TIMING OF ACQUISITION AND RELATED PARTY TRANSACTIONS: EVIDENCE FROM SINGAPORE REITS

Abstract

This paper examines the timing of acquisition of 279 property acquisitions made by REITs publicly traded in Singapore, which is one of the largest REIT markets in Asia. Until now, little is known or explored as to what causes or incentivises REITs to acquire property, and whether or not these acquisitions are contingent on certain factors, or just of a random occurrence. Furthermore, as the REITs in Singapore are typically in a captive situation, where the sponsor continues to sell their assets to the REIT through related party transactions (RPTs), another issue on timing arises; as to whether the timing of these acquisitions are made to the benefit of the shareholders (i.e. efficient transaction) or at their expense (i.e. agency problem)? Analysing the acquisition time intervals of all the S-REITs show that that the time intervals are distributed over 1 to 1570 days, cluster between 1 to 400 days, have a mean of 315.8 days for the average S-REIT, and have variations that are firm and sector specific. The empirical results of the study, used to investigate the determinants of acquisition timing, reveal how the frequency of acquisition are influenced by the various characteristics of the property acquisitions, attributes of the acquiring REIT, market conditions and other factors; providing evidence to support the notion that the property acquisitions are not just a random activity. In addition, the study also provide evidence to suggest that RPTs and non-RPTs differ in their underlying considerations for acquisition timing. In particular, the evidence show that both types of acquisitions differ in the determinants of REIT age and size, previous leverage, performance and market conditions. Furthermore, based on the interpretation of performance and market conditions coefficients, acquisition timing of RPTs seem to be timed with the market, in a conduct that is more stringent and cautious as compared to non-RPTs; suggesting that such acquisitions might not be harmful for the shareholders.