George A. Matysiak

The short term inflation hedging characteristics of UK real estate

This study investigates the short-term inflation-hedging characteristics of U.K. real estate compared to other U.K. investments. It considers not only total returns but also changes in income and changes in capital values. The analyses are undertaken using annual and quarterly data. Stocks, bonds, appraisal-based real estate (including the three property types, separately), and real estate stocks are considered. Real estate series, constructed from the original appraisal series to take account of autocorrelation, also are used. The methodology is based on that devised by Fama and Schwert (1977) and tests are undertaken for stationarity and structural breaks. Hypotheses are established about the coefficients on expected and unexpected inflation in the model, and these are tested. It is concluded that real estate has poorer short-term hedging characteristics for total return, change in capital value, and change in income than stocks but better characteristics than bonds. However, there is evidence to suggest that the relationships change under different economic environments.

The long‐term inflation‐hedging characteristics of UK commercial property

Based on a multivariate analysis of long‐term total returns and inflation data over the period 1963‐1993, shows that commercial property total returns reflect both expected and unexpected components of inflation in the long term. There is no evidence that property returns systematically provide, on an annual basis, hedging characteristics against either of these components.

Using commercial property indices for measuring portfolio performance

The measurement of property portfolio performance is an important issue that, superficially, appears very straightforward. All that is required is an index of property market movements which can then be used as a reference point for comparing performance. Problems can arise, however, if the statistical characteristics of the index are different from the portfolio being analysed. This is not a trivial issue as the difference can be large enough to obscure the true performance of the portfolio and can lead to an inaccurate diagnosis of investment skill. Draws on recent research into index construction and examines some of the issues surrounding these problems. Discusses tracking errors and benchmarking issues.

A Time-Varying Analysis of Abnormal Performance of UK Property Companies

The investment selection ability of property company managers is investigated. The specialized nature of commercial property portfolio holdings presents the opportunity for added value and, therefore, for abnormal performance. It is argued that property company share investment performance should be undertaken using time-varying abnormal performance measures; in particular, a time-varying measure of Jenens excess performance. Furthermore, because of the changing structure of both the composition of the underlying property portfolios held by property companies and the levels of gearing, the analytical framework should also employ a time-varying beta measure. Over the period of analysis, 1980-1995, the majority of property companies analysed exhibited an enduring risk-adjusted underperformance profile, although this was not found to be statistically distinguishable from zero. For the few companies delivering a positive abnormal performance it did not prove statistically significant. The implication is that the total returns delivered by property companies are not significantly different from a random buy-and-hold strategy. This may be indicative of the indifferent performance of the underlying direct property portfolio holdings, with the implication that property company managers have not demonstrated any property selection skills by exploiting their specialist knowledge in identifying underpriced investment opportunities. If property selection ability does exist in the direct commercial property market then, in the main, it is not reflected in risk-adjusted outperformance in property company share prices. If investors believe there are inefficiencies in the direct commercial property market, and therefore opportunities for outperformance, it does not appear to be possible to exploit such inefficiencies indirectly by investing in property company shares.

Analyzing the Performance of Non-Listed Real Estate Funds: A Panel Data Analysis

The rapid growth of non-listed real estate funds over the last several years has contributed towards establishing this sector as a major investment vehicle for gaining exposure to commercial real estate. Academic research has not kept up with this development, however, as there are still only a few published studies on non-listed real estate funds. This paper aims to identify the factors driving the total return over a seven-year period. Influential factors tested in our analysis include the weighted underlying direct property returns in each country and sector as well as fund size, investment style gearing and the distribution yield. Furthermore, we analyze the interaction of non-listed real estate funds with the performance of the overall economy and that of competing asset classes and found that lagged GDP growth and stock market returns as well as contemporaneous government bond rates are significant and positive predictors of annual fund performance.

Optimising property portfolio holdings: a scenario‐assisted approach

Suggests that in a climate of uncertainty, property investment decisions need to be undertaken within a quantifiable risk and return framework. Offers an analytical framework, considering a portfolio of properties as an entity, to arrive at optimum risk and return trade‐offs within the portfolio. Concludes that a scenario‐type approach can obtain inputs and outlines its many uses.

Private Equity Real Estate: Asymmetric Effects of Gearing and Drivers of Performance

This research investigates the key drivers of European non-listed real estate funds performance. In particular, it seeks to understand the extent to which funds’ underlying market and sector exposure, gearing, and fund size, contribute to a fund’s total return. Using a proprietary database covering the period 2001-2012, we construct a unique fund-specific performance benchmark based on average weighted return data in the markets and property types to which each fund is exposed. We track fund performance and its drivers through the years of rapid expansion of the non-listed real estate sector that was followed by the sharp contraction during the global financial crisis and establish whether performance drivers have a differential impact during market upturns and downturns. We find that fund performance during the study period was predominantly driven by the underlying direct real estate market and sector exposure of a fund along with the level of gearing and the size of a fund. The effect of gearing on returns is asymmetric, i.e. the negative effect of gearing is larger in a downturn than the positive effect during an upturn at each level of gearing, particularly for highly geared funds. Our empirical analysis also suggests that larger funds exhibit higher total returns while controlling for other factors and find a J-curve effect where funds in the first two years of their existence are marked by lower performance than fully operational or more mature funds.