Benchmark for REIT Performance in Malaysia Using Hedonic Regression Model

Abstract

This paper focuses on the setting of a benchmark for the REIT performance within the REIT industry to achieve a sector induced national REIT index for Malaysia. The study has as objectives to (i) explore literatures on performance and benchmarking; (2) appraise REIT performance analysis as presented in the past studies; and (3) propose Hedonic Regression Model analysis towards setting a benchmark for REIT. The study adopted the quantitative research and analysis method. Three conventional REITs were purposively selected to reflect diversity in portfolio and location. Data were extracted from the annual reports of Three (3) REIT companies (AmFirst REIT, Starhill REIT & AmanahRaya REIT) through their websites for period of five years (2008)(2009)(2010)(2011)(2012). Hedonic regression was performed on the collected data from the REITs Company to forecast benchmark for the REITs based on individual capacity as reflected by the economic and operational indices. Thereafter the average of the return forecast for the three selected REIT represents an aggregate benchmark for the REIT industry in Malaysia. The study found that the M-REIT do outperform the KLCI but performed lower than the industry set return for 2013 by the study. The limitation of the study is twofold, first the sample for the study is small (3 out of the 12 conventional REITs) and secondly the study did not cover the Islamic REIT and there are 3 Islamic REITs in Malaysia. The identified limitations will be addressed in future research.

Investing in Real Estate Investments Trusts (REITs) Provides Performance and Risk Diversification Benefits: A Malaysia and Japan Analysis

“…The study concluded that investing in M-REITs will provide a preferable return because every one of the M-REITs outperformed the market benchmark during the time period. This is further reinforced in a study by Olanrele et al (2014), who analysed the performance of three M-REITs over a five-year period (2008)(2009)(2010)(2011)(2012)(2013)(2014) using a hedonic regression model. The study found that all the M-REITs outperformed the market index throughout the time period, albeit with some sectoral capacity underperformance.…”

The Impact of Financial Determinants on Malaysian Reits’ Performance

“…Firm size has been measured commonly by total market capitalisation (natural logarithm of market capitalisation) and total assets (Kim, 2001). Prior research showed mixed results for the relationship between firm size and return performance (Ambrose & Linneman, 2001;Chang et al, 2015;Mclntosh et al, 1991;Olanrele et al, 2014). According to Ambrose (2001), larger firms should increase the rate of return due to a higher profit margin and lower cost of capital.…”

“…This finding was supported by Das and Bhattacharya (2013), which concluded that ROE had a significant relationship with stock return. The possible explanation for the negative relationship was due to the simultaneous effects of all financial determinants on the annual return and no variable should be considered individually and isolated from others to reflect the true association between ROE and annual return as suggested by Olanrele et al (2014). Another possible explanation concerning the negative relationship may be due to the declining trend in ROE due to increases in accumulated retained profit while the net income from the property was relatively stable.…”

Analyzing the Relationship between the Features of Direct Real Estate Assets and Their Corresponding Australian—REITs

“…Hedonic analysis is originally the study of the relationship between the price of a product and the characteristics of the product. It was first applied in 1926 to value the price of farmland (Olanrele et al 2014). The hedonic pricing model has been widely discussed academically and accepted as a way of assessing the price of real estate which has a variety of attributes.…”