The level of direct property in UK property company performance
Newell, Graeme Ancheampong, Peter Lee, Stephen Baum, Andrew
The level of direct property in UK property company performance - London RICS 2000
UK property company performance has typically been poorly correlated with direct property, and highly correlated equities. For example, over 1987-98 the correlation between UK property companies and direct property was 0.10, while the correlation between UK property companies and equities was 0.68. This trend has also been evident in other countries (eg, USA, Australia). The key strategic institutional issue of how much of property company performance is attributable to direct property performance has received renewed attention in recent years (Ghosh, Miles and Sirmans, 1996: Liang and McIntosh, 1998). With property companies having undergone major structural changes in many countries in recent years (Liang and McIntosh, 1998), this has refocused institutional investor attention on whether the investment dynamics and characteristics of property companies have also changed. The property industry 'expectation' is that property companies have now taken on more of the investment features of direct property and less of the stockmarket. For the US, Liang and McIntosh (1998) have shown that REITs behaved like a portfolio of 80% property, 12% bonds and 8% shares since 1992-97. Similarly, in Australia, property trusts were found to perform like a portfolio of 65% property, 12% shares, 8% bonds and 15% cash over 1993-98 (Newell et al, 1999). Given these international trends, it is essential that the recent investment dynamics of UK property companies are critically evaluated. Style analysis via multi-factor asset allocation mix models (Sharpe, 1992) will be used to determine how much of UK property company performance is attributable to direct property performance. This will be assessed over 1976-99 for the UK property companies sector, as well as for a number of the leading UK property companies. Style analysis will be further used to extract a more responsive property performance series from this property company performance data. This 'stripped out' property series will hopefully overcome the well known problems associated with valuation based property performance indicators, and provide a reliable and more responsive indicator of property performance. This property series will be validated against the IPD valuation based property benchmarks for UK commercial property over 1987-99. This research has been funded by a research grant from the RICS Research Foundation in 1999. This item is no longer available.
The level of direct property in UK property company performance - London RICS 2000
UK property company performance has typically been poorly correlated with direct property, and highly correlated equities. For example, over 1987-98 the correlation between UK property companies and direct property was 0.10, while the correlation between UK property companies and equities was 0.68. This trend has also been evident in other countries (eg, USA, Australia). The key strategic institutional issue of how much of property company performance is attributable to direct property performance has received renewed attention in recent years (Ghosh, Miles and Sirmans, 1996: Liang and McIntosh, 1998). With property companies having undergone major structural changes in many countries in recent years (Liang and McIntosh, 1998), this has refocused institutional investor attention on whether the investment dynamics and characteristics of property companies have also changed. The property industry 'expectation' is that property companies have now taken on more of the investment features of direct property and less of the stockmarket. For the US, Liang and McIntosh (1998) have shown that REITs behaved like a portfolio of 80% property, 12% bonds and 8% shares since 1992-97. Similarly, in Australia, property trusts were found to perform like a portfolio of 65% property, 12% shares, 8% bonds and 15% cash over 1993-98 (Newell et al, 1999). Given these international trends, it is essential that the recent investment dynamics of UK property companies are critically evaluated. Style analysis via multi-factor asset allocation mix models (Sharpe, 1992) will be used to determine how much of UK property company performance is attributable to direct property performance. This will be assessed over 1976-99 for the UK property companies sector, as well as for a number of the leading UK property companies. Style analysis will be further used to extract a more responsive property performance series from this property company performance data. This 'stripped out' property series will hopefully overcome the well known problems associated with valuation based property performance indicators, and provide a reliable and more responsive indicator of property performance. This property series will be validated against the IPD valuation based property benchmarks for UK commercial property over 1987-99. This research has been funded by a research grant from the RICS Research Foundation in 1999. This item is no longer available.