Diverse business team overlooking city with subtle financial decline

Diversity in REITs: Does Inclusion Impact Investment Performance?

Samir D’Costa in Business & Economy August 2025 • 4 min read.

"Uncover how gender and ethnic diversity in REIT management affects financial returns and strategic decision-making."

In today's business landscape, diversity and inclusion (D&I) initiatives have become increasingly prominent. Many organizations recognize the importance of diverse perspectives and experiences in driving innovation, enhancing employee engagement, and improving overall performance. However, the relationship between diversity and financial outcomes is not always straightforward, particularly in sectors like Real Estate Investment Trusts (REITs).

REITs, which own and manage income-producing real estate, operate within a unique set of market dynamics and strategic considerations. As such, it's crucial to examine whether D&I efforts within REIT management teams have a positive, negative, or neutral impact on investment performance. This article delves into a groundbreaking study that explores the impact of gender and ethnic diversity on REIT operating performance, offering valuable insights for investors, REIT executives, and D&I practitioners alike.

By analyzing data from U.S. Equity REITs spanning from 2000 to 2015, this research uncovers surprising trends and challenges conventional wisdom. We will unpack the key findings, exploring potential reasons behind the observed relationships and discussing practical implications for REITs striving to balance social responsibility with financial success.

The Core Question: Does Diversity Enhance or Impede REIT Performance?

Diverse business team overlooking city with subtle financial decline

The central question addressed by the original research is whether promoting gender and ethnic diversity in managerial positions within REITs affects their operating performance. Unlike previous studies that primarily focused on board-level diversity, this study examines diversity in middle management roles with profit-and-loss responsibilities. This is crucial because middle managers play a vital role in implementing strategies and influencing day-to-day operations, making their diversity a significant factor in a REIT's overall success.

The researchers utilized a sophisticated methodology involving two-stage Heckman correction models to analyze the relationship between diversity and various performance metrics, including Return on Assets (ROA), Return on Equity (ROE), and Funds From Operations (FFO). This approach allowed them to control for potential sample selection biases and other factors that could influence the results.

Data Collection: Comprehensive financial and accounting data from SNL and ESG variables from Kinder, Lydenberg, Domini Research & Analytics (KLD) databases.
Diversity Metric: Focused on the KLD database's 'Promotion' variable, tracking progress in promoting women and minorities, especially in profit-and-loss roles.
Sample Analysis: Examined both full REIT samples and KLD-covered subsets to compare diverse vs. non-diverse REIT characteristics.
Statistical Methods: Applied Heckman correction models to minimize selection bias, ensuring precise diversity impact on financial performance measures.

The findings revealed a counterintuitive trend: REITs that actively promoted diversity in middle management positions tended to exhibit lower operating performance compared to their less diverse counterparts. Specifically, gender and demographic diversity were negatively correlated with ROA, ROE, and FFO. This result challenges the common belief that diversity automatically translates into improved financial outcomes.

Navigating the Diversity Dilemma: Strategic Implications for REITs

The study's findings underscore the need for a nuanced approach to D&I initiatives within REITs. While promoting diversity is undeniably a socially responsible objective, it's essential to ensure that D&I efforts align with the organization's strategic goals and financial priorities. This may involve implementing targeted programs to support the development and advancement of diverse talent, fostering inclusive leadership practices, and carefully evaluating the impact of D&I initiatives on key performance indicators. Moving forward, REITs should prioritize qualifications and competence above all else when selecting candidates for managerial positions. By focusing on talent development, fostering inclusive leadership, and strategically aligning D&I efforts with business objectives, REITs can unlock the full potential of their diverse workforce and drive sustainable, long-term success.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1108/mf-02-2018-0064, Alternate LINK

Title: The Impact Of Gender And Ethnic Diversity On Reit Operating Performance

Subject: Business, Management and Accounting (miscellaneous)

Journal: Managerial Finance

Publisher: Emerald

Authors: Robert Hogan, Daniel Huerta

Published: 2019-01-14

Everything You Need To Know

How does diversity in middle management affect REIT financial performance, specifically Return on Assets (ROA), Return on Equity (ROE), and Funds From Operations (FFO)?

The study found a negative correlation between diversity in middle management and REIT operating performance. Specifically, REITs that actively promoted gender and demographic diversity in middle management positions tended to exhibit lower Return on Assets, Return on Equity, and Funds From Operations compared to their less diverse counterparts. This suggests that simply increasing diversity does not automatically translate to improved financial outcomes and needs to be strategically managed within Real Estate Investment Trusts.

Why did the research focus on middle management diversity in REITs instead of just board-level diversity?

The research focused on middle management diversity because middle managers play a vital role in implementing strategies and influencing day-to-day operations within Real Estate Investment Trusts. Unlike board members, who set the overall direction, middle managers are directly involved in profit-and-loss responsibilities. Therefore, their diversity is considered a significant factor in a REIT's overall financial success. Prior studies looked at board-level diversity, but this study fills a gap by examining the impact of those in roles that are closer to the operations and revenue generation.

What statistical methods were used to analyze the relationship between diversity and REIT performance, and why were they necessary?

The researchers employed two-stage Heckman correction models to analyze the relationship between diversity and REIT performance metrics. This approach was crucial to minimize selection bias, ensuring a more accurate assessment of the diversity impact on financial performance measures like Return on Assets, Return on Equity, and Funds From Operations. Selection bias can arise when certain REITs are more likely to adopt diversity initiatives, potentially skewing the results if not properly accounted for.

What are the implications of the study's findings for REITs looking to balance social responsibility with financial success?

The study implies that REITs need a nuanced approach to Diversity and Inclusion initiatives. While promoting diversity is a socially responsible objective, it's essential to ensure that these efforts align with the organization's strategic goals and financial priorities. Real Estate Investment Trusts should prioritize qualifications and competence when selecting candidates while fostering inclusive leadership practices. The impact of Diversity and Inclusion initiatives should be carefully evaluated on key performance indicators to ensure they contribute to sustainable, long-term success.

What specific data sources and diversity metrics were used to conduct the research on REITs?

The study utilized comprehensive financial and accounting data from SNL and ESG variables from Kinder, Lydenberg, Domini Research & Analytics (KLD) databases. The primary diversity metric focused on the KLD database's 'Promotion' variable, which tracks progress in promoting women and minorities, especially in profit-and-loss roles. By using these specific datasets, the research aimed to provide an accurate measurement of diversity and its impact on REIT financial performance. It allows focus on promotion aspect related to diversity, rather than only existence of diversity.