Relationship between property type-location diversification and performance of real estate investment trusts in Kenya

Abstract

The listed REITs have not performed as well as anticipated, and efforts by REIT management to issue further real estate securities have been delayed. This raised the question of whether the unexpected performance of REITs in Kenya was caused by external variables, including property diversification, which is out of the control of the investment market. Thus, the study sought to examine the relationship between property type-location diversification and the performance of REITs in Kenya. The target group included fund managers, stock brokers, investment banks, and property developers. A predictive correlational research design was used. At a 5% significance level, regression analysis was used to test the hypothesized relationship between variables. The results indicate that property type-location diversification has a significant relationship with the performance of REITs in Kenya. The findings also show that the location of properties is a very important aspect for REIT investors when it comes to property diversification. There was agreement among most respondents that diversifying REITs across location attributes reduces market risks. It can be concluded diversification of the REITs underlying property majorly in terms of geographic and economic influence performance of REITs in Kenya. Further, property diversification through the type of property is a key determinant in influencing the performance of REITs in Kenya. Thus, continued property-type location will enhance the uptake of REITs by investors. It is recommended that REITs issuers ensure that there is diversification of the properties to include multiple property types such as students’ hostels, retail stores, hotels, and warehouses. Such a type of diversification is likely to attract potential investors who could be interested in properties with such diversification characteristics.