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Demystifying the Management Structure Puzzle: an Empirical Investigation into the Drivers of REIT Internalization

Author

Listed:
  • Kevin Hon Sheng Yap

    (RHB Securities, Ocean Financial Centre)

  • Seow Eng Ong

    (National University of Singapore)

  • Wee Yong Yeo

    (National University of Singapore)

Abstract

Real estate investment trusts (REITs) have grown to become an important financial product in Asia, which today stands as the second largest REIT market in the world. Although existing literature has shown that externally managed REITs have underperformed their internally managed counterparts, the Asian REITs market has a strong preference for the external management model. This paper investigates the factors that drive REITs to internalize or deter them from internalizing their manager by studying the characteristics of 26 internalization subjects in Australia at their point of internalization. We compare their financial, corporate governance and portfolio characteristics to a control group. We find the MBR, the parent of the REIT manager, the asset size, and the geographic diversity of assets to be significant determinants of the probability of these REITs internalizing their manager. The low growth prospect faced by large Australian REITs that had a domestic investment focus motivates them to internalize their manager.

Suggested Citation

  • Kevin Hon Sheng Yap & Seow Eng Ong & Wee Yong Yeo, 2018. "Demystifying the Management Structure Puzzle: an Empirical Investigation into the Drivers of REIT Internalization," The Journal of Real Estate Finance and Economics, Springer, vol. 57(3), pages 367-399, October.
    • Handle: RePEc:kap:jrefec:v:57:y:2018:i:3:d:10.1007_s11146-017-9630-3
    DOI: 10.1007/s11146-017-9630-3
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