Study On REITs Performance Evaluation And Risk Management

In China,the real estate market has witnessed rapid growth benefiting from the enormous demands released by the reform of the housing system. There is a clear mismatch between the ever rising commercial housing prices and the residents’ per capita disposable income in China, which aroused more and more concerns of the society ever since. The real estate industry bears not only its economic functions but also social functions.The development of real estate industry is closely bound up to the development of financial industry and the convergence of these two industries becomes more obvious. The real estate investment trust(REIT), as a popular tool for investment as well as a popular investment product abroad, displays a series of advantages such as tax breaks, the convenience of liquidity, high proportion of profit distribution and so on. Therefore, it is widely accepted and universally adopted by investors and has become a substitution for direct investment in physical assets. REIT as a funding solution of assets-backed securitization yields stable returns. With its multi-tiered mandatory management system design, it is beneficial for the introduction of specialized management and the implementation of value-added management activities. All of these help to bring about asset appreciation and thus improve operating income, which further boosts the unit value of REITs.The United States has the world’s most large-scale REITs market at present. With both overseas and domestic real estate market situations taken into consideration, the Chinese government has clearly suggested proceeding with pilot programs for REITs. Foreign studies on REIT are generally extensive and deep. In contrast, research in this field in China is just in its infancy. Against this background, this thesis sorts out the current situations of REITs in several representative countries（regions） in the world, analyzes its operating mechanism and explores the problems concerning performance and risk. Moreover, with the current situations in China taken into account, the present study builds a model for REITs in China and provides countermeasures for further development. Theoretically, such a study may further enrich and reinforce related research. In practice, it may play a guiding role in the pilot projects for REITs in China.The main content of this paper is :Firstly, analyzes the current situations of REITs in order to get a basic understanding of the development status of REITs in representative countries（regions） worldwide. meanwhile, make a contrast of the market size, establish requirements, tax policy, the operating mode and other aspects of REITs in these countries and regions.Secomdly, investigates the operating mechanism of REITs, and make a study of the operating mechanism of REITs. put forward the operating mechanism of the real estate investment trust fund, the profit mode and the investment risk may exist. Based on these theories take Yuexiu REIT- China’s first REITs public offering in Hong Kong as an example, carry out a case study.Thirdly, from the angle of asset portfolio, the present study proposes a comprehensive index system for the performance evaluation of REITs and presents empirical applications. The thesis first distinguishes six different asset types of REITs, defines both quantitative and qualitative evaluation indicators and then builds a performance evaluation index system combining both quantitative evaluation and qualitative indicators. Based on the sample of 42 publicly-listed REITs in the United States(7 REITs for each asset type), this thesis resorts to both data envelopment analysis and 2-tuple linguistic variables to obtain a ranking of six asset types of REITs in terms of their comprehensive performance. It may function as a direct reference for issuance of REITs, the selection of basic assets and subsequent investment and development of REITs in China.Fourthly, on the basis of regression analysis of effective integration and analytic hierarchy process, this thesis brings forward the risk assessing methods of REITs. It adopts the regression analysis model and the variance analysis model to explore the key risks of REITs in the United States. Then, the present study resorts to analytic hierarchy process to propose the weights of key risk factors. It also adopts 2-tuple linguistic variables to assess the risks of REITs and puts forward risk controlling measures and the main process for risk monitoring in order to better manage the risks of REITs.Fifth, a basic model for the development of REITs in China is proposed in this thesis. Based on the research conclusions concerning the operating mechanism, comprehensive performance evaluation, risk assessment and monitoring, the present study brings forward a comprehensive model for the development of REITs in China, with both macro policy recommendations such as legislation, tax breaks, etc. as well as micro suggestions for performance improvement and risk controls.