AN ANALYSIS OF S-REIT DEVELOPMENT EXPOSURE AND RETURNS

Abstract

This dissertation investigates the impact of development exposure on stock returns and firm valuation of SREITs. Although the theory suggests that exposure to development activities, by virtue of their higher risk profile, may be detrimental to REITs, the empirical tests in this dissertations show otherwise. Using the event study methodology to measure abnormal returns surrounding announcements of development as well as redevelopment activities, we find they have no significant impact on shareholders’ wealth. Similar results are obtained when the REITs’ development exposure is disaggregated into development and redevelopment activities. In addition, the results of cross-sectional regressions also indicate that development (and redevelopment) exposure does not have any significant impact on firm valuation, as proxied by the individual REITs’ Tobin Q. Nevertheless, comparing redevelopment versus divestment of existing properties owned by REITs, the study indicates that divestment decisions yield superior returns compared to news of redevelopment decisions. Overall, the main finding of this study is that taking on more development exposure is not detrimental to SREITs.