In a non-peer reviewed session Alan Thompson and Cléo Folkes take a look at the Real Estate Investment Trusts, a form of indirect property holding that is mostly listed on a stock exchange and that is strongly regulated and safe for non-sophisticated investors. REITS own, and in most cases operates, income-producing property or ‘real estate’, although some focus on financing real estate, and pay out most of their income as dividend, and are tax-efficient.

REITs were first established by U.S. Congress in 1960 with the aim to give investors, especially the small investors, access to income-producing real estate, whilst before the huge lot size limited access to many. They were eternally managed. 

The REIT model was copied across the world since then to over 35 countries, albeit in different forms and to differing degrees of success. Australia is a clear success story with deep REIT markets, whilst in the United Kingdom REITs only came into existence in January 2007. A relaxation of the rules there have increased the uptake of this structure, but the market is far from fully mature. Residential REITs are only in its infancy in the UK, for example.

We will start the session with looking at the history of REITS and its (unequal) spread across the world. 

Key discussion

The main part of the discussion will focus on two key questions:

•    The existence of specialist, small REITs and large REITs, looking at the existence of economies of scale vs benefits from having specialist knowledge

•    Self-managed vs externally-managed REITS: what does the evidence say generates better returns, and why? Are there variances across the world?

The first point will go into the theory that economies of scale exist for REITS, and we will look at evidence for and against, and will examine for which factors economies of scale have been achieved and where they have not. 

A case will be made that despite a clear case of economies of scale for certain types of cost, having superior in-depth, specialist knowledge can outweigh those benefits to explain the existence and survival of some smaller specialist REITs

The second point will look at the impact the management structure has on REIT performance. Whereas so-called externally managed REITs, mostly found in Japan, are oft considered more efficient and with a simpler organization, they have the disadvantage that manager fee structures can create conflicts of interest and problems with corporate governance. The exter