THE IMPACT OF REIT PROPERTY DIVESTMENT ON SHAREHOLDER WEALTH: AN S-REIT PERSPECTIVE

Abstract

The main objectives of this thesis are to examine the wealth effect of property divestment in REIT and to investigate its key determinants. This research aims to extend past similar studies done on US-REITs to REITs in Singapore and shed light on how various factors affect shareholder return. The study concentrates on the role of sales premium and the yield difference, which is the difference between portfolio yield and divested property yield, of the intended disposition in explaining the wealth effect of REIT property divestment. A sample of 45 divestment, spanning from January 2010 to December 2016, from a total number of 17 REITs publicly traded in Singapore is studied. Standard market model event study is employed to examine the cumulative abnormal returns surrounding the divestment announcement date by S-REITs. Multivariate regression analysis is subsequently applied to identify the sources of value creation of these divestment announcements.

The empirical findings report that positive abnormal return is observed in the 3-day and 6-day event window with 0.08% and 0.24% respectively. However, cumulative average abnormal return is seen to experience a decline seven days after the announcement date. The multivariate regression analysis indicates a significant positive relationship between sales premium and shareholder return. However, the relationship between yield difference and shareholder return is insignificant and inconsistent among different regression models. We attribute this to the risk-return trade-off and the implication of the property’s growth prospect.