Kim Hin David Ho

“Green” buildings and Real Estate Investment Trust's (REIT) performance

Purpose - The paper has the following objectives in mind: to examine whether or not “green” developments have any significant effect on the Real Estate Investment Trusts (REIT) operational and financial performance; to examine whether or not the effects of “green” developments on the REITs performance is consistent across the different property types namely office, retail and residential. Design/methodology/approach - The paper introduces two variables to measure “greenness” of REITs. These variables include the percentage of square feet of certified properties and the average “greenness” score. Firms size as measured by taking natural logarithm of total assets was also included as it serves as an indirect measurement of “greenness”. Other financial variables were added to control for the differences in firms characteristics. This is meant to isolate the variation in performance variable that could be explained by the “green” variables. Following which, regressions (OLS) were estimated for each of the performance variables as measured by ROA, FFO/total revenue and ROE. Findings - The general findings of this paper are: “Green” buildings do impact both the operational and financial performance of REITs. However, different measures of “greenness” of REITs property portfolio will yield different set of results; the observed impacts of “green” buildings are mainly significant for both the K-REIT and Capitamall Trust (CMT) whereas that for City Developments Limited (CDL) are insignificant; the observed effects vary across the different property types namely office, retail and residential as represented by K-REIT, CMT and CDL. The paper provides evidence to show that “green” buildings are better options given the various benefits, as compared to their counterparts. Practical implications - The findings of this paper should serve as a meaningful guide to look at how investments in “green” and sustainable buildings will create value for real estate investors at the REITs level. Originality/value - The paper offers insightful information for REITs managers when they make decisions on the acquisition of “green” properties or retrofitting of the existing properties in their direct real estate portfolios. As such, this paper is meant to extend the body of literature on “green” buildings by investigating the significance of “green” buildings on REITs performance.

Explaining the macro-economy and retail real estate sector dynamic interaction between prime and suburban retail real estate sectors

Purpose – From the perspective of the macro‐economy and real estate sector interaction, this paper aims to examine the maturing prime retail real estate sector versus the developing suburban retail real estate sector.Design/methodology/approach – This paper adopts a highly specific dynamic computable general equilibrium model under system dynamics programming to structure the resulting system complexity within the context of Singapore.Findings – Ex post and ex ante model estimations find that the suburban retail real estate sector is on the whole more susceptible to gross domestic product (GDP) growth policy that affects both GDP expansion and retail rents in actual and expectation terms as well as returns.Research limitations/implications – The DCGE model ex ante estimations for the planned scenarios, under low or high GDP growth for the prime and suburban retail real estate sectors, enhances understanding of structural factors and dynamic interaction in the maturation phase of the prime retail real esta...

Modeling the structure of CV formation and expectations: The commercial retail real estate sector

Purpose – The paper aims to form system dynamics modeling in introduced in conjunction with econometric analysis and planned scenario analysis which will uniquely structure the process whereby the ex ante capital values of the prime retail real estate sector.Design/methodology/approach – The integrated system dynamics model investigates the structural factors affecting a unique expectation‐centered capital value (CV) formation of the prime retail real estate sector, through system dynamics modeling, econometric analysis , and the analysis of planned scenarios. This model extends beyond the usual lags and time line aspect of the price discovery process. The retail real estate sector is investigated within the Singapore context, as this sector changes dynamically and non‐linearly in relation to rental, cost and general demand expectations and to exogenous shocks like the Severe Advanced Respiratory Syndrome (SARS) outbreak. These macroeconomic factors are introduced to investigate their impact on retail spa...

REIT market efficiency through a binomial option pricing tree approach

Purpose - – The purpose of this paper is to examine the risk neutral and non-risk neutral pricing of Singapore Real Estate Investment Trusts (S-REITs) via comparing the average of the individual ratios (of deviation between expected and observed closing price/observed closing price) with the ratio (of standard deviation/mean) for closing prices via the binomial options pricing tree model. Design/methodology/approach - – If the ratio (of standard deviation/mean) ratio > - the ratio (of deviation between expected and observed closing price/observed closing price), then the deviation of closing prices from the expected risk neutral prices is not significant and that the S-REIT is consistent with risk neutral pricing. If the ratio (of deviation between expected and observed closing price/observed closing price) is greater, then the S-REIT is not consistent with risk neutral pricing. Findings - – Capitacommercial Trust (CCT), Capitamall Trust (CMT) and Keppel Real Estate Investment Trust (REIT) have large positive differences between the two ratios (39.86, 30.79 and 18.96 percent, respectively), implying that these S-REITs are not trading at risk neutral pricing. Suntec REIT has a small positive difference of 2.35 percent between both ratios, implying that it is trading at risk neutral pricing. Ascendas REIT has the largest negative difference between the two ratios at -4.24 percent, to be followed by Mapletree Logistics Trust at -0.44 percent. Both S-REITs are trading at risk neutral pricing. The analysis shows that CCT, CMT and Keppel REIT exhibit risk averse pricing. Research limitations/implications - – Results are consistent with prudential asset allocation for viable S-REIT portfolio investing but that not all these S-REITs exhibit strong market efficiency in their pricing. Practical implications - – Pricing may be risk neutral over a certain period but investor sentiments, fear of risks and speculative activities could affect an S-REIT’s risk neutrality. Social implications - – With enhanced risk diversification activities, the S-REITs should attain risk neutral pricing. Originality/value - – Virtually no research of this nature has been undertaken for S-REITS.

Cross-listing of real estate investment trusts (REITs)

Purpose - The purpose of this paper is to examine the common stock price reaction and the changes to the risk exposure of the cross-listing for real estate investment trusts (REITs). Design/methodology/approach - The paper adopts the event study methodology to assess the abnormal returns (ARs). Pre- and post-cross-listing changes in the risk exposure for the domestic and foreign markets are examined, via a modified two-factor international asset pricing model. A comparison is made for two broad cross-listings, namely, the depositary receipts and the dual ordinary listings, to examine the impacts from institutional differences. Findings - Cross-listed REITs generally experience positive and significant ARs throughout the event window, implying significant superior returns associated with the cross-listing for REITs. On systematic risks, REITs exhibit significant decline in their domestic market Research limitations/implications - Results are consistent with prudential asset allocation for potential diversification gains from the cross-listing, as the reduction from the domestic market beta is more significant than changes in the foreign market beta. Practical implications - The results and findings should incentivise REIT managers to explore viable cross-listing. Social implications - Such cross-listing for REITs should enhance risk diversification. Originality/value - This is a pioneer study on cross-listing of REITs. It provides a basis for investment decision making, and could provoke further research and discussion.

The econometric analysis of retail rents in Singapore

Purpose Primarily based on Alonso’s bid-rent model, the purpose of this paper is to examine the dynamics of the Singapore’s overall retail rental market by adopting a vector error correction model (VECM) estimation. Design/methodology/approach This paper uses the proxy for the overall retail rental value, which is indicated by a combination of the shop rent index from 2004 to 2013 and the retail rent index (RRI) in 2014, maintained by the Urban Redevelopment Authority (URA). The independent factors are the real gross domestic product (GDP), monthly earnings of individuals and vacancy rates (VR). Findings Such a behavioral model examines the dynamic structures that overshoot and/or diverge from equilibrium. Research limitations/implications The variables LOGGDP and VR are co-integrated of order one, I(1), while variables LOGME and LOGSRI are co-integrated of order two, I(2), to enable them to be employed in the VECM model. Practical implications The VECM model shows a good fit that allows the error correction term (ecm) together with the economic, financial and rental variables to jointly explain about 79.2 percent of the variation in the overall RRI. With a positive CoinEq1 coefficient that is positive and statistically significant at 5 percent level, it would take a long time for the system to return to its equilibrium once it has been shocked. Another variable that shows significant explanatory relationships includes past rents (index points) in the second order lags [D(LOGSRI(−2))]. The variable [D(LOGGDP(−3))], with a significant t-statistic value at 2.916, also helps to explain the changes in the overall rents. Social implications This paper highlights the importance of the first and third differences of the lagged macroeconomic variables of the monthly earnings of individuals is moderately significant. The VR in the first and second differences is significant in accounting for the variation in changes of overall retail rents with their t-statistics values being above 3.0. It is thus meaningful for policy makers to so enhance their in-depth understanding. Originality/value This paper fulfills an identified need to study how the results from the ex post forecasting estimates from the VECM for overall retail rents in Singapore can be enabled.

An examination of the structure and dynamics of Singapore's maturing Central Area office market

Purpose - – The purpose of this paper is to examine the structure and dynamics of Singapores Central Area office market. A long-run equilibrium relationship is tested and a short-run adjustment error correction model are estimated, incorporating appropriate serial error correction. The long-run equation is estimated for office rent, with office employment and available stock. Design/methodology/approach - – With the vector error correction model (VECM), the lagged rent, available stock, office employment, vacancy and occupied stock (OS) can impact the rental adjustment process. Equilibrium rent on the whole reacts positively to lagged rents, available stock, office employment, OS and negatively to vacancy rates (VC). Past levels of positive change in VC and rental growth can have negative effects on current OS. Findings - – While good economic conditions signaled by increases in rents increase the supply of new stock (available space), higher rents and VC dampen the long-term occupied space (space absorption) in accordance with economic theory. Available stock can be forecasted by past rent and absorption levels owing to the developers profit-driven nature. Research limitations/implications - – An understanding of the interaction between the macroeconomic variables and the Central Area office market is useful to domestic and foreign investors and developers, who then can better evaluate their decision making in commercial real estate investment and development projects. Practical implications - – It is implicit that the Singapore Central Area office market requires at least a year before any rental increase can potentially dampen the space demanded. Firms are attracted to locate there owing to agglomeration economies and they are willing to pay premium office rents in conjunction with office space intensification in the Central Area. Newly built space is positively affected by past rents. Urban Redevelopment Authority and private real estate developers should be wary of excess office sector vacancies by avoiding over supply, even though an increase in the supply of office space in the Central Area can have a positive impact on office rent in the longer term. Most of the office space development would tend to meet the demand in the long run. Rental stickiness is exemplified as rental changes are affected by lagged rent. Social implications - – Policy makers are better enabled to stabilize the office sectors of the real estate market if so required. Originality/value - – The paper adopts the VECM and validated by empirical evidence, to investigate the long-run equilibrium relationship and short-term corrections underlying the dynamics of the Singapore Central office market. Delay in the restoration of equilibrium in real estate markets is attributed to factors like lease terms and supply lags.