Abstract
Introduction:
Sustainability has attracted immense attention in the built environment, increasing calls for further motivation to accelerate the adoption of clean energy technologies by property stakeholders. Highlighting the financial benefits of green initiatives from investors' perspectives will encourage or maintain efforts towards a sustainable property sector.
Methods:
The study analyses key annual stock market indices such as Earnings per Share [EPS], Price-Earnings Ratio [PE], Market-To-Book Ratio [MTB], Net Tangible Asset [NTA] per share, and Dividend Yield [DY] to assess the financial performance and risk profile of equity holders in a sample of 17 A-REITs before and after the implementation of the Commercial Building Disclosure Program [CBDP]. This is supplemented by a fixed effects regression model to estimate the drivers of dividend yield.
Results:
There is a general rise in EPS and PE, along with stability in MTB and NTA, following the implementation of the CBDP legislation. This indicates a boost in the financial performance of REITs and a reduction in stock earnings volatility after CBDP. From our fixed effects regression model, improved market capitalisation increases dividend yield, while asset depreciation does not.
Discussion:
Using stock market indices provides a clearer and more practical understanding of the financial gains from green investments. These findings could guide the decisions of current and prospective equity investors in the REIT market, REIT managers, policymakers focusing on sustainability, and advocacy groups.
1 Introduction
According to the International Energy Agency , energy demand in buildings and the construction sector is increasing, mainly due to the rapid expansion of the global building floor area. Buildings make up approximately 30% of global energy demand and have contributed nearly 20% to the overall increase in demand since 2019. The residential sector accounts for about 70% of this total, while commercial and public buildings comprise the remaining 30% (). A 2023 report by the US Environmental Protection Agency priced carbon emissions at $190/metric ton, with building activities in the EU producing 764 million metric tons and US properties contributing 1.78 billion tons (). Both the 2023 and 2025 IEA reports further emphasise the extreme volatility in energy markets and call for impactful measures to address these challenges. They advocate for additional incentives that will speed up the adoption of clean energy technologies by property stakeholders, alongside existing regulations and the growing awareness of sustainability in the built environment. The actions of stakeholders in the building and real estate sectors are therefore critically important in protecting our environment ().
In Australia, for instance, recent studies such as Wasko et al. (2024) and reaffirm the country’s susceptibility to climate change. Amidst other climate challenge response programs, the federal government introduced the Commercial Building Disclosure Program [CBDP] in 2010, with implementation beginning in late 2011. This program utilises the National Australian Built Environment Rating System (NABERS) to promote energy efficiency in office buildings through mandatory disclosure of energy consumption. In 2019, property stakeholders had mixed reactions to extending mandatory disclosure to other high-energy-use commercial sectors such as hotels, data centres, industry, shopping centres, and industrial/logistics. While some supported the idea, others argued it would increase the operating costs of these properties. After several years of consultation and detailed analysis, NABERS energy ratings will be applied consistently across all building types and jurisdictions from July 2030 (). This underscores the importance of advancing environmental, social and governance [ESG] considerations, calling for ongoing efforts and motivation (; Westermann et al., 2022; ). One key factor that could incentivise investors in the property sector is the potential financial benefits of implementing sustainability measures.
A key aspect is estimating the financial gains from implementing environmentally friendly fit-outs and other green features in commercial properties for investors. Although earlier research has examined the pecuniary benefits of green initiatives in the property sector using broad market indices, selected asset portfolios, transaction prices, rent premiums, and direct property investments (; ; ), none have fully explored Real Estate Investment Trusts [REITs] through a mandatory disclosure metric from an investor’s perspective. REITs are indirect investment vehicles listed on stock exchanges that provide exposure to diverse property assets such as retail spaces, offices, industrial and logistics facilities, shopping malls, and residential properties . They are also widely recognised worldwide for offering investment portfolio diversification, dependable income streams, liquidity, and corporate tax benefits (Wagner et al., 2022; ). These perks have made REITs an attractive investment choice for both individual and institutional investors (; ).
Furthermore, as argue, shifting market trends and regulatory reforms over the years have created a need for new empirical evidence, especially within the evolving real estate market. Additionally, equity raising is becoming increasingly important in REITS’ capital structure, underlining the significant role of investors. For instance, a recent discussion paper by the Australian Securities and Investments Commission reports that from 2022 to 2024, equity raising totalled Aus$3.4 billion. The largest of these was DigiCo Infrastructure REIT, which raised just under Aus$2 billion in December 2024, marking the largest listing since 2018. Even though buildings significantly consume energy, and equity raising is vital for financing these assets, no research has examined the nexus between investor rewards and REITs’ environmental considerations.
Therefore, we differ from previous research in concept, timeframe, and portfolio setup by applying an investor-level approach to assess the impact of energy-saving initiatives on the financial returns of REIT equity holders from 2000 to 2024. We examine REITs’ stock data to showcase the dollar gains of investing in portfolios with notable green features. This perspective will bolster the E-dimension within ESG among investors and add weight to the broader discussion on expanding environmental efforts in the property sector. The study collects annual data on various performance and risk indicators, divides the study period into pre- and post-CBDP phases, and contributes to the literature in the following ways.
Firstly, the study assesses the financial benefits of adopting “greenness” from an indirect investor’s perspective using the asset portfolio of REITs over 20 years. From the earnings per share and price-earnings ratios, there is a significant improvement in these indicators after the implementation of CBDP. This difference in the indicators between the two periods is confirmed by the mean difference test. This highlights an increase in the financial performance of A-REITs in the post-CBDP period. The importance of the dummy variable related to CBDP in our fixed-effect regression model also supports this conclusion. Overall, the results suggest enhanced financial gains for investors following the adoption of energy-saving initiatives in REITs. Secondly, regarding risk, the market-to-book ratio and net tangible assets per share indicate a relatively strong financial position, as the equity holders of these REITs are likely to recover their invested funds even in the event of bankruptcy. Previous research on green building initiatives and their financial benefits often relied on broad, aggregated property market indices, transaction prices, rents, and occasionally direct property investments. Here, the study employs various stock market performance and risk indicators of listed REITs to evaluate the monetary advantages of sustainability initiatives and offer a more realistic view of the benefits of green investment for investors. The performance and risk metrics utilised provide valuable insights that could inform decision-making by REIT managers, current and prospective investors using indirect vehicles, and policymakers. Finally, the study identifies key factors influencing the dividend yield of REITs. While market capitalisation positively impacts dividend yield, asset depreciation has the opposite effect. This suggests that the size of the REIT matters in generating dividend yields, and greater asset depreciation makes the REIT less attractive to renters, which impacts rental income. These insights could guide management decisions, as well as those of existing and prospective equity holders.
The rest of the paper is organised as follows: Section 2 reviews relevant literature, Section 3 outlines the study’s conceptual framework, Section 4 describes the data and methodology, Section 5 discusses the findings, and Section 6 provides concluding remarks.
2 Literature review
2.1 Global ESG initiatives
The concept of Environmental, Social, and Governance [ESG] has received immense attention since it was first coined in 2004 b y the United Nations Global Compact and later subsumed in 2012 United Nations’ Sustainable Development Goals [SDGs]. Since then, various governments across the globe, property stakeholders, environmentalists, and other stakeholders in the real estate sector have embraced this phenomenon and introduced several approaches to help address sustainability. Globally, pricing instruments like carbon tax and Greenhouse Gas [GHG] Emissions Trading Systems [ETS], as well as individual country regulations and policies, have been foisted variably to address the challenges of carbon emissions in the property sector. In the European Union [EU], for instance, the ETS is a cornerstone climate policy, and it is regarded as a key and effective tool in minimising GHG emissions costs (). supported the notion that the implementation of ETS can heighten environmental responsibility in the real estate sector. also showed that ETS has a positive impact on firm behaviours. Whilst the EU GHG emissions trading system was launched in 2005, the execution of carbon tax commenced in different years, such as Finland and Poland in 1990, through to Ireland in 2010 and Portugal in 2015. EU countries like Finland and France implemented both the ETS and carbon tax programs (). In the United States, the Regional Greenhouse Gas Initiative [RGGI] ETS was introduced in 2009 with differing levels of its adoption across states (International Carbon Action Partnership (). In Australia, the ETS was short-lived, introduced in 2012 and repealed in 2014 due to concerns about rising energy bills (). China actively developed a national carbon emissions trading market, with the aim of encouraging emitters to incorporate carbon emissions reduction into consumption and production decisions through carbon pricing (). Preliminary empirical results show that the ETS can effectively reduce carbon emissions across provinces and industries (Tang et al., 2021).
2.2 Financial motivations toward ESG in real estate
There is a growing interest in the impact of investment in sustainability on the financial performance of real estate firms. As argued by , ESG benchmarks should be linked to performance, outcomes and impacts with a greater focus on climate resilience and risk. For instance, the study by showed that environmental disclosure has a positive impact on a firm’s return on equity [ROE], and social disclosure on the return on assets [ROA], which creates value for stakeholders. found a positive effect of ESG on the financial performance of non-state-owned companies, but it is insignificant for state-owned companies. As noted, buildings with relatively high NABERS ratings tend to outperform those with low ratings financially. This is supported by , who argued that green energy considerations are expected to boost rental income, minimise operating costs, and maximise investment returns. The positive effect of ESG on corporate performance is also reported by . Also, REITs with high ESG scores have higher operational efficiency and performance (). Similarly, high-ESG-rated investment portfolios tend to outperform low-ESG-rated portfolios, provide greater diversification efficiencies and lower portfolio risks than their low-ESG counterparts (). This is reinforced by , who showed that firms with high ESG scores produce an insurance effect that mitigates potential risks (). As such, institutional investors place greater relevance on environmental and governance factors than social ones (). However, found that neither ESG nor individual disclosure scores have a positive impact on the Return on Equity (ROE), Return on Assets (ROA), and Return on Investment (ROI) of publicly listed firms in post-Soviet EU states. . Some form of heterogeneous effect of ESG on performance was also reported by . They found that green assets tend to produce lower returns in the long run compared to their non-ESG counterparts, and in the short run, green investments tend to outperform non-green assets through various channels.
Despite the general view that stronger environmental performance translates positively into a firm’s financial performance, there are claims that it compromises risk in their returns (Westermann et al., 2022). As such, institutional investors future-proof their real estate assets and quantify their sustainability goals for several reasons, including attracting and retaining tenants, reducing operating expenses and crafting building systems and capital investments (). Environmental considerations also relate to how lenders have included sustainability benchmarks in their loan origination process (). This means a property with high sustainability performance scores is likely to be successfully used to attract loans, as this can be part of what lenders look for in assessing loan applications. There is a litany of studies on the nexus between environmental considerations and financial performance. However, most of these studies are done at the level of a company, institutional investors, and in some cases, buildings (). Moreover, as argued by , environmental studies cannot be generalised or compared due to country-specific regulations and the varying levels of adoption of global ESG standards. On the back of this, this study investigates the impact of environmental sustainability approaches on the level of the investor. The study is anchored on the federal government’s legislation of the Commercial Building Disclosure Program [CBDP] in 2010, to compare the investment reward of REIT equity holders before and after this law.
3 Conceptual framework of ESG and investors’ value optimisation
The study adopts the concept of Shareholder Value Maximisation [SVM], a fundamental element of a firm’s corporate objective to maximise shareholders’ long-term value (; ). Firms are therefore expected to make critical decisions on cash flows to optimise the long-term value of their investors (). The realisation of an enhanced investor market value would depend on the present value of its future earnings and its underlying assets (). Therefore, we situate this conceptual framework by linking REITs’ sustainability actions to their asset portfolio and gauge the impact this may have on cash inflows and cash outflows to determine their financial performance and shareholders’ value.
As seen from Figure 1, A-REITs continue to execute a range of sustainability initiatives, such as reducing carbon emissions and committing to 100% renewable energy, to improve energy efficiency and water usage. From Appendix 2, various sustainability actions are being implemented by REITs across their commercial assets to enhance their ratings against national and global benchmarks. These actions are expected to impact the cash flows of these property trusts. , for instance, reported improvements in rent and sales prices for commercial buildings with an Energy Star certification in the United States.
FIGURE 1
Sustainability actions will also generate other benefits, such as lower vacancy rates and operating costs (). This means that as REITs undertake greener initiatives, their rental income is likely to increase due to improved and sustained occupancy rates resulting from reduced operating costs (; ). These effects on cash flows are expected to trickle down positively to net operating income or profit, and this is likely to improve shareholders’ worth since they are the residual claimants of these cash flows (). Overall, sustainability actions may improve net cash flows and profit, and the amount shareholders receive from these cash flows through EPS. This could also create a positive sentiment in the stock market and improve its PE. However, certain actions or inactions that adversely affect cash flows pose a significant risk that will ultimately hinder the MTB and NTA per share.
4 Data and methodology
4.1 Data
Several annual performances, risk indicators, and asset management efficiency indices of listed Australian REITs are collected from the DatAnalysis Morning Star finance platform from 2000 to 2024. The performance ratios are Earnings per Share [EPS] and Price-Earnings Ratio [PE]; the risk indicators are Market-To-Book Ratio [MTB] and Net Tangible Asset [NTA] per share, while the Dividend Yield [DY] measures equity holders’ pocket reward. These indices are defined in Table 1.
TABLE 1
| Index | Definition |
|---|---|
| Performance indices | |
| Earnings per share [EPS] | Net Income/Total Number of ordinary shares |
| Price-earnings ratio [PER] | Market price per share/Earnings per share [EPS] |
| Risk indicators | |
| Market-to-book ratio [MTB] | Market price per share/Book value per share |
| Net tangible asset [NTA] per share | Total assets – Total liabilities/Total shares |
| Investor’s reward | |
| Dividend yield [DY] | Annual dividend payment as a percentage of the REIT’s stock market price |
Definition of performance metrics and risk indicators.
The main criterion for selecting the REITs is the Australian Securities Exchange [ASX] listing date, including only REITs with a listing date from at least 2000. This period provides a sufficient dataset to compare the performance of these REITs over time. A total of 17 REITs were sampled as follows: 3 office, 3 retail, 8 diversified, 1 each in residential, industrial, and specialised1. The study disaggregated the study timeframe into pre-CBDP, covering the years 2000–2011 and the post-CBDP from 2012 to 2024. This enables us to examine the performance of these REITs in the stock market and their efficiency in raising rental income from their assets. Even though CBDP is only compulsory for office-class assets, its introduction triggered several sustainability initiatives in other asset classes in the property industry, such as retail, industry or logistics, data centres, hotels, and healthcare (). For instance, as reported in the GreenPower for Businesses Guide 2018, more than 25,000 Australian businesses have signalled their commitment to reducing their environmental impact and helping Australia’s renewable energy sector by purchasing GreenPower (). Therefore, the CBDP provided a reference point to track the impact of adopting sustainability measures on the financial performance of REITs. A similar approach was adopted by in Australia and in the United States. Further, studies on the performance of green buildings are time-varying and dependent on the study period and the nature of the assets or markets being examined ().
4.2 Methodology
A two-part methodology is deployed in the study. Part one uses trend analysis and statistical description to compare the median annual market performance of the selected REITs using EPS and PE metrics and risk indicators like MTB and NTA before and after the execution of the CBDP. The comparison offers a better understanding of the relationship between energy efficiency and the financial performance of REITs and the value of equity holders. The study uses the median instead of the average to account for outliers in these metrics over time. These indices are critical pointers of a firm’s performance and risk trajectories (; ). The performance metrics indicate the REIT’s capacity to generate earnings for its shareholders, as a higher EPS generally signifies better rewards for investors and a quicker recovery of invested funds, as indicated by the PE (; ). Regarding volatility, investors will better understand MTB and NTA since they reflect the change in the listed price and the likelihood of recouping their invested funds in case of insolvency (). The MTB serves as a marker for assessing the strength of market value, with its function as a proxy relating to the difference between book and market returns (; ; ). The NTA, as a risk proxy, provides a true asset backing that measures investors’ confidence and indicates financial stability within the company (; ).
In the second part of our methodology, a panel data fixed-effect regression model is used. This approach addresses any unobserved effect that may correlate with the regressors. As REITs embark on more sustainability initiatives, their rental income is expected to improve due to higher occupancy rates emanating from the minimisation of tenants’ operating costs (; ). A dummy variable is used in the panel model to determine the CBDP’s effectiveness on the performance of these property vehicles. A panel regression is run using all 17 REITs. Following , the study constructs a stylised model to determine the relationship between yield and its key drivers as follows.
The term εit has two orthogonal elements - the time-invariant error term (αi), a fixed term that captures the unique features of a REIT; and the idiosyncratic shocks (µit), which capture all other factors apart from the specified explanatory variables. The Fixed Effects estimator completely wipes out αi from the error process by transforming the data in terms of deviations from individual-specific averages. DYREITit represents dividend yield, the annual dividend payment as a percentage of the REIT’s stock market price; Zit is a vector of explanatory variables that impact the dividend yield of a given REIT at time t; they include depreciation of the fixed asset of the REIT, financial leverage, and the stock market value of the REIT measured by its market capitalisation; and Dit is a dummy variable representing 1 for CBDP policy and 0 otherwise. The study hypothesises a positive relationship between dividend yield and market capitalisation, as an improvement in the aggregate stock value of a REIT would create positive investor sentiment that could attract more investment in the REIT, while a negative relationship is expected between dividend yield and depreciation/PP&E, suggesting that the depreciation of a REIT’s asset will likely reduce its rental income-generating capacity. The impact of financial leverage cannot be determined a priori since REITs have various capital structures (; ; ).
5 Results and discussion
5.1 Pre-and Post-CBDP performance
This section examines the performance indices of REITs investing in office assets only before proceeding with the other assets. It evaluates the impact of the compulsory disclosure on office property using the sampled indirect vehicles. The EPS and PE metrics are used to evaluate the financial performance of these REITs in the two sub-periods. The EPS is a key marker of a firm’s performance and is widely used in financial analysis and the valuation of stocks. The PE index is used to determine the willingness of equity investors to pay for a stock. As reported, performance indices summarise the interplay between the costs and benefits of REIT property investment. From Table 2, the three office REITs, Cromwell Property Group [CMW], Abacus Property Group [ABP], and DEXUS Property Group [DXS], generally show a significant improvement in their performance after CBDP. For instance, the median EPS of CMW, a share of the net profit per equity in the REIT, increased from 0.62 in the pre-CBDP to 8.55 in the post-CBDP, representing an increase of more than 13-fold. The median PE ratio of this REIT also shows a strong willingness in the stock market to pay for this stock based on the dividend paid, as the median PE increased from 5.43 in the pre-CBDP to 12.85 in the post-CBDP. A similar improvement in these metrics is reported for ABP. However, the EPS for DXS increases but maintains almost the same PE in both periods.
TABLE 2
| REIT | Earnings per share (EPS) | Price-earnings ratio (PE) | ||
|---|---|---|---|---|
| Median metric before CBDP | Median metric after CBDP | Median metric before CBDP | Median metric after CBDP | |
| GPT group | 18.80 | 38.27 | 13.37 | 15.41 |
| Cromwell property group | 0.62 | 8.55 | 5.43 | 12.85 |
| Stockland | 25.46 | 28.51 | 13.04 | 13.54 |
| Aspen group | −1.05 | 0.82 | −0.90 | 16.89 |
| Charter Hall retail REIT | 12.42 | 23.95 | 11.73 | 13.98 |
| BWP trust | 10.15 | 28.50 | 13.83 | 19.22 |
| Carindale property | 17.57 | 56.31 | 14.13 | 17.55 |
| Mirvac group | 25.39 | 16.50 | 12.73 | 15.05 |
| Abacus property group | 11.71 | 25.46 | 9.28 | 13.15 |
| Charter Hall education trust | 3.09 | 27.91 | 15.70 | 17.11 |
| Ingenia communities group | 3.00 | 12.90 | 3.51 | 22.50 |
| DEXUS property group | 10.78 | 88.63 | 13.49 | 13.41 |
| AIMS property securities fund | −2.40 | 9.08 | 4.35 | 5.01 |
| Goodman group | 7.20 | 67.10 | 17.49 | 17.27 |
| 360 capital group | −7.45 | 2.30 | −1.78 | 10.43 |
| Charter Hall group | 8.30 | 50.10 | 15.76 | 13.75 |
| Growthpoint properties Australia | 10.30 | 38.90 | 2.89 | 14.07 |
Median performance metrics.
From Supplementary Appendix 2, CMW, for instance, set ambitious climate targets aligned with the Paris Agreement. Ranked fourth in NABERS, CMW aims to achieve 100% renewable electricity by 2030, net zero emissions from operational assets by 2035, and full net zero scope one to three emissions by 2045. This REIT is also embarking on purchasing around 97% of power from GreenPower while utilising green financing initiatives by converting a $1.2 billion lending facility to a sustainability-linked loan with a specific emissions reduction target. Similarly, ABP REIT maintains a high average NABERS energy rating of 4.8 stars across its asset portfolio. The DXS has set ambitious targets, including reducing absolute scope 1 and 2 GHG emissions by 70% and scope 3 emissions by 25% by 2030 from the 2018 baseline and maintaining an average 5-star NABERS indoor environment rating and 4-star NABERS waste rating across the office sector.
Even though our study is at the level of the investor, the findings are generally consistent with previous studies that highlight the positive link between green features and financial performance, such as , , and . For instance, the earlier work of found that premiums of office buildings with LEED and Energy Star environmental labels increased by 18% and 25%, respectively. This is reinforced by , who reported that, in Australia, office buildings with NABERS ratings of 4 stars and above would generate a higher performance than their counterparts with lower NABERS ratings. However, this research is a departure from previous studies as it undertakes a more micro-level analysis using a case study of A-REITs instead of broad market indices to show the monetary benefits of adopting green initiatives in the real estate sector to equity investors.
The three retail REITs, Charter Hall Retail REIT [CQR], BWP Trust [BWP], and Carindale Property [CDP], also show a significant boost in both their median EPS and PE from the pre-to-post CBDP period. CDP REIT registered the biggest jump in median EPS, representing an increase of more than 3-fold, followed by BWP with 2.8 and CQR with almost 2-fold. There is also a clear gain in the PE ratio of each of these retail REITs after executing CBDP. These performances can be attributed to these REITs’ bold steps toward sustainability. From Supplementary Appendix 2, CQR, for instance, is on track to hit net-zero carbon emissions by 2025 for Scope 1 and 2 emissions and maintain strong environmental performance ratings including a 4.9-star NABERS energy rating and a 4.1-star NABERS water rating for their retail shopping centre portfolio. ABP also maintains a high average NABERS energy rating of 4.8 stars across its portfolio, while CDP is committing to net-zero emissions, with Westfield Carindale transitioning to 100% renewable energy sources for scope 2 emissions from January 2025.
The diversified REITs also produced resounding median EPS and PE results. For instance, the median EPS of Charter Hall Group [CHC] increased from 8.30 in the pre to 50.1 in the post-CBDP period, representing a lift of more than 6-fold. This is followed by Growthpoint Properties Australia [GOZ] and GPT Group [GPT], recording an increase in their EPS by 6 and almost 4 times each. What is more striking is the improvement in the median EPS of Aspen Group [APZ], Aims Property Securities Fund [APW], and 360 Capital Group [TGP] from a generally negative trend during the pre-CBDP phase to a more positive outlook in the post-CBDP era. As reported in Supplementary Appendix 2, these REITs have consistently driven toward greener initiatives across their portfolios since the commencement of CBDP. For instance, CHC has adopted an array of green measures including Australia’s largest independently rated green space of around 7.1 square meters of Green Star performance, a strong commitment to achieving net zero carbon in operations at Scope 1 and 2 b y 2025 and maintaining a 5.1-star NABERS energy rating for office portfolio that covers 100% of eligible assets, and a 5.1-star NABERS energy rating for shopping centre retail portfolio, covering 80% of eligible assets. The other REITs adopt a similar approach of emissions reduction and improvement in NABERS ratings across their diversified portfolios.
Ingenia Communities Group [INA], Goodman Group [GMG], and Charter Hall Education Trust [CQE] are the only residential, industrial, and specialised REITs, respectively, in the sample. These REITs generally produce a robust improvement in both their median EPS and PE. The median EPS of the INA increased by more than 4-fold, while GMG and CQE REITs recorded an increase of more than 9-fold each between the pre- and post-CBDP periods. The post-median PE of INA REIT is more than six times its pre-CBDP performance, and shows a slight improvement in CQE, while the GMG holds the same median PE in both periods.
Drawing from the median EPS and PE analysis, the results show that implementing CBDP has triggered the adoption of a raft of voluntary sustainability initiatives across REITs that have improved the investors’ returns from the financial performance of their portfolios. By comparing these metrics, there is a clear improvement in these REITs’ EPS and PE indices from the pre-CBDP to the post-CBDP era. The results of the mean difference test presented in Table 4 indicate a statistically significant difference in the performance of these REITs, with the post-CBDP period demonstrating enhanced performance. The results mean that the certification of green buildings is expected to improve the rent of these commercial properties, lower operating costs, and potentially minimise vacancy rates. For instance, findings from show that identical commercial buildings with an Energy Star certification in the United States will rent for more than 3% per square foot and generate a difference in sale price of up to 16%. The results generally support the consensus from existing literature that investors and occupiers of eco-labelled commercial buildings may gain several benefits, including higher vacancy rates, reputation advantages, lower operating costs, and increased productivity (). These features are naturally appealing to investors and renters, which could further encourage a positive shift towards green commercial property. These findings will strengthen sustainability thinking in real estate, as incorporating sustainability measures can enhance the financial performance of indirect property investment vehicles across various asset classes, regardless of whether the CBDP covers them.
5.2 Pre- and Post-CBDP risk indicators
The next stage of the analysis is a risk comparison using proxies such as the Market-to-Book [MTB] ratio and the Net Tangible Asset [NTA] per share. The MTB shows the possible departure of the REIT’s current stock price from its book value, while the NTA per share is a measure of investment recovery of the equity holder in the event of insolvency. An MTB with a value greater than 1 means the sentiment about the stock among investors is excellent, indicating that the stock market places a high value on this stock in the current year relative to its book value. As reported in Table 3, the MTB of the three office REITs - Cromwell Property Group [CMW], Abacus Property Group [ABP], and DEXUS Property Group [DXS] show relative stability in the pricing of their stocks after the CBDP.
TABLE 3
| REIT | Market-to-book ratio (MTB) | Net tangible asset (NTA) p/s | ||
|---|---|---|---|---|
| Median metric before CBDP | Median metric after CBDP | Median metric before CBDP | Median metric after CBDP | |
| GPT group | 0.99 | 0.95 | 2.72 | 5.36 |
| Cromwell property group | 0.96 | 1.02 | 0.03 | 0.84 |
| Stockland | 1.26 | 1.01 | 2.88 | 3.98 |
| Aspen group | 1.07 | 0.86 | 0.14 | 1.30 |
| Charter Hall retail REIT | 1.02 | 0.99 | 1.27 | 4.01 |
| BWP trust | 1.08 | 1.17 | 1.39 | 2.85 |
| Carindale property | 17.44 | 16.43 | 3.14 | 7.17 |
| Mirvac group | 1.21 | 0.98 | 2.75 | 2.31 |
| Abacus property group | 0.92 | 0.91 | 1.04 | 3.01 |
| Charter Hall education trust | 1.15 | 1.04 | 0.94 | 2.78 |
| Ingenia communities group | 0.48 | 1.17 | 0.94 | 2.56 |
| DEXUS property group | 0.77 | 0.97 | 1.29 | 8.83 |
| AIMS property securities fund | 1.00 | 0.55 | 0.75 | 2.37 |
| Goodman group | 1.11 | 1.89 | 1.75 | 4.64 |
| 360 capital group | 0.63 | 0.83 | 1.90 | 0.78 |
| Charter Hall group | 0.87 | 1.58 | 0.98 | 3.83 |
| Growthpoint properties Australia | 0.48 | 1.09 | 0.98 | 3.19 |
Median risk indicators.
The median MTB of DXS slightly improves after implementing the CBDP, recording an index of almost 1.3, while CMW and ABP tend to maintain an index of 1 in both periods. An index around or above one shows a positive outlook as the stock’s market value is at least equal to the REITs’ net worth, indicating some degree of co-integration of the market with book value (; ). There is a significant improvement in the NTA per share after the CBDP. The most significant increase in the NTA per share is from CMW, recording an upsurge of more than 30-fold, followed by DXS with almost 7 and ABP with around 3-fold. This portrays a relatively healthy financial situation as the equity holders of these REITs will be able to recover their investments in the event of bankruptcy. As put it, these high ratios offer a high degree of security since creditors can liquidate the collateral assets in the event of insolvency. It presents an optimistic relationship between leverage and the tangibility of assets. Similar patterns and trends in the median MTB and NTA per share are observed for retail, diversified, and single-asset REITs.
Following , the study further investigates the statistical difference between these metrics using the parametric t-test and non-parametric Wilcoxon matched-pairs signed-rank test. The mixed results of the normal distribution tests of these metrics validate the use of both tests. The null hypothesis of no difference in the metrics in Tables 2, 3 before and after the CBDP was tested, and the results are reported in Table 4.
TABLE 4
| Metric | Parametric t-statistic | Non-parametric (Z score) |
|---|---|---|
| Earnings per share (EPS) | 4.06*** | 3.42*** |
| Price-earnings ratio (PE) | 3.35*** | 3.01*** |
| Market-to-book ratio (MTB) | 0.52 | 0.45 |
| Net tangible asset p/S (NTA) | 4.51*** | 4.02*** |
Median performance metrics.
The null hypothesis of no difference in the metric before and after the CBDP was tested. ***Denotes rejecting the tested hypothesis at the 1 per cent significance level, and **rejects the tested hypothesis at the 5 per cent significance level. Rejecting the null hypothesis suggests there is a statistically significant difference in the median index before and after the execution of the CBDP over the study period.
Apart from the Market-to-Book Ratio (MTB), which did not provide sufficient evidence to reject the tested hypothesis, the remaining three metrics demonstrated a clear rejection of the hypothesis under examination. From Table 4, the test results for both performance indices, Earnings per Share (EPS) and Price-Earnings Ratio (PE), are statistically significant, highlighting stronger performance in the post-CBDP era. Failing to reject the Market-to-Book Ratio (MTB) shows some degree of stability in the pricing of their stocks. The rejection of the null hypothesis for the second risk indicator, Net Tangible Asset (NTA) per share, shows a statistically significant difference between the two periods. Overall, the test results support our earlier findings of significant improvement in these indices after the implementation of the CBDP.
5.3 Fixed effects regression results
Table 5 presents the panel-data FE regression results, highlighting the key determinants of REITs’ dividend yields. The results show that market capitalisation and asset depreciation are the two significant drivers of dividend yield, though in different directions. A percentage increase in depreciation/PP&E, as expected, has a negative relationship with dividend yield. This means the more REITs’ rental properties depreciate, the more likely they are to reduce their capacity to generate rental income. As expected, a depreciated asset may be less attractive to prospective occupiers, and in some cases, may induce significant incentives that will reduce rental income. When rental income shrinks and operating expenses expand, the net effect is adverse on net profit, which could translate to lower dividends paid out to investors. This reflects the recent study by Zhong et al. (2024), who argue that the high cost of R&D investment in fixed assets would translate to a positive impact on performance. REITs with impressive sustainability considerations will keep their assets pristine to attract occupiers and boost rental income.
TABLE 5
| Variable | Coefficient | P-value |
|---|---|---|
| Log of Depreciation/PP&E | −0.09 | 0.08* |
| Log of financial leverage | 0.03 | 0.58 |
| Log of market capitalisation | 0.50 | 0.01** |
| Dummy/1 = CBDP; 0 otherwise | 0.08 | 0.03** |
| Year fixed effect | Yes | |
| R-squared | 67.8 | |
| Number of observations | 253 | |
Results of the fixed effects regression.
Results of the panel data fixed effects regression model in Equation 1. We regress the dividend yield of REIT against the depreciation of these assets, financial leverage, and market capitalisation. The significance levels: ***P < 0.01, **p < 0.05, *p < 0.1.
Our results found that market capitalisation is a significant variable, indicating that a REIT’s size does matter in generating dividend yields. Market capitalisation, as an indicator of a REIT’s size, is used by investors to classify companies into small, medium, and large. , and accentuated the importance of sizing a firm’s market value in the stock market. Because a company’s size often positively impacts investors’ dividend expectations (), institutional and individual investors usually integrate such taxonomy into their investment strategies. The result is consistent with study on the drivers of dividends in BRICS countries. They found that larger companies were more likely to raise their dividends than their smaller counterparts. According to , market capitalisation growth can be linked to GDP performance. However, in recent decades, they have found that the increase in market capitalisation has significantly outpaced GDP growth due to rising equity prices, reflecting a higher dividend for investors. The expansion in a firm’s value is therefore a good marker of investors’ reward.
Financial leverage, a measure of total debts to total equity of a firm, is insignificant, suggesting that how a REIT structures its capital does not affect its capacity to generate rental income and produce dividends for its investors. This is intuitively appealing as the decisions of REIT asset occupiers are usually based on certain factors like the quality and location of the property, how suitable the property is for their operations, and the possible incentives in the rental contract. As such, the details of a REIT’s financing strategy may be inconsequential to the potential occupiers. This is consistent with the findings of Gita et al. (2025), but different from the study done by , who found financial leverage to be a significant driver of dividends. The divergence in findings stems from the notion that different businesses have different operating expenses, which is reflected in their financial statements.
The statistical significance of the dummy variable in the model indicates that the legislation and execution of the CBDP have a positive effect on the rental income of REITs. Apparently, the introduction of the CBDP has enhanced the sustainability considerations of compulsory and non-compulsory disclosure asset classes.
6 Conclusion and policy implications
The conversation on environmental sustainability has become increasingly topical among academics, preservationists, policymakers, advocacy groups, and other interlocutors. The rapid growth in global building floor area is expanding the demand for energy consumption in the real estate sector. This raises ongoing concerns about sustainability in the built environment, increasing calls for further motivations to accelerate the use of clean energy technologies by property stakeholders. In Australia, in response to the environmental challenges posed by the property industry, a suite of policies and regulations has been established. Prominent among them is the CBDP, which requires mandatory disclosure of the efficiency of office assets’ energy consumption. This policy move also triggers the adoption of green initiatives in other property assets. Even though several studies have examined the financial benefits of adopting sustainability measures in the property sector using broad market indices and direct property investment, none have investigated the REIT portfolio, an indirect investment vehicle, and the investor’s reward for investing in green assets. Further, equity raising to finance the property sector is growing, and this highlights the increasing role of investors in this space. To fill this literature gap, this study uses stock market indices to examine the equity holders’ reward and risk situation of a sample of 17 A-REITs before and after the implementation of the CBDP. The study estimates the drivers of dividend yield using panel regression analysis and documents the following findings.
rstly, there is a general increase in the EPS and PE metrics of REITs after the execution of the CBDP, highlighting the improved financial gains for equity holders investing in REITs that are implementing green initiatives. Secondly, using stock market indices in our study offers a more realistic picture of the monetary benefits of green investment from the perspective of the investor, providing vital information for property investment decisions. Finally, the study identifies the key drivers of dividend yield, further highlighting the importance of green investment in the property sector. These findings generally mean that compulsory disclosure of energy consumption would generate greater financial benefits for equity investors, which could serve as an impetus for extending this legislation across commercial assets. These findings could inform the decisions of existing and prospective equity investors in the stock market, REIT managers, sustainability policymakers, and advocacy groups.
Statements
Data availability statement
The original contributions presented in the study are included in the article/supplementary material, further inquiries can be directed to the corresponding author.
Author contributions
BM: Conceptualization, Data curation, Formal Analysis, Investigation, Methodology, Writing – original draft, Writing – review and editing, Validation.
Funding
The author(s) declared that financial support was not received for this work and/or its publication.
Conflict of interest
The author(s) declared that this work was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.
Generative AI statement
The author(s) declared that generative AI was not used in the creation of this manuscript.
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Supplementary material
The Supplementary Material for this article can be found online at: https://www.frontiersin.org/articles/10.3389/fenef.2026.1836517/full#supplementary-material
Footnotes
1.^The full list of the 17 REITs are in Supplementary Appendix 1.
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Summary
Keywords
A-REITs, commercial building disclosure program [CBDP], financial performance, stock market, sustainability
Citation
Mustapha B (2026) Examining the dollar benefits of investing in Australian REITs with more sustainability approaches. Front. Energy Effic. 4:1836517. doi: 10.3389/fenef.2026.1836517
Received
26 March 2026
Revised
09 June 2026
Accepted
10 June 2026
Published
08 July 2026
Volume
4 - 2026
Edited by
Phoebe Koundouri, Athens University of Economics and Business, Greece
Reviewed by
Theodoros Daglis, University of Patras, Greece
Simon Stevenson, Old Dominion University, United States
Updates
Copyright
© 2026 Mustapha.
This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
*Correspondence: Bangura Mustapha, mustapha.bangura@uts.edu.au
Disclaimer
All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article or claim that may be made by its manufacturer is not guaranteed or endorsed by the publisher.