Is the rest of the EU missing out on REITs?

Andrius Grybauskas and Vaida Pilinkiene

European Journal of Management and Business Economics, 2019, vol. 29, issue 1, 110-122

Abstract: Purpose - The purpose of this paper is to investigate whether real estate investment trusts (REITs) have any significant cost-efficiency advantages over real estate operating companies (REOCs). Design/methodology/approach - The data for listed companies were extracted from the Bloomberg terminal. The authors analyzed financial ratios and conducted a non-parametric data envelope analysis (DEA) for 534 firms in the USA, Canada and some EU member states. Findings - The results suggest that REITs were much more cost-efficient than REOCs by all the parameters in the DEA model during the entire three-year period under consideration. Although the debt-to-equity levels were similar, REOCs were more relying on short-term than long-term maturities, which made them more vulnerable against market corrections or shocks. Being larger in asset size did not necessarily guarantee greater economies of scale. Both – the cases of increasing economies of scale and diseconomies – were detected. The time period 2015–2017 showed the general trend of decreasing efficiency. Originality/value - Very few papers on the topic of REITs have attempted to find out whether a different firm structure displays any differences in efficiency. Because the question of REITs and sustainable growth of the real estate market has become a prominent issue, this research can help EU countries to consider the option of adopting a REIT system. If this system were successfully implemented, the EU member states could benefit from a more sustainable and more rapid growth of their real estate markets.

Keywords: Efficiency; DEA; REITs; Real estate; REOCs (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ejmbep:ejmbe-06-2019-0092

DOI: 10.1108/EJMBE-06-2019-0092

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