the factors which determine this performance and current and potential roles and applications within portfolio management. Throughout this paper we focus primarily on the Asia Pacific region, that is Asia plus Australia and New Zealand.

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The Use Of Listed Real Estate Securities In Asset Management – A Literature Review And Summary Of Current Practical Applications
Alex Moss And Andrew Baum
2013

Investors have historically used listed real estate to achieve a number of outcomes, ranging from general exposure to the asset class to meeting specific returns characteristics such as inflation hedging and tax efficient income generation. However, following the events of the last five years, in common with other asset classes there is currently a re-assessment of the risk and return profile of listed real estate.

The purpose of this study is twofold: (i) to conduct a review of academic literature and evidence on the use and performance of listed real estate, both as a separate asset class and in multi-asset portfolios, and (ii) to examine in detail how institutions are using listed real estate to achieve their investment objectives, and the role listed real estate is playing in the new fund structures they are creating to meet investor objectives.

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Macroeconomic Risk Factors And The Role Of Mispriced Credit In The Returns From International Real Estate Securities
Andrey Pavlov, Eva Steiner And Susan Wachter, Samuel Zell And Robert Lurie Real Estate Center
October 2013

The benefits of diversification from international real estate securities are generally well established. However, the drivers of international real estate securities returns are insufficiently understood. The authors jointly examine the empirical implications of three major international asset pricing models that account for broad macroeconomic risk factors. In addition, they develop the hypothesis that an indicator of mispriced credit is significant in explaining the time series variation in international real estate securities returns. They employ the returns generated by a large sample of firms from 20 countries over the period 1999 to 2011 to test their hypothesis. They find support for the predictions of the major international asset pricing models. They also find evidence in favour of our hypothesised link between local credit conditions and the performance of international real estate securities.

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Are Listed Real Estate Stocks Managed As Part Of The Real Estate Allocation?
Alex Moss And Andrew Baum
European Public Real Estate Association Research
2013

Until now, however, there has been little work published regarding done the behavioural or institutional aspects of incorporating listed real estate into an investment strategy. To rectify this gap Moss and Baum have undertaken two pieces of research for EPRA. The first, published in March 2013 (The use of listed real estate securities in asset management), examined both the different strategies and the various fund types available to investors who are prepared to use listed real estate, citing a number of examples, and how listed real estate is or may be combined with other types of real estate and real assets. These other assets include internal and external unlisted funds (the product of the investor or a third party asset manager), derivatives, property debt, direct property, and real assets such as infrastructure and commodities in their various forms.

This second piece of work is a logical extension of the first paper, and concentrates on survey evidence examining whether or not listed real estate is managed as part of the overall institutional real estate allocation. Moss and Baum’s starting point is as follows. If there is a strong rational case for including more listed real estate in multi-asset or real estate portfolios, and if there is little evidence that this is happening, then there may be an explanation which is to do with the organizational structures or investment processes employed by investors or sub-contracting asset managers. Hence, while Moss and Baum might recognize the apparent benefits of listed real estate noted above, it is important to understand and capture the organizational processes that determine whether European investors do include listed real estate in their real estate portfolios — and, if not, why not.

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The Making Of An Asset Class
Roy Hilton March
Wharton Real Estate Review
2012

With the advent of Modern Portfolio Theory in the 1950s and its subsequent adoption by institutional investors in the 1960s to 1980s, commercial real estate went from cottage industry to bona fide asset class. But the obstacles to its ownership (including capital intensity, lack of transparency, operational requirements, geographic specificity and illiquidity) made real estate largely inaccessible to all but the largest investors. Twenty years ago, a remarkable transformation occurred: liquidity in real estate brought on by the rise of public REITs, CMBS, real estate private equity funds and the abundance of capital sources. Today, real estate competes directly with stocks, bonds, currencies, commodities and other financial assets. The evolution of the sector occurred much as evolution does in nature: life-threatening conditions forced inhabitants to adapt or perish and introduced new entrants to the ecosystem. As Charles Darwin famously observed, “It is not the strongest of the species that survives, nor the most intelligent… it is the one that is most adaptable to change.” The creative destruction of the late 1980s and early 1990s forged a new species of real estate industry—more resilient than its ancestors but, as recent years attest, still vulnerable to threats old and new. Understanding the factors that catalyzed the industry’s transformation, and the lessons learned along the way, is the key to preparing for the many exciting challenges and opportunities that lie ahead.

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Perspectives On The REIT Industry
Sam Zell
1993

Sam Zell is one of the doyens of the US real estate and REITs. Although published by the Wharton Real Estate Review in 2012, this article was originally a special address given to the NAREIT 1993 Annual Convention in New Orleans. Sam shares some of his perspectives on the REIT industry and his arguments why the REIT industry is no different from any other industry that needs to raise capital and be recognised in the capital markets. He concludes by saying “If you want to see this industry grow and prosper, we not only have to be the best deal makers in the business, we have to understand where we are going and understand that we are trying to create a long-term growth business, a business that will provide all of us with access to capital and return for them that provides the capital getting rewarded.

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