ASSET ACQUISITIONS BY REITS: AN ANALYSIS OF YIELD ENHANCEMENT AND STOCK PRICE REACTION

Abstract

The Real Estate Investment Trust (REIT) market in Singapore is considered the most developed REIT market in Asia, apart from Japan. As of 3rd quarter 2006, there are a total of 13 listed REITs in Singapore and there is still plenty of room for growth. Asset acquisitions represent a vital avenue for REITs to grow and acquiring yield-accretive properties will provide good levels of income. This study applies the event-study methodology to analyze how the stock price of REITs reacts to the announcements of asset acquisitions by REITs and also ascertain the impact of yield enhancement on the stock-price reaction. The sample size is restricted to REITs in Singapore and it covers all asset acquisitions from July 2002 to August 2006. Event clustering exists with two of the REITs, namely Ascendas REIT (AREIT) and Mapletree, acquiring properties very frequently. This is controlled for by using the market-adjusted model and the dummy variable approach, as well as using a variation of the market model. The results of the study indicate that the market reacts positively to acquisition announcements, although all figures are insignificant. As for the market reaction to yield-accretive acquisitions, the majority of results are positive and there is some evidence of significance. However, the presence of negative results prevents a concrete conclusion from being formed.