SOME EVIDENCE OF NET ASSET VALUE DISCOUNTS OF ASIA-PACIFIC REAL ESTATE COMPANIES

Abstract

On average, there is strong evidence that property companies of the five Asian-Pacific markets of Singapore, Hong Kong, Malaysia, Philippine except Japan are trading at Net Asset Value Discounts (NAVD) which has widened over time and becoming less volatile in time period (like Millennium) which is lengthened further away from the Asian Financial Crisis period. Japan has been the best performance of NAVD while Hong Kong has fared the worst. This deteriorating performance of NAVD is an important concern of any corporate manager because it means that the markets are increasingly undervaluing their property companies' fundamental value. Therefore, identifying potential causes of NAVD becomes ever more significant as it will help corporate managers to decide on appropriate strategy in order to improve her company NAVD and hence enhance shareholders' value. The similarities between the operation of Closed-End Funds (CEFs) and public listed property companies allow the hypotheses used to explain CEFs discounts to net asset value in past literature to be applied to explain property companies' NAVD. The author does so by first examining the hypothesis that NAVD are the results of five company specific factors like (a) SIZE, (b) ROE, (c) Borrowing Ratio, (d) Systematic Risk and (e) Total Risk. He then examines the second hypothesis that NAVD result from "noise trader" or "investors sentiment". Overall, the evidence suggests that both hypotheses have some utility in explaining property companies discounts of Asian-Pacific markets.