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The Journal of Real Estate Finance and Economics
Published in:

17-08-2017

Demystifying the Management Structure Puzzle: an Empirical Investigation into the Drivers of REIT Internalization

Authors: Kevin Hon Sheng Yap, Seow Eng Ong, Wee Yong Yeo

Published in: The Journal of Real Estate Finance and Economics | Issue 3/2018

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Abstract

Real estate investment trusts (REITs) have grown to become an important financial product in Asia, which today stands as the second largest REIT market in the world. Although existing literature has shown that externally managed REITs have underperformed their internally managed counterparts, the Asian REITs market has a strong preference for the external management model. This paper investigates the factors that drive REITs to internalize or deter them from internalizing their manager by studying the characteristics of 26 internalization subjects in Australia at their point of internalization. We compare their financial, corporate governance and portfolio characteristics to a control group. We find the MBR, the parent of the REIT manager, the asset size, and the geographic diversity of assets to be significant determinants of the probability of these REITs internalizing their manager. The low growth prospect faced by large Australian REITs that had a domestic investment focus motivates them to internalize their manager.
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Appendix
Available only for authorised users
Footnotes
1
Asian REITs refer to REITs listed on the stock exchanges of Hong Kong, Japan, Malaysia, Singapore, South Korea, Thailand and Taiwan. Due to the size of the Australian REIT market—it is the second largest in the world—we refer to it as a standalone market.
 
2
There is frequent confusion in the use of the term “advisor” and “manager.” In REIT markets outside the United States, the REIT manager typically performs the responsibilities of the US-REIT advisor and the REIT property manager typically performs the responsibilities of US-REIT manager. To avoid confusion, the REIT manager will henceforth refer to the entity providing management services while the REIT property manager will be the entity providing property management services to the REIT.
 
3
See Sagalyn (1996) for a comprehensive list of potential conflicts of interest in REITs.
 
4
DatAnalysis Premium is a comprehensive database of Australian Securities Exchange listed and delisted firms managed by Morningstar.
 
5
Results are not shown but are available upon request.
 
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Metadata
Title
Demystifying the Management Structure Puzzle: an Empirical Investigation into the Drivers of REIT Internalization
Authors
Kevin Hon Sheng Yap
Seow Eng Ong
Wee Yong Yeo
Publication date
17-08-2017
Publisher
Springer US
Published in
The Journal of Real Estate Finance and Economics / Issue 3/2018
Print ISSN: 0895-5638
Electronic ISSN: 1573-045X
DOI
https://doi.org/10.1007/s11146-017-9630-3

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