NPI and DPU Yield Accretions of Property Acquisitions: An S-REIT Perspective

Abstract

This study examines the yield accretions of acquisitions made by S-REITs through the NPI and DPU yields reported and derived in relation to the abnormal returns observed around the announcement day and to establish possible reasons for the divergence of both yield metrics. Using a sample of S-REITs’ acquisition announcements from 1st January 2010 to 31st December 2015, the results from the cumulative abnormal returns study and the ordinary least squares (OLS) regression model shows consistency with empirical evidence. It suggests that the market reacts favourably to DPU Yield accretive acquisitions regardless of NPI Yield accretions. For the second research objective, examples from the acquisition sample were presented to illustrate and establish possible reasons for the divergence in the NPI and DPU yield accretions of certain property acquisitions.

The results may contain implications for REIT managers and shareholders alike. While there is no wrong in playing the yield game, shareholders and potential investors should note that in a rising interest rates environment like today, managers may be finding it harder to find truly accretive properties and poor funding decisions may destroy immediate value for shareholders (through DPU Yield dilution) even if NPI Yield accretive assets can be bought.