PERFORMANCE ANALYSIS OF REITS SPONSORED BY GOVERNMENT-LINKED COMPANIES

Abstract

This study was inspired by previous works on the performance of Government Linked Companies (GLC) in Singapore. GLCs dispel the notion that government ownership breeds inefficiency. The objective of this study is to compare the market performance between GLC and non-GLC affiliated S-REITS between 2003 and 2012. The impact of the Global Financial Crisis was also tested on these REITs. It is necessary to investigate the performance characteristics of GLC REITs in an expanding S-REIT market. Market performance measures include returns, standard deviation, Sharpe Ratio, beta and Jensen’s Alpha.

Over the entire sample period, results show higher annualised returns, risk-adjusted returns coupled with lower volatility. However, during the pre and post financial crisis phases, GLC REITs offered lower returns compared to non-GLC REITs, although they corresponded to lower levels of volatility. GLC REITs outperformed the STI during pre and post financial crisis sub-periods.

In terms of beta, GLC REITs exhibit lower degrees of co-movement with the market portfolio. Additionally, GLC REITs enjoyed abnormal returns as seen through their positive alphas.

A paired sample t-test showed no statistical difference between the average monthly returns of GLC and non-GLC REIT. This study was unable to reject the null hypothesis. There is a probability that both groups share the same mean.