Article

A case study of the investment yields of high street banks

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Abstract

Purpose – Sale-and-leaseback has become an increasingly common approach during the last two decades in the investment of high street banks (banking-halls) in the UK. One measure commonly used in making property investment decisions is the all risks yield (ARY) which is associated with the level of rental income. Investors and their advisors need to know which factors are likely to result in the highest ARY when assembling investment portfolios of such properties. The purpose of this paper is to identify those yield influences. Design/methodology/approach – A qualitative multiple-case study was adopted. A literature review generated a hypothesis which was tested by a qualitative study, based upon semi-structured interviews and a questionnaire, to establish the influencing factors. Expert interviews were held with the heads of those three major auction-houses dealing with auctions of all retail bank premises in the Great Britain market, whilst the questionnaire survey involved investment professionals from within the auction-houses. Findings – The study confirmed that the four factors influencing yields and investors’ decision-making when purchasing retail banking premises were tenant banking company (brand names), regional location (north and south super-regions), lot size (hammer price), and tenure (freehold or leasehold). Research limitations/implications – This investigation focuses on Great Britain’s geographical and political area which includes England, Scotland and Wales, but excludes Northern Ireland. This research focuses on banking-halls as a sub-class of retail property investment. The findings form a baseline upon which further research can be conducted on other sub-types of retail property such as high street shops and retail parks. The results will also underpin the development of a quantitative yield predictive model based on regression analysis. Practical implications – To maximize the returns on property investments, investors and their professional advisors can use those factors having the greatest influence on yields to make informed investment decisions for the building of property portfolios. Originality/value – As a sub-sector, bank premises do not necessarily correlate to the generic retail sector. This research consolidates the broad systematic drivers of retail yields into specific factors influencing the ARY of banking-halls. The findings provide better understanding of an active but sparsely analysed sub-market of banking hall investments, and by so-doing help investors to maximize their investment returns.

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... Properties that are located in the urban areas are more favoured by REITs. This preference is supported by research findings that location in main town centres and prosperous market towns were favoured and considered to be more likely to retain their business over time [4]. Each of the REIT companies have their own target rate. ...
... For instance, Participant 1 prefers to invest his property in the industrial sector in his company's property portfolio because the yield is more secure compared to Participant 2 who has different preferences such as to have a mixed property portfolio because the yield received is more reliable. In support of these findings, it has been shown that factors having the most influence on yields have a clear emerging theme in the form of property type and each of it may have different forms of variables [4] [14]. ...
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Institutional real estate investmentÐÐprimarily pension reserve assetsÐÐgrew rapidly in the 1980s. The fiduciary demands of a growing asset pool coupled with disappointing results in the latter half of the decade led to an increasing interest in the application of Modern Portfolio Theory (MPT) to the management of large-scale real estate portfolios. This paper reports the results of a study conducted in mid-1990 that surveyed the 426 largest institutional portfolios on portfolio management practices relating to diversification strategies, risk measurement, and evaluation of investment returns. The survey replicated several measures gathered by Webb in a 1983 survey to assess the rate of acceptance or utilization of ideas and techniques in the portfolio management community. Results indicate that change is perhaps slower than might be expected. Real estate performance measures have become more sophisticated in the past seven years with a shift away from accounting type measures toward fully discounted measures, including several variations on the Internal Rate of Return (IRR). Risk-adjustment techniques have changed to the extent that portfolio managers have a greater likelihood of using sensitivity analysis, but few other innovations are widespread. Only a small percentage of respondents use traditional tools of MPT-based analysis, but the majority are cognizant of the recent developments in the literature that attempt to show alternative methodologies for achieving true diversification within real estate portfolios. The results indicate that change is gradual and that some practices that have been discredited in the academic literature for many years may still be evident in the institutional community.
Designing a research methodology
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