Open AccessInternational Real Estate Review
Author(s) -
Shan Min Charmaine Cheok,
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Tien Foo Sing,
IChun Tsai,
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Publication year - 2011
Publication title -
journal of the asian real estate society
Language(s) - English
Resource type - Journals
ISSN - 1029-6131
DOI - 10.53383/100139
Subject(s) - real estate investment trust , diversification (marketing strategy) , business , cash flow , capital expenditure , real estate , systematic risk , economics , financial economics , finance , marketing
This study tests the impact of diversification strategies on the cash flows, expenses, risks and returns of REITs in Asia. Hirschman-Herfindahl indices (HHI) are computed based on 2281 properties owned by 63 sample Asian REITs for the periods from 2002 to 2007 to measure the levels of diversification by property type and geographical region. In our empirical tests that use weighted least square regressions, we find no significant effects of diversification by property types on cash flows, expenses and risk premiums of Asian REITs. However, significant variations in expenses and risk premiums of the REITs are explained by a geographical diversification strategy. REITs with assets distributed across different countries incur higher total expenses, interest expenses, general and administrative expenses and capital expenditure. Regionally diversified REITs have higher risk premiums. The results remain unchanged after controlling for country factor and simultaneity between the cash flows, expenses, risk and return variables.