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Effects of Property Portfolio Characteristics on M-Reit Risks

Author/s: Ting Kien Hwa, Choi Kuan Wai

Date Published: 1/01/2011

Published in: Volume 17 - 2011 Issue 2 (pages 230 - 247)

Abstract

This study examines the effects of property portfolio characteristics on risks of Malaysian REITs. Risk is represented by three different proxies i.e. log of standard deviation, beta and Sharpe’s ratio. The analysis is based on the March 2007 to December 2008 period. Three separate regressions are carried out and a total of ten independent property variables are used in this study. These independent variables are property type, diversification, management type, insider ownership, age, debt/equity ratio to represent leverage, price/FFO, variable to fixed debt ratio, total market capitalisation and book to market value. The cross-sectional regression technique is used to examine each variable’s effect on risk and whether the risk factor is statistically significant. This study found diversification as a factor which consistently affects property portfolio risks, while other characteristics such as insider ownership, age, leverage, debt ratio and size are also found to have high significance in explaining the risk of a REIT property portfolio. The findings of this study suggest that REIT managers should pay attention to diversification, as it affects a REIT’s property portfolio risk in a consistent manner.

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Keywords

Property Characteristics - Property Portfolio - Reit - Risk

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