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The value-added role of sector-specific REITs in Australia

Author/s: Yu Cheng Lin, Hyunbum Cho, Chyi Lin Lee

Date Published: 2/01/2019

Published in: Volume 25 - 2019 Issue 1 (pages 49 - 72)

Abstract

Australian sector-specific REITs (A-REITs) have grown significantly in recent years. This raises the issue of whether sector-specific A-REITs play a value-added role compared with diversified A-REITs. Despite the rapid growth of sector-specific A-REITs, limited studies have been devoted to it. Hence, this study aims to compare sector-specific A-REITs with diversified A-REITs by assessing risk-return performance, portfolio diversification benefits and portfolio allocation strategies for sector-specific A-REITs over January 2000 – August 2018. The results suggest that sector-specific A-REITs play a value-added and strategic role in an Australian mixed-asset portfolio, with superior risk-adjusted returns, enhanced portfolio diversification benefits and increased portfolio returns compared with that for diversified A-REITs. This supports the notion of specialisation value in an A-REIT context. The practical listed property investment implications regarding the value-added and strategic role of sector-specific A-REITs are also identified.

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Keywords

Australia - Diversified Reits - Mixed-Asset Portfolio - Portfolio Diversification - Risk-Adjusted Returns - Sector-Specific Reits

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