Explaining REIT Returns

The popularity of real estate investment trusts (REITs) as an investment vehicle and the current record-breaking performance of the stock market in the United States have triggered an increased interest in understanding how REITs perform relative to other investments. Numerous research studies examine whether REITs behave like stocks and bonds and have worked to identify factors that impact REIT returns. Others examine the asset pricing structure of various assets, including REITs, to identify predictive information useful for investors. In this study, we organize this literature into five categories and provide summary information on each area. The categories are: (1) valuation models and REIT returns, (2) REIT return volatility, (3) REIT returns and asset growth, (4) the impact of financial leverage on REIT returns, and (5) REIT returns and investor sentiment. Results are aggregated into a framework highlighting findings that are useful in explaining the REIT return behavior.