REFINANCING RISK IN REITS DURING A CREDIT CRISIS : A MARKET PERSPECTIVE

Abstract

The primary interest of this research is to examine 1) the presence of refinancing risk in REITs, 2) the impact of the crisis on refinancing risk and 3) the impact of sponsors on REIT price over NAV. This is achieved by a cross-sectional study of S-REITs over the study period of Jan 2007 – Jun 2009, using Linear Regression, T-Tests, Pooled Linear Regression and Panel Data Regression. The linear regression and t-tests revealed no significant results that the author can conclude, except for the impact of Size of REIT on REIT price over NAV. The pooled linear regression showed that refinancing risk is present in REIT during the study period and gearing was significant throughout the 3 models. This finding supported the hypothesis but further investigation was needed as there may be heterogeneity bias in the pooled linear regression. The panel data regression unveiled that gearing ratio was insignificant after the introduction of measures of refinancing risk into the equation. This raised the question about the flaw of previous literatures. In the 3-Phases Panel Data Regression, the issue was solved. Before the crisis gearing ratio was significant while refinancing risk was insignificant and during the crisis, gearing ratio was insignificant while refinancing risk was significant. This switch is due to the pressing issue in REITs refinancing risk, causing gearing ratio to be not significant. The robustness test on the variable, sponsorship of REIT, suggest that sponsored REIT does not have a statistically significant impact on the REIT price over NAV. However, this could be due to the definition of sponsored REITs as defined in the robustness test. Keywords: REITs Refinancing Risk, Price over NAV, Credit Crisis