The significance and performance of Singapore REITs in a mixed-asset portfolio

Abstract

Purpose – REITs have taken on increased significance in Asia in recent years, with Singapore REITs (S-REITs) becoming an important property investment vehicle since 2002. The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of S-REITs in a mixed-asset portfolio context in Singapore over 2003-2013. The post-GFC recovery of S-REITs is also assessed. Design/methodology/approach – Using monthly total returns, the risk-adjusted performance and portfolio diversification benefits of S-REITs over 2003-2013 is assessed, with efficient frontiers and asset allocation diagrams used to assess the role of S-REITs in a mixed-asset portfolio. Sub-period analyses are conducted to assess the post-GFC recovery of S-REITs. Findings – S-REITs delivered strong risk-adjusted returns, being the best-performed asset class, but with little portfolio diversification benefit over 2003-2013. Whilst taking on reduced risk, but with less portfolio diversification benefits in recent years, S-REITs are seen to be robust relative to the other major Singapore asset classes; contributing significantly across the risk spectrum; particularly in the post-GFC period, where S-REITs have been the best-performed asset class in Singapore. Practical implications – The results highlight the important strategic role of S-REITs in a Singapore mixed-asset portfolio. The strong risk-adjusted performance has highlighted the robustness of S-REITs, with S-REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum; particularly in the post-GFC period. This robustness highlights the ongoing strategic role of S-REITs in a Singapore mixed-asset portfolio, as well as the ongoing development of S-REITs as an important pan-Asia hub for REITs. Originality/value – This paper is the first published empirical research analysis of the risk-adjusted performance of S-REITs and the role of S-REITs in a portfolio. Given the increased significance of REITs in Asia, this research enables empirically validated, more informed and practical property investment decision-making regarding the role of S-REITs in a mixed-asset portfolio and S-REIT performance in a post-GFC context.

Implications of dividend tax reforms on M-REITs performance

“…This is supported by the finding of Koh et al (2014) where they found that S-REITs provided a greater average annual return of 35 percent in comparison to 17 percent offered by the Straits Times Index (STI) in their period of study from 2008 to 2012. Their finding also showed that the total risk of S-REITs was higher than STI, which again concurs to the finding by Newell et al (2015) who found that S-REITs had a higher risk than the stock market but lower than the property market. On a risk-adjusted basis, S-REITs had a superior performance as compared to the Singapore property companies and stocks except during the GFC.…”

“…In Singapore, REITs are considered as a separate asset class when investors are looking to 186 JPIF 35,2 diversify and to strategically better allocate their asset composition within their investment portfolios (Wong et al, 2012). Newell et al (2015) found Singapore REITs (S-REITs) outperformed the overall stock market in their assessment of S-REITs in a mixed asset portfolio from 2003 to 2013 by using the reward-to-risk ratio and the Sharpe ratio. This is supported by the finding of Koh et al (2014) where they found that S-REITs provided a greater average annual return of 35 percent in comparison to 17 percent offered by the Straits Times Index (STI) in their period of study from 2008 to 2012.…”

“…As for REITs in the Asian markets, Pham (2012) and Coen and Lecomte (2014) found that Asian REITs had a superior performance as compared to REITs in developed markets. Other studies such as who focused on Hong Kong, Koh et al (2014) and Newell et al (2015) on Singapore and Newell and Wen Peng (2012) on Japan, found that HK-REITs, S-REITs and J-REITs outperformed the overall stock market. For Malaysia, riskadjusted performance (RAP) studies on REITs had not achieved a consensus.…”

REIT Financing of Real Estate Development Projects in Nigeria: Why Not?

“…Therefore, a linear REIT asset allocation model evolves. Interestingly, past researchers have not investigated REIT diversification into real estate construction financing but only its diversification benefit for other asset class especially in a mixed-asset portfolio (Pham, 2013;Newell et al, 2013;2015;Liow & Webb, 2009;Benefield et al, 2009). There is the possibility of added income and return performance of Nigeria REIT if diversification to construction financing is considered.…”

“…There is no available literature on the asset allocation of REITs to property development financing. The earlier studies on asset allocation have considered REIT as a mixed-asset portfolio diversifier in an investment portfolio rather than looking for REIT asset allocation to financing (Conover et al, 2002;Newell et al, 2013Newell et al, , 2015and Webb and Liow, 2009). This could be due to the existence of a working property finance systems in most REIT markets and the availability of developed properties to be acquired by REITs.…”