Real Estate Investment Trusts (REITs): Management Structure and Performance

The REIT concept originates from the United States and invests in an income-producing real estate. Tax Return Act of 1986 allowed conversion of externally managed REITs to internal management structure to reduce conflict of interest and increase efficiency. Significant findings give merit to internally managed REITs showing they outperform externally managed REITs and have stronger corporate governance. However, REITs regimes in Asia Pacific region (Hong Kong, Singapore, Japan, Malaysia) are exclusive externally managed structure either by default or requirement highlighting some merits exist to the approach. With the rising number of REITs regimes, academic understanding of the effects of management structure and performance of REITs is required. This paper contributes to existing literature by exploring the impact of management structures on the performance of REITs regimes. This study adopts a systematic review of selected academic journal papers using Scopus. Empirical findings point to the benefits of internal managed REITs over externally managed REITs. Corporate governance proxies unique to external managed REIT such as; REIT organisations, remuneration, fees and related party transactions need improvement to boost performance. We find evidence that external managed REITs try to emulate internally managed REITs, increasing institutional investor carrying out more monitoring, employing less leverage and link compensation to performance to increase REITs value. As externally managed REITs become popular, similar results as internally managed REITs are obtainable and may be more applicable to REITs with smaller market capitalisation. To achieve this, high quality of corporate governance, skilled management team and transparency in fee structure become crucial.