DOES SIZE MATTER FOR IPOS OF ASIAN REITS?

Abstract

Following the footsteps of United States (US) and Australia, Asia finally opens up its door to a new and innovative real estate investment vehicle, Real Estate Investment Trusts (REITs) in 2001. The world has witnessed the aggressive growth and establishment of REITs in Japan and Singapore in a short span of only seven years. While, Japan REITs (J-REITs) and Singapore REITs (S-REITs) have been rapidly growing in terms of asset size, literatures on the size of REITs have presented opposing arguments and findings with regards to the existence of an economy of scale for large REITs. In addition to this, the bulk of the research on IPO underpricing phenomenon has traditionally been excluding REIT IPOs, with the minority covering Asian REITs. Hence, this paper aims to investigate the short and long run performance of J-REITs and S-REITs, and the significance of size for these REIT IPOs. Using IPOs data from January 2001 to December 2007, it is discovered that J-REITs and S-REITs exhibit underpricing phenomenon, however, the long run returns differs between J-REITs and S-REITs due to its regulatory framework and other factors pertinent to individual property market. Size, dividend Yield and debt financing ratio are found to be significant for S-REITs alone. Nevertheless, the reputation for the lead underwriter for both J-REITs and S-REITs is observed to be statistically positive to the long run returns. In summary, J-REITs and S-REITs are found to be behaving very differently in the long run despite both being categorized as Asian REITs.