Analysis: Diverse REIT Boards Lead to Higher Returns

A push for greater diversity on the boards of real estate investment trusts has led to higher returns, according to a new study by Ferguson Partners.

The firm’s REIT Diversity Report analyzed 134 publicly traded, internally-managed equity REITs to determine whether there is a relationship or correlation amongst REIT boards deemed to have a higher degree of diversity and the level of total shareholder returns over various time periods. It found that boards in the top 50% by diversity have outperformed those in the bottom 50% by diversity across the one-, three- and five-year time periods.

The median level of cumulative outperformance over five years for those boards rated in the top 50% of board diversity versus those in the bottom 50% clocked in at 2,390 bps. The delta was 720 bps over three years and 120 bps over one year.

The Ferguson Partners study also noted that while just 36% of REIT boards have female representation of more than 30%, this is also the fifth straight year that new REIT boards have at least 50% women. It’s also the also fifth straight year that REITs have outperformed the Russell 3000 in this regard. Between 2018 and 2022, there has been a 767% increase in the number of REIT boards that have at least four or five female directors.

In addition, 53% of new REIT board members are a racial/ethnic minority, with a 24% year-over-year increase in the number of REIT boards with at least one minority director. Between 2020 and 2022, there has been a 124% increase in the number of Black REIT board members.

This year, “investor policies have evolved from a requirement of what was originally having a single female board member to those ranging from at least 30% of the board being gender diverse to others having not just a female board member as the measurement but also diversity from an underrepresented group (inclusive of race, ethnicity, sexual orientation, etc.),” the report notes. “Investor pressure certainly remains, and based on our findings the real estate investment trust industry has responded. For the first time, we observed multiple REITs that disclosed having LGBTQ+ board members. At the same time, while progress has been made, due to a limited number of new board seats that open each year, it may be a number of years more before parity exists across gender diversity and likely even more so across broader forms of diversity.”