Impact of firm-level attributes on listed real estate company performance
| Date | 24 August 2020 |
| Published date | 24 August 2020 |
| DOI | https://doi.org/10.1108/JPIF-03-2020-0030 |
| Pages | 323-348 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Martin Edward Haran,Daniel Lo,Michael McCord,Peadar Davis,Lay Cheng Lim |
Impact of firm-level attributes on
listed real estate
company performance
Martin Edward Haran
Ulster University, Coleraine, UK
Daniel Lo
Faculty of Computing Engineering and the Built Environment,
Ulster University, Newtownabbey, UK
Michael McCord and Peadar Davis
Ulster University, Coleraine, UK, and
Lay Cheng Lim
Belfast School of Architecture and the Built Environment,
University of Ulster, Newtownabbey, UK
Abstract
Purpose –The purpose of this paper is to test the extent to which company-specific attributes including
market capitalisation, capital structure and investment focus impact upon the performance of European listed
real estate companies. Enhanced understanding of firm-level performance drivers is important for investors in
order to diversify their investment portfolios and to mitigate company-specific risks at different points in the
real estate cycle.
Design/methodology/approach–The study centres on six key listed European real estate markets selected
on the basis of market capitalisation, diversity, transparency and maturity. A series of statistical tests are
undertaken using EPRA and Bloomberg data for the period of 2007–2017 using 113 listed property companies,
all of whom were contemporaneous constituents of EPRA indices in this period. A series of customised
performance indices were constructed to evaluate firm-level performance attributes.
Findings –Firm-level attributes collectively account for more variation of risk-adjusted return than sector-
level attributes over the investigation period. The impact of firm-specific attributes on performance varies
significantly from country to country attributableto the contrasting cyclical property market trends in the pre–
and post–Global Financial Crisis period. REITs outperformed non-REITs on a risk-adjusted basis attributed to
the strong performance of “niche”market entrants allied with stronger regulatory structure. Finally, the
findings showcase that sector specialist firms outperform diversified companies inferring that investors should
seek to attain diversification through portfolio-based approaches rather than firm-level strategies.
Practical implications –The results have implications for real estate companies aiming to raise capital
internally for growth as higher return on equity in general signals reduced cost of capital. Secondly, the
findings should be of practical use to multinationals specialising in international real estate trading in
designing their business plans in general and formulating cross-country investment strategies in particular.
Last but not least, a more refined conceptualisation of corporate-level performance drivers should complement
existing professional practices in relation to business/company appraisal.
Originality/value –The research integrates EPRA and Bloomberg data sets to create a series of bespoke
index constructs to measure the impact of firm-specific attributes on European listed real estate companies.
Additionally, the authors construct a Herfindahl Index (H.I.) to further the debate on the impacts of
diversification within the listed real estate sector. This serves to further heighten investor understanding of
investment allocation and portfolio optimisation strategies for the listed real estate sector given the
increasingly diverse range of investment opportunities within emerging sub-markets.
Keywords Herfindahl index, Listed real estate, Performance analysis, Company-level performance, European
listed real estate market, Firm-specific attributes
Paper type Technical paper
Impact of
firm-level
attributes
323
This work was supported by European Public Real Estate Association through EPRA Academic
Research Grant for Young Researchers 2017.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 30 March 2020
Revised 9 July 2020
Accepted 1 August 2020
Journal of Property Investment &
Finance
Vol. 39 No. 4, 2021
pp. 323-348
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-03-2020-0030
1. Introduction
Over the past three decades, the growing diversity of listed real estate markets around the
world has provided investors with the opportunity to increase their exposure to commercial
real estate without the burden of acquiring, managing and disposing of direct property
investments and promoting cross-border investment in commercial real estate assets (Ling
and Naranjo, 2002;Brounen et al., 2012;Giacomini et al., 2015). Indeed, recent years have
witnessed a significant escalation in the volume of capital flows into listed real estatemarkets
by institutional investors seeking exposure to “tangible”assets whilst simultaneously
benefiting from the liquidity and regulated market structure. The underperformance of
conventional asset classes, most notably government bonds, has undoubtedly been a factor in
the increased capital flows; nonetheless, the importance of the listed real estate sector within
investor portfolios will continue to expand and evolve relative to investor need.
Following a period of subdued growth, the European listed real estate market has evolved
markedly over the course of the last 15 years with a series of countries including the United
Kingdom and Germany (in 2007) and Ireland and Spain (in 2013), all enacting REIT-enabling
legislation and adding to the “attractiveness”and global “accessibility”of the listed market.
At the end of Q4 2019, the total value of assets under management within the European listed
sector stood at V503bn comprising 225 REITs (combined market cap of V215bn) and non-
REITs (combined market cap of V238bn). The listed sector constitutes circa 6.9% of the
European commercial real estate market in terms of AUM [1]. Traditional sectors including
office, retail and residential still dominate in terms of overall market composition; however,
niche industries such as self-storage and healthcare are gaining traction with growing
investor appetite apparent in recent years. Given the increased market depth and diversity of
the listed real estate universe, understanding the key drivers of performance at market,
sectoral and company level has assumed increased importance and is of practical benefit for
informing portfolio allocation strategies. Specifically, this paper addresses two fundamental
questions:
(1) How have European listed real estate companies/markets performed in terms of risk-
adjusted return?
(2) What are the key attributes affecting the performance of European listed real estate at
(1) sector and (2) company levels and how does this change relative to the real estate
cycle?
As outlined by Giacomini et al. (2015), whilst a wealth of studies have examined fundamental
and behavioural factors on listed real estate returns (Bond et al., 2003;Serrano and Hoesli,
2009;Haran et al., 2013), there remain limited insights on the extent to which firm-specific
attributes and characteristics influence performance. Consistent with Giacomini et al. (2015),
this paper examines the “drivers”of performance of individual listed real estate companies by
exploring the effects of firm characteristics on risk-adjusted returns performance.
Accordingly, this research focusses on the historical performance of six major European
markets, namely France, Germany, the Netherlands, Sweden, Switzerland and the United
Kingdom. The six markets were selected on the basis of market capitalisation, diversity,
transparency and maturity. A series of statistical tests are undertaken using EPRA and
Bloomberg data on the six countries, for the period of 2007–2017 [2]. The analysis explores
the relationship between listed real estate performance and a wide spectrum of attributes at
sectoral and firm levels to coincide with the market correction resulting from the Global
Financial Crisis (GFC) and the European Debt Crisis (EDC) and the subsequent recovery in
the European listed real estate sector. In the study, ten real estate sectors are identified using
EPRA categorisation. The firm-specific attributes include (1) market capitalisation, (2) loan-
to-value [3], (3) dividend yield, (4) revenue growth, (5) return on equity (ROE), (6) investment
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