Effect of selected macro-economic variables on performance of STANLIB FAHARI real estate investment trust, Kenya

Abstract

ABSTRACT Real estate investment trust performance is an ideal indicator of real estate industry as well as the whole economy. Since its onset in Kenya, REIT has been experiencing tremendous rise in profits from Ksh.106 Million in 2016 to 171 Million in 2017 and 193 Million in 2018. Whereas it has been experiencing increase in its profits there has been fluctuation in its stock returns over the years. A Real Estate Investment Trust phenomenon is a new venture in Kenya and Africa at large bringing the contrast with first world economies. Stanlib Fahari is the only one listed in the Nairobi Securities Exchange market and exists with other two in Africa. Studies relating to macroeconomic variables and performance of Real Estate Investment Trust have presented mixed results; where some argue that it negatively hinders performance while others maintain a contrary opinion. Consequently, this study purposed to determine the effect of selected macro-economic factors on performance of Stanlib Fahari Real Estate Investment Trust in Kenya. Performance was measured by the stock returns. This research established the effect of interest rates; inflation; and foreign exchange rates on stock returns of REITs in Kenya. The study was anchored on the Purchasing Power Parity Theory, Arbitrage Pricing Theory and Efficient Market Hypothesis theorem. Correlation research design was used to measure the relationship of the variables. Secondary data was obtained from Nairobi Securities Exchange and Central Bank of Kenya data banks, for the period covering 36 months between 2016 and 2018.Findings revealed that on stock returns; interest rates had positive and statistically insignificant effect (β=0.003, p=0.525) while inflation rates had negative and statistically significant effect (β=-0.004, p=0.011) and lastly, exchange rate had a negative and insignificant effect(β=-0.002,p=0.833).was 0.156, meaning the selected macro-economic variables only influenced 15.6% of the performance of StanlibFahari REIT in Kenya. The study concluded that a weak negative association exists between macroeconomic variables and performance. It is recommended that CBK should monitor and regulate inflation rates because of its negative significance on returns. These results may be useful to investors in REIT, Government, regulators such CMA and future researchers. Further research should be done using primary data and other macro-economic variables excluded from this study should be used.