Brazilian REIT: Alternative Investment to Real Estate, Stock and Bonds

Abstract

Given the recent expansion of real estate securities in the Brazilian market, the present study examines Brazilian REITs (FIIs) returns’ exposure to underlying market returns (real estate, stock and bond) in order to assess evidence of diversification power provided by this investment type in light of Modern Portfolio Theory. The research considers a sample of FIIs listed on the São Paulo Stock Exchange, during the period of 2008-2014, applying Clayton and Mackinnon´s (2003) methodology, where the econometric model explaining REIT returns is decomposed into three market factors. Results indicate that although FII returns reflect their hybrid nature, the proposed model is not sufficient to explain their total returns, suggesting that FII performance is not primarily driven by any of these underlying markets. In fact, FII would consist of a unique asset class and as such may provide diversification benefits in a mixed portfolio, depending on the selected FII type.

Sustainable withdrawal strategies for Brazilian REITs portfolios

“…Brazilian REITs are thus permitted to invest in direct real estate assets, fixed-income securities, and other real estate-linked financial instruments. As closed-end funds, Brazilian REITs do not permit direct redemption of shares by investors; instead, shares must be bought and sold on the secondary market (Yokoyama et al, 2016).…”

Diversification and Property Control Impact on the Performance of Brazilian REITs

“…There is not much research in the Brazilian literature. Yokoyama, Neto and Cunha (2016) research uses a sample of REITs listed on the São Paulo Stock Exchange, during the period of 2008-2014. REIT returns is decomposed into three market factors.…”

Investment Style, Regionality Aspects, and Performance: An Analysis in the Context of Brazilian Real Estate Investment Trusts

“…There are a growing number of studies related to real estate investment trusts (REITs) in the finance literature (Damianov & Elsayed, 2018;Adnan et al, 2021). The REITs market in Brazil has recently expanded, especially after the changes to its regulations that began in 2008 (Yokoyama et al, 2017).…”

“…REITs combine characteristics of different markets, including the real estate market (the main source of revenue) and the stock market, which is the environment in which they are traded (Damianov & Elsayed, 2018;Yokoyama et al, 2017). In Brazil, REITs benefit from tax incentives (with relation to the distribution of rents), which is an important point to consider when comparing them with other securities (Scolese et al, 2015;Yokoyama et al, 2017;Franco, 2019).…”

“…Based on modern portfolio theory, Yokoyama et al (2017) identified that in the Brazilian market REITs can provide potential diversification benefits in an asset portfolio, either by increasing its return (in a portfolio composed of stocks and REITs) or by keeping the return constant and reducing volatility, thus raising the portfolio's efficient frontier. Moraes and Serra (2017) identified that bigger REITs (in terms of net equity) are more diversified; however, the quantity and concentration of properties (concentration of assets, real estate, and 334 financial instruments of the real estate market, such as shares, or "quotas," in other REITs) were not significant in explaining the diversification of REITs.…”