DEVIATION OF REIT PRICES FROM THEIR FUNDAMENTAL VALUE : EVIDENCE FROM ASIAN REITS

Abstract

This research paper examines the factors behind REITs’ price deviation from their underlying asset values. The disparity between the REIT price and its fundamental values has been investigated by many researchers and practitioners, with previous studies highlighting liquidity, influence of institutional investors and future performance as factors responsible for the deviation. For this study, investigations were carried out from the perspective of historical REITs performances through the use of Asian REITs. A regression model was developed to test the significance of the co-relationship between possible influencing variables and the Price to Net Asset Value (NAV). Evidences from the analysis of Asian REITs revealed that there is a co-relationship between the historical performance of Asian REITs and the disparity between REITs price from their Net Asset Value (NAV) per unit. Thus vindicating that the historical performance of REITs as having a significant role in determining their Price /NAV ratio. Meanwhile, findings also acknowledged the presence of the ‘feedback effect’, in which the historical performance of REITs exhibits dependency with the Price / NAV ratio. Other factors identified are asset values, total net assets values, number of shares issued and dividend yields. These variables are inversely related to the Price / NAV ratio. Meanwhile, the asset type in a REITs’ portfolio is also a significant explanatory factor for the deviation of REITs’ prices from their fundamental values. The composition of office and residential assets are negatively correlated with the Price / NAV ratio, while the correlation with retail assets is positive.