“Green” buildings and Real Estate Investment Trust's (REIT) performance
| Date | 20 September 2013 |
| Published date | 20 September 2013 |
| DOI | https://doi.org/10.1108/JPIF-03-2013-0019 |
| Pages | 545-574 |
| Author | Kim Hin Ho,Satyanarain Rengarajan,Ying Han Lum |
| Subject Matter | Property management & built environment |
ACADEMIC PAPER
“Green” buildings and Real Estate
Investment Trust’s (REIT)
performance
Kim Hin Ho (David), Satyanarain Rengarajan and
Ying Han Lum
Department of Real Estate, School of Design Environment,
National University of Singapore, Singapore
Abstract
Purpose – The paper has the following objectives in mind: to examine whether or not “green”
developments haveany significant effect on the Real Estate InvestmentTrust’s (REIT) operational and
financial performance; to examine whether or not the effects of “green” developments on the REIT’s
performance is consistent across the different property types namely office, retail andresidential.
Design/methodology/approach – The paper introduces two variables to measure “greenness” of
REIT’s. These variables include the percentage of square feet of certified properties and the average
“greenness”score. Firm’s size as measured by taking naturallogarithm of total assets was also included
as it serves as an indirect measurement of “greenness”. Other financialvariables were added to control
for the differencesin firm’s characteristics.This is meant to isolate the variationin performance variable
that could be explainedby the “green” variables. Followingwhich, regressions (OLS) were estimatedfor
each of the performance variables as measured by ROA, FFO/total revenue and ROE.
Findings – The general findings of this paper are: “Green” buildings do impact both the operational
and financial performance of REITs. However, different measures of “greenness” of REIT’s property
portfolio will yield different set of results; the observed impacts of “green” buildings are mainly
significant for both the K-REIT and Capitamall Trust (CMT) whereas that for City Developments
Limited (CDL) are insignificant; the observed effects vary across the different property types namely
office, retail and residential as represented by K-REIT, CMT and CDL. The paper provides evidence to
show that “green” buildings are better options given the various benefits, as compared to their
counterparts.
Practical implications – The findings of this paper should serve as a meaningful guide to look at
how investments in “green” and sustainable buildings will create value for real estate investors at the
REIT’s level.
Originality/value – The paper offers insightful information for REIT’s managers when they make
decisions on the acquisition of “green” properties or retrofitting of the existing properties in their direct
real estate portfolios. As such, this paper is meant to extend the body of literature on “green” buildings
by investigating the significance of “green” buildings on REIT’s performance.
Keywords Green buildings,Operational and financial performance of REITs,
Ordinaryleast-square multipleregression models, Returnon assets, FFO/total revenue,Return on equity,
Real estate, Investments
Paper type Research paper
Introduction
Society has become more aware and concerned with the rapid environmental changes
that are taking place around the world. With increasing environmental consciousness,
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
Received March 2013
Accepted June 2013
Journal of Property Investment &
Finance
Vol. 31 No. 6, 2013
pp. 545-574
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-03-2013-0019
“Green”
buildings REIT’s
performance
545
it has led to the implementation of various green initiatives in the hope of slowing down
environmental degradation. Besides the introduction of policies to limit the amount of
greenhouse gas emissions from industries,policy makers are coming up with initiatives,
targeted at activities that may have negative impacts on the environment.
The real estate sector is of particular interest as buildings play a significant role in
affecting the environment. Research has shown that the real estate industry does constitute
a significant negative impact on the environment. It is well documented that buildings are
responsible for an estimated 30-40 percent of all primary energy use, greenhouse gas
emission and waste generation (UNEP, 2007). A similar situation is observed in Singapore
where buildings constitute the third key contributor of carbon dioxide emission (Figure 1).
Furthermore, the Intergovernmental Panel on Climate Change (IPCC) has identified
buildings as the single largest potential component for the reduction of greenhouse
gases (IPCC, 1995). Thus, by improving the energy efficiency within the building, a
reduction in the usage, the demand for energy and other scarce resources can be
expected. However, for green practices to be successfully adopted in the real estate
industry, it requires the joined effort from both the consumer and the government.
From the consumer perspective, rising environmental consciousness has led to an
increase in the individual’s and business’s interest in sustainable asset investing. As a
result, it has contributed to a faster pace of “greening” real estate assets and a
significant rise in the number of “green” buildings that are developed on the principles
of human-centeredness and sensitiveness to the environment.
Nevertheless, the government as the regulatory body has to put in place regulations
and legislations to push for such a “green” building movement. It has to come up with
various initiatives and incentives to encourage industry players and consumers to
participate in this movement. In Singapore, the building and construction authority
(BCA) introduced the BCA Green Mark Scheme in January 2005 as an initiative to drive
Singapore’s construction industry towards more environment-friendly buildings. To
speed up the pace of “green” building revolution, BCA also enhanced regulatio ns to
make it mandatory for all new buildings and existing buildings undergoing major
retrofitting to achieve the minimum Green Mark certified standard. The BCA has also
provided various incentives under the Green Mark incentive scheme to encourage the
different market players to “green” their property assets. With strong demand
generated by various real estate players and the government’s will to push for
“greenness” of the built environment, these will help to support the growth and
development of a “greener” and more sustainable real estate industry.
Figure 1.
Key carbon dioxide
contributors in Singapore
54%
19%
industry transport buildings Consumers/
households
Others
16%
9%
2%
Source: Solidiance and Singapore Green Building
Council (2010)
JPIF
31,6
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