Exchange rate exposure of REITs

In this paper, I examine how foreign exchange rate movements affect U.S. real estate investment trusts (REITs) returns. I document that REITs returns are adversely affected by U.S. dollar appreciation, regardless of the measurement of the exchange rate changes, of the REIT size and of macro-economic factors. The exchange rate exposures, however, vary significantly among the REIT types and REITs' property. U.S. dollar appreciation adversely affects equity REITs returns while leaving no significant impact on mortgage REITs and hybrid REITs returns. The exchange rate exposure is especially prominent among health care, industrials-office, residential, retail and self-storage REITs. The findings unveil an important source of risk that REITs are exposed to, demanding more attention from REIT portfolio managers and investors alike.