The significance of property type strategy of malaysian real estate investment trust

Abstract

The performance of Malaysian Real Estate Investment Trust (M-REIT) companies is linked to the property type strategy adopted by each individual company. M-REIT was established a decade ago, yet the outcome in performance difference between the property type strategies of focused and diversified M-REIT is still largely unexplored, thus presenting investment information gap for M-REIT managers and investors. The main aim of this study is to identify the property type strategy adopted by M-REIT companies and the performance difference between focused and diversified M-REIT in a mixed asset portfolio. Investment data from 2010 to 2016 of fourteen M-REIT companies were examined. Multiple regression analysis (MRA) was employed to investigate the significant relationship between the financial performance of focused and diversified M-REIT and REIT determinants. The property type strategy was categorized according to the market value of underlying property in the M-REIT property portfolio. The performance of focused and diversified M-REIT was assessed by employing risk-adjusted performance analysis, portfolio diversification analysis, correlation analysis, efficient frontier analysis, and portfolio optimization analysis. The results indicate there were ten focused M-REIT and four diversified M-REIT companies. The findings on riskadjusted performance analysis revealed the superior performance of the diversified M-REIT over the focused M-REIT. However, the diversification analysis showed that both focused and diversified M-REIT offered diversification benefit in a mixedasset portfolio, with the latter contributed higher returns in the mixed asset portfolio than their focused M-REIT counterparts. The results of MRA indicate that for the focused M-REIT, total return and net asset value (NAV) were significantly related to property market value, while total return was significantly related to total property net income. Conversely, for the diversified M-REIT, total return showed no significant relationship with all the determinant factors. However, NAV for diversified M-REIT exhibited a significant relationship with dividend yield and annual risk. Overall, these findings suggest that property type strategy impacts MREIT performance, while property market value and property net income only exhibit a significant relationship with the financial performance of focused M-REIT.