S-REITs performance : initial day and until dividend announcement.

Abstract

The long term price performance and initial day return of US and Australia REITs have been explored in many papers. Research on Singapore REITs (S-REIT) price performance focuses primarily on the long run. In contrast, initial price performance of S-REITs has received scant attention. This paper leads the investigation on the initial price performance of S-REIT Initial Public Offerings (IPO) from 2002-2008 using Initial Day Returns, CAPM and Fama and French three-factor model. As Initial Day Returns has been widely used, this paper further explores S-REIT initial price performance using risk-adjusted CAPM and Fama and French three-factor model for the time period from IPO date to first dividend announcement date. In this paper, the “underpricing” phenomenon of US REIT IPOs observed in post 1990s is also observed in S-REIT IPOs during 2002-2008. The amount of underpricing in S-REITs varies from 2.10% to 69.12% in the Initial Day Returns. In the unprecedented examination of CAPM and Fama and French three-factor model on the initial price performance of SREITs, this paper shows no statistical significant underpricing. Prior literature suggests that factors like the accuracy of dividend forecast, debt leverage and underwriter’s reputation influence initial price performance of US REIT IPOs but this paper shows otherwise. In addition, no correlation between S-REIT IPO underpricing with a) the extent of its first Seasoned Equity Offering (SEO) underpricing; b) the number of days to issuing first SEO and c) the joint amount of capital raised through IPO and first SEO is found. Finally, this paper investigates the performance of S-REITs in up-market and down- market days. Results show that S-REITs returns are mildly sensitive in both conditions.