Analysing sector performance and company-specific performance for listed real estate

Research output: Book/ReportCommissioned report

Abstract

This research investigates how company-specific attributes including market capitalisation, institutional structure and investment focus impact upon key performance indicators. The study centres on six key listed European real estate markets namely France, Germany, Netherlands, Sweden, Switzerland and the United Kingdom. EPRA data provision afforded exploration of key performance indictors across the six markets for the period 2007-2017. Bloomberg data served to compliment the EPRA data provision affording integration of company level attributes with key market performance indicators. The results presented are based on 113 listed property companies all of whom were constituents of the EPRA indices over the defined time series. In order to achieve the necessary consistency of interpretation and granularity depicting company-level performance attributes, a series of customised performance indices were constructed. This delineated analysis details a number of pertinent findings: • In terms of explanatory power, company level attributes collectively account for more variation of risk-adjusted return than sector level attributes over the investigation period. More specifically, return on equity has been one of the most important attributes in explaining the performance of listed real estate. This may 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.

▪ The analysis also demonstrates that the impact of company specific attributes on performance varies significantly from country to country. This in some respects can be attributed to the contrasting cyclical property market trends pertinent within the six markets across the 10year time series 2007-2017. This in turn served to showcase the importance of company level attributes in optimising market upcycle opportunities and bolstering resilience in downcycles.

▪ In terms of structural composition, it is noteworthy that REITs outperformed non-REITs over the investigation period 2007-2017 on a risk-adjusted basis. The increased maturity, improved depth in the market allied with niche market entrants have all been factors in contributing to the out-performance of REITs.

▪ Finally, the research served to showcase the value adding benefits realised by sector specialist funds across the market cycle. Using Herfindahl Index (H.I) time series constructs the research results suggest that sectoral diversification is better attained by investing across sectorspecialist companies rather than seeking diversification at the individual company level.

A more thorough understanding of sector-wide and company-specific attributes impacting listed real estate performance based on robust statistical analysis is valuable to investment professionals in terms of diversifying investment portfolios and mitigating industry/company-specific risks. Second, given that the scope of this research covers six major public real estate markets in Europe, 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.
LanguageEnglish
Number of pages54
Publication statusPublished - 4 Apr 2019

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Real estate
Return on equity
Real estate market
Performance levels
Diversification
Real estate investment trusts
Germany
Multinationals
Property market
Investment portfolio
Business plan
Sweden
Institutional investment
Key performance indicators
Investing
Factors
Market capitalization
Conceptualization
Niche markets
Investment strategy

Cite this

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title = "Analysing sector performance and company-specific performance for listed real estate",
abstract = "This research investigates how company-specific attributes including market capitalisation, institutional structure and investment focus impact upon key performance indicators. The study centres on six key listed European real estate markets namely France, Germany, Netherlands, Sweden, Switzerland and the United Kingdom. EPRA data provision afforded exploration of key performance indictors across the six markets for the period 2007-2017. Bloomberg data served to compliment the EPRA data provision affording integration of company level attributes with key market performance indicators. The results presented are based on 113 listed property companies all of whom were constituents of the EPRA indices over the defined time series. In order to achieve the necessary consistency of interpretation and granularity depicting company-level performance attributes, a series of customised performance indices were constructed. This delineated analysis details a number of pertinent findings: • In terms of explanatory power, company level attributes collectively account for more variation of risk-adjusted return than sector level attributes over the investigation period. More specifically, return on equity has been one of the most important attributes in explaining the performance of listed real estate. This may 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. ▪ The analysis also demonstrates that the impact of company specific attributes on performance varies significantly from country to country. This in some respects can be attributed to the contrasting cyclical property market trends pertinent within the six markets across the 10year time series 2007-2017. This in turn served to showcase the importance of company level attributes in optimising market upcycle opportunities and bolstering resilience in downcycles. ▪ In terms of structural composition, it is noteworthy that REITs outperformed non-REITs over the investigation period 2007-2017 on a risk-adjusted basis. The increased maturity, improved depth in the market allied with niche market entrants have all been factors in contributing to the out-performance of REITs. ▪ Finally, the research served to showcase the value adding benefits realised by sector specialist funds across the market cycle. Using Herfindahl Index (H.I) time series constructs the research results suggest that sectoral diversification is better attained by investing across sectorspecialist companies rather than seeking diversification at the individual company level. A more thorough understanding of sector-wide and company-specific attributes impacting listed real estate performance based on robust statistical analysis is valuable to investment professionals in terms of diversifying investment portfolios and mitigating industry/company-specific risks. Second, given that the scope of this research covers six major public real estate markets in Europe, 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.",
author = "M Haran and Daniel Lo and Michael McCord and PT Davis and Jim Berry",
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AU - Lo, Daniel

AU - McCord, Michael

AU - Davis, PT

AU - Berry, Jim

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N2 - This research investigates how company-specific attributes including market capitalisation, institutional structure and investment focus impact upon key performance indicators. The study centres on six key listed European real estate markets namely France, Germany, Netherlands, Sweden, Switzerland and the United Kingdom. EPRA data provision afforded exploration of key performance indictors across the six markets for the period 2007-2017. Bloomberg data served to compliment the EPRA data provision affording integration of company level attributes with key market performance indicators. The results presented are based on 113 listed property companies all of whom were constituents of the EPRA indices over the defined time series. In order to achieve the necessary consistency of interpretation and granularity depicting company-level performance attributes, a series of customised performance indices were constructed. This delineated analysis details a number of pertinent findings: • In terms of explanatory power, company level attributes collectively account for more variation of risk-adjusted return than sector level attributes over the investigation period. More specifically, return on equity has been one of the most important attributes in explaining the performance of listed real estate. This may 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. ▪ The analysis also demonstrates that the impact of company specific attributes on performance varies significantly from country to country. This in some respects can be attributed to the contrasting cyclical property market trends pertinent within the six markets across the 10year time series 2007-2017. This in turn served to showcase the importance of company level attributes in optimising market upcycle opportunities and bolstering resilience in downcycles. ▪ In terms of structural composition, it is noteworthy that REITs outperformed non-REITs over the investigation period 2007-2017 on a risk-adjusted basis. The increased maturity, improved depth in the market allied with niche market entrants have all been factors in contributing to the out-performance of REITs. ▪ Finally, the research served to showcase the value adding benefits realised by sector specialist funds across the market cycle. Using Herfindahl Index (H.I) time series constructs the research results suggest that sectoral diversification is better attained by investing across sectorspecialist companies rather than seeking diversification at the individual company level. A more thorough understanding of sector-wide and company-specific attributes impacting listed real estate performance based on robust statistical analysis is valuable to investment professionals in terms of diversifying investment portfolios and mitigating industry/company-specific risks. Second, given that the scope of this research covers six major public real estate markets in Europe, 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.

AB - This research investigates how company-specific attributes including market capitalisation, institutional structure and investment focus impact upon key performance indicators. The study centres on six key listed European real estate markets namely France, Germany, Netherlands, Sweden, Switzerland and the United Kingdom. EPRA data provision afforded exploration of key performance indictors across the six markets for the period 2007-2017. Bloomberg data served to compliment the EPRA data provision affording integration of company level attributes with key market performance indicators. The results presented are based on 113 listed property companies all of whom were constituents of the EPRA indices over the defined time series. In order to achieve the necessary consistency of interpretation and granularity depicting company-level performance attributes, a series of customised performance indices were constructed. This delineated analysis details a number of pertinent findings: • In terms of explanatory power, company level attributes collectively account for more variation of risk-adjusted return than sector level attributes over the investigation period. More specifically, return on equity has been one of the most important attributes in explaining the performance of listed real estate. This may 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. ▪ The analysis also demonstrates that the impact of company specific attributes on performance varies significantly from country to country. This in some respects can be attributed to the contrasting cyclical property market trends pertinent within the six markets across the 10year time series 2007-2017. This in turn served to showcase the importance of company level attributes in optimising market upcycle opportunities and bolstering resilience in downcycles. ▪ In terms of structural composition, it is noteworthy that REITs outperformed non-REITs over the investigation period 2007-2017 on a risk-adjusted basis. The increased maturity, improved depth in the market allied with niche market entrants have all been factors in contributing to the out-performance of REITs. ▪ Finally, the research served to showcase the value adding benefits realised by sector specialist funds across the market cycle. Using Herfindahl Index (H.I) time series constructs the research results suggest that sectoral diversification is better attained by investing across sectorspecialist companies rather than seeking diversification at the individual company level. A more thorough understanding of sector-wide and company-specific attributes impacting listed real estate performance based on robust statistical analysis is valuable to investment professionals in terms of diversifying investment portfolios and mitigating industry/company-specific risks. Second, given that the scope of this research covers six major public real estate markets in Europe, 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.

UR - http://www.epra.com/research/market-research

M3 - Commissioned report

BT - Analysing sector performance and company-specific performance for listed real estate

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