DEVIATION BETWEEN VALUATION AND TRANSACTED PRICE: EVIDENCE FROM SINGAPORE REITS ACQUISITIONS AND DIVESTMENTS

Abstract

This paper examines the deviation between valuation and transacted price of Singapore REITs acquisitions and divestments. With the case of Sabana REIT acquiring Changi South Avenue asset, it draws attention to the need to uncover the relationship between valuation and transacted price, thus providing greater insights to different players of S-REITs. This paper firstly analyzes the deviation of valuation with regards to acquisition and divestment prices over the years. Subsequently, the paper also examines the impact of Interested Party Transactions on deviation between valuation and acquisition price. With high frequency of Interested Party Transactions, sponsors and interested parties may have an influence over the final transacted price of acquisitions. Lastly, impact of specialized assets such as data centers and healthcare facilities on deviation between divestment price and valuation is also evaluated. A total of 331 acquisitions and 90 divestments conducted by S-REITs are obtained on their company websites between 2002 to 2018. Through the use of paired t-test and semi-log regression analysis, the deviation between valuation and transacted price are evaluated by controlling for time, REIT and country effects. The results are statistically significant and showed that S-REITs acquisitions have been priced lower than valuation while divestments have been priced higher than valuation over the years. Interested Party Transactions are statistically significant at 10% level with regards to the impact on deviation between valuation and acquisition price. Moreover, the results also showed that specialized assets have statistically significant impact on the deviation between divestment price and valuation at 5% level.