From the Research Desk

11/6/2012 | By Brad Case

Published in the March/April 2012 issue of REIT magazine.


Listed REIT Capital Market Access PROVIDES a Competitive Advantage over Private Real Estate Entities

SOURCE: “Do REITs Have an Advantage When Credit is Tight?” published in Journal of Real Estate Portfolio Management, January-April 2011.

AUTHOR: Greg MacKinnon, Pension Real Estate Association Director of Research

SYNOPSIS:  A PREA economist examined whether investors respond to differences in access to capital during times when such access is scarce. The economist found that listed REIT stock prices increase during tight-credit periods in recognition of their capital advantage.

“With access to the public markets, (listed) REITs have a built-in advantage in times of constrained credit through the ability to raise capital via seasoned equity or unsecured bond issues. A lack of capital means reduced competition in the bidding for available properties, including distressed properties coming to market. Having access to capital via public equity and unsecured debt markets can create value for REITs because it can allow them to bid on properties at a time when other potential bidders may be unable to do so because of capital constraints. If REITs are able to bid on properties at a time of decreased competition, and at a time when owners of property may be forced into distressed sales because of their own capital constraints, then REITs may obtain properties at advantageous prices and thereby create value for shareholders.”

REIT Portfolio Managers Select Outperformers, Generate Investment Alpha

SOURCE: “Can Fund Managers Select Outperforming REITs? Examining Fund Holdings and Trades” published in Real Estate Economics, Fall 2011.

AUTHORS: Gjergji Cici and Scott Gibson of the College of William & Mary, Jack Corgel of Cornell University

SYNOPSIS: A trio of economists investigated whether REIT fund managers are able to produce superior returns by identifying better-performing listed REITs. They found that portfolio managers do add value for their clients, on average, by selecting outperformers.

“Our results show that REIT mutual fund managers, on average, generated significant positive alpha with their REIT-selection ability. Managers’ ability to select out-performing REITs is robust after controlling for REIT property type, return momentum and size, and went beyond naïve trading rules based on public information related to geographic concentration, NAV-to-price ratios, income and appreciation styles or leverage of the underlying REITs. Rather, evidence is consistent with outperformance deriving from the endemic abilities of managers to uniquely process REIT-specific information and generate private valuation beliefs that lead to profitable investment decisions.

The evidence of REIT-selection ability is stronger when portfolios are based on recent buys versus holdings. Outperformance of the buy portfolio is a significant 1.27 percent to 2.55 percent over the subsequent 12 months, depending on the testing method used, even after controlling for those portions of fund managers’ outperformance of the overall REIT index that could be attributed to successfully shifting portfolio weights across property types, size groupings and momentum conditions.”


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