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Diversification as a Value-Adding Strategy for Asian REITs: A Myth or Reality?

Author

Listed:
  • Shan Min Charmaine Cheok

    (Citicorp Investment Bank Singapore)

  • Tien Foo Sing

    (Department of Real Estate, National University of Singapore)

  • I-Chun Tsai

    (Department of Finance, National University of Kaohsiung)

Abstract

This study tests the impact of diversification strategies on the cash flows, expenses, risks and returns of REITs in Asia. Hirschman-Herfindahl indices (HHI) are computed based on 2281 properties owned by 63 sample Asian REITs for the periods from 2002 to 2007 to measure the levels of diversification by property type and geographical region. In our empirical tests that use weighted least square regressions, we find no significant effects of diversification by property types on cash flows, expenses and risk premiums of Asian REITs. However, significant variations in expenses and risk premiums of the REITs are explained by a geographical diversification strategy. REITs with assets distributed across different countries incur higher total expenses, interest expenses, general and administrative expenses and capital expenditure. Regionally diversified REITs have higher risk premiums. The results remain unchanged after controlling for country factor and simultaneity between the cash flows, expenses, risk and return variables.

Suggested Citation

  • Shan Min Charmaine Cheok & Tien Foo Sing & I-Chun Tsai, 2011. "Diversification as a Value-Adding Strategy for Asian REITs: A Myth or Reality?," International Real Estate Review, Global Social Science Institute, vol. 14(2), pages 184-207.
    • Handle: RePEc:ire:issued:v:14:n:02:2011:p:184-207
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    Citations

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    Cited by:

    1. Mariya Letdin & C. Stace Sirmans & G. Stacy Sirmans, 2024. "Spread Too Thin: REIT Asset Dispersion and Divergence of Opinion," The Journal of Real Estate Finance and Economics, Springer, vol. 69(2), pages 201-227, August.
    2. Bing Zhu & Stanimira Milcheva, 2020. "The Pricing of Spatial Linkages in Companies’ Underlying Assets," The Journal of Real Estate Finance and Economics, Springer, vol. 61(3), pages 443-475, October.
    3. Su Han Chan & Ko Wang & Jing Yang, 2016. "The Pricing of Construction Loans," International Real Estate Review, Global Social Science Institute, vol. 19(4), pages 411-434.
    4. Wichita State University, 2016. "Contagion, Interdependence and Diversification across Regional UK Housing Markets," International Real Estate Review, Global Social Science Institute, vol. 19(3), pages 327-351.

    More about this item

    Keywords

    Diversification and focus strategies; Asian REITs; Illiquidity premiums;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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