Does difference between NAV and market price make sense: Case of Thai Property funds and REITs
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Published:
Dec 26, 2019
Keywords:
Thai Property Funds REITs NAV centralized market Rational Approach
Main Article Content
Abstract
Book values or Net asset values (NAV) or of Thai Property Funds and REITs typically differ from their market prices, although NAVs are considered as norm to reflect their transaction prices. This research includes the quantitative approach to study statistic results of impact from book value to returns of Thai Property Funds and REITs and the qualitative approach to comprehend why their book values depart from market values from opinions of the qualified industry experts.
Setting the control variables, presence of the book value factor exhibits insignificantly different explanatory power in the quantitative models. Such factor is per se also insignificant determinant in any models to explain their returns. Divergence of book values and market prices of Thai Property Funds and REITs is explained from six reasons of yield – based pricing, fund size and liquidity, frequency of book value readjustment, leverage use leasehold interest factor, unpriced book value for potential growth. The findings are consistent with previous studies which support the rational approach. The interesting finding is leasehold interest factor which is not much discussed in other studies. Since Thai regulation allows maximum shorter leasehold term of 30 years than others unlike 99 years maximum in US and Singapore, such country – specific factor caused different impacts to Thai vehicle compared to the global REITs.
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Research articles
References
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Anderson, R., Clayton, J., Mackinnon, G. & Sharma, R. (2006). REIT Returns and Pricing: the Small Cap Value Stock Factor. Journal of Property Research, 22(4), 267 – 286.
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Atchison, K. & Yueng, V. S. (2014). The Impact of REITs on Asian Economics. Working Paper.
Barkham, R. and Ward, C. (1999). Investor Sentiment and Noise Traders: Discount to Net Asset Value in Listed Property Companies in the U.K. Journal of Real Estate Research 18(2), 291 – 312.
Block, R. L. (2006). Investing in REITs: Real Estate Investment Trusts (3rdedn). New York: Bloomberg Press.
Buccola, S. T. (1985). Pricing Efficiency in Centralized and Non–Centralized Markets. Journal of American Agricultural Economics Association, 67(3), 583 – 590.
Buranasiri, J. & Nittayagasetwat, A. (2012). Real Estate Investment Performance: the Test of the Impact of Additional Interest Rate Information from CIR Model. International Journal of Business and Social Science, 3(12), 134 – 143.
Chan, S. H., Erickson, J. & Wang, K. (2003). Real Estate Investment Trusts: Structure, Performance, and Investment Opportunities. The Financial Management Association survey and synthesis series. Oxford: Oxford University Press.
Chikolwa, B. (2009). Determinants of Capital Structure for A–REITs. Working Paper.
Chou, Y., & Hsu, Y. (2008). Liquidity Risks and Expected REIT Returns. Working Paper. Retrieved Retrieved July 24, 2018, from https://www.jgbm.org/page/17%20YuJen%20Chou,.pdf.
Clayton, J. & MacKinnon, G. H. (2001). Explaining the Discount to NAV in REIT Pricing: Noise or Information? Real Estate Research Institute Working Paper. Retrieved July 24, 2018, from
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Clayton, J., & Mackinnon, G. H. (2003). The Relative Importance of Stock, Bond and Real Estate Factors in Explaining REIT Returns. Journal of Real Estate Finance and Economics, 27, 39 – 60.
Delcoure, N. & Dickens, R. (2009). REIT and REOC Systematic Risk Sensitivity, Journal of Real Estate Research, 26(3), 237 – 254.
De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R.J. (1990). Noise trader risk in financial markets. Journal of political Economy, 98(4), 703 – 738.
Erwin, D. W., Kiyohiko G. N. & Chihiro, S. & Tsutomu, W. (2015). Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data," Economics working paper. Retrieved July 25, 2018, from
https://ideas.repec.org/p/ubc/bricol/erwin_diewert-2015-16.html
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Hoesli, M., & Serrano, C. (2007). Securitized Real Estate and its Link with Financial Assets and Real Estate: An International Analysis. Journal of Real Estate Literature, 15(1), 59 – 84.
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Lecomte, P. & Ooi, J. (2013). Corporate Governance and Performance of Externally Managed Singapore REITS, Journal of Real Estate Finance and Economics, 46(4), 664 – 684.
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Jiamchoatpatanakul, N. (2018). Carefully Study the Information before Making an Investment Decision: Prominence of the Specific Factor Toward Thai Property Fund Investment, Journal of Social Science Asia, 4(1), 1 – 14.
Jiamchoatpatanakul, N. & Tangchitnob, J. N. (2014). Does Size matter to Performance and How? : Case of Thai Property Fund Market. Journal of Industrial Education, 13(3), 165 – 172.
Jiamchoatpatanakul, N. & Tangchitnob, J. N. (2015a). Do managerial and operational risk factors impact performance of the indirect real estate vehicle? : Case of Thai Property Fund. Journal of Research in Economics and International Finance, 4(2), 39 – 47.
Jiamchoatpatanakul, N. & Tangchitnob, J. N. (2015b). Is Guarantee Better? : Case of Thai Property Fund. TMC Academic Journal, 10(1), 1 – 19.
Jiamchoatpatanakul, N. & Thisadrondilok, K. (2015). Impact of Debt Leverage on the Thai Property Fund’ Performance. ASEAN Journal of Management & Innovation, 2(2), 13 – 23.
Jui, K. & Tan, K. (2017). Why Do Overconfident REIT CEOs Issue More Debt? Mechanisms and Value Implications, ABACUS, 53(3), 319 – 348.
Katzler, S. (2017). Improving strategic decisions for real estate investors: Perspectives on allocation and management, Journal of KTH Royal Institute of Technology. Retrieved July 26, 2018, from https://www.diva-portal.org/smash/record.jsf?pid=diva2%3A1095022&dswid=-7141
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Lee, N. J., Sing, T. F. & Tran, D. H. (2013). REIT Share Price and NAV Deviations: Noise or Sentiment?, International Real Estate Review, 16(1), 28 – 47.
Lee, S. L. (2010) The Changing Benefit of REITs to the Mixed–Asset Portfolio, Journal of Real Estate Portfolio Management, 16(3), 201 – 216.
Lee, Y. M. (2012). The Effectiveness of Privatization of Public Shopping Centers and Identification of Asset Enhancement Opportunities. Working Paper.
Li, L. (2012). The Determinants of REIT Volatility. Working Paper. Retrieved July 16, 2018, from https://www.reri.org/research/article_pdf/wp184.pdf.
Ling, D. C., Ooi, J.T.L. & XU, R. (2016). Asset Growth and Stock Performance: Evidence from REITs, Journal of Real Estate Economics. Retrieved July 20, 2018, from https://onlinelibrary.wiley.com/doi/abs/10.1111/1540-6229.12186
Monson, S., Bao, H.X. & Lizieri, C. (2017). Behavioral Interpretation of the NAV Discount Puzzle in Listed Real Estate Companies, working paper.
Morri, G., & Baccarin, A. (2016). European REITs NAV discount: do investors believe in property appraisal? Journal of Property Investment & Finance, 34(4), 347 – 374.
Morri, G., McAllister, P., & Ward, C. (2005). Explaining deviations from NAV in UK property companies: rationality and sentimentality. working paper, presented at 12th ERES Annual Meeting, Dublin.
Moss, A. & Prima, A. D. (2014). Asia Pacific Listed Real Estate: A Contextual Performance Analysis. Working Paper.
NESDB (2018). Thai Economic Performance in Q4 and 2017 and Outlook for 2018. Retrieved July 20, 2018, from
https://www.nesdb.go.th/nesdb_en/ewt_dl_link.php?nid=4360&filename=Macroeconomic_Planning
Ooi, J.T.L., Mori, M. & Wong, W.C. (2018). Rationale behind IPO Underpricing: Evidence from Asian REIT IPOs, Journal of Real Estate Economics. Retrieved July 20, 2018, from
https://onlinelibrary.wiley.com/doi/10.1111/1540-6229.12243
Pavlov, A. D., Steiner, E. & Wachter, S. M. (2016). REIT Capital Structure Choices: Preparation Matters, Journal of Real Estate Economics, 46(1), 160 – 209.
Quan D. C. & Titman S. (1999). Do Real Estate Prices and Stock Prices Move Together? Journal of Real Estate Economics, 27(2), 183 – 207.
Ratcliffe, C. & Dimowski, B. (2007). The Responsiveness of LPT Returns and Their Attributes. Journal of Pacific Rim Property Research, 13(3), 280 – 297.
SET (2018). Market Statistics. Retrieved July 10, 2018, from https://www.set.or.th/en/market/market_statistics.html.
Steiner, E. (2017). REIT capital structure: The value of getting it right. Cornell Hospitality Report, 17(13), 3-13.
Sun., L., Titman, S. D. & Twite, G. J. (2014). REIT and Commercial Real Estate Returns: A Postmortem of the Financial Crisis, Journal of Real Estate Economics, 43(1), 8 – 36.
Yong, J., Allen, D. E. & Lim, L. K. (2009). A Multi–Factor Analysis of A–REIT Returns. Working Paper.
Anderson, R., Clayton, J., Mackinnon, G. & Sharma, R. (2006). REIT Returns and Pricing: the Small Cap Value Stock Factor. Journal of Property Research, 22(4), 267 – 286.
Anderson, R., Conner, P. and Liang, Y. (2001). Dimensions of REIT pricing: Size, growth and leverage, Prudential Real Estate Investors, Newark, NJ.
Atchison, K. & Yueng, V. S. (2014). The Impact of REITs on Asian Economics. Working Paper.
Barkham, R. and Ward, C. (1999). Investor Sentiment and Noise Traders: Discount to Net Asset Value in Listed Property Companies in the U.K. Journal of Real Estate Research 18(2), 291 – 312.
Block, R. L. (2006). Investing in REITs: Real Estate Investment Trusts (3rdedn). New York: Bloomberg Press.
Buccola, S. T. (1985). Pricing Efficiency in Centralized and Non–Centralized Markets. Journal of American Agricultural Economics Association, 67(3), 583 – 590.
Buranasiri, J. & Nittayagasetwat, A. (2012). Real Estate Investment Performance: the Test of the Impact of Additional Interest Rate Information from CIR Model. International Journal of Business and Social Science, 3(12), 134 – 143.
Chan, S. H., Erickson, J. & Wang, K. (2003). Real Estate Investment Trusts: Structure, Performance, and Investment Opportunities. The Financial Management Association survey and synthesis series. Oxford: Oxford University Press.
Chikolwa, B. (2009). Determinants of Capital Structure for A–REITs. Working Paper.
Chou, Y., & Hsu, Y. (2008). Liquidity Risks and Expected REIT Returns. Working Paper. Retrieved Retrieved July 24, 2018, from https://www.jgbm.org/page/17%20YuJen%20Chou,.pdf.
Clayton, J. & MacKinnon, G. H. (2001). Explaining the Discount to NAV in REIT Pricing: Noise or Information? Real Estate Research Institute Working Paper. Retrieved July 24, 2018, from
https://dx.doi.org/10.2139/ssrn.258268.
Clayton, J., & Mackinnon, G. H. (2003). The Relative Importance of Stock, Bond and Real Estate Factors in Explaining REIT Returns. Journal of Real Estate Finance and Economics, 27, 39 – 60.
Delcoure, N. & Dickens, R. (2009). REIT and REOC Systematic Risk Sensitivity, Journal of Real Estate Research, 26(3), 237 – 254.
De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R.J. (1990). Noise trader risk in financial markets. Journal of political Economy, 98(4), 703 – 738.
Erwin, D. W., Kiyohiko G. N. & Chihiro, S. & Tsutomu, W. (2015). Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data," Economics working paper. Retrieved July 25, 2018, from
https://ideas.repec.org/p/ubc/bricol/erwin_diewert-2015-16.html
EY (2017) Global REIT Market. working paper, Retrieved July 17, 2018, from
https://www.ey.com/Publication/vwLUAssets/ey-global-reit-markets/$FILE/ey-global-reit-markets.pdf
Fama, E. F. & French K. R. (1993). Common Risk Factors in the Returns on Stocks and Bonds, Journal of Financial Economics, 33, 3 – 56.
Graff, R. A., & Young, M. S. (1997). Serial Persistence in Equity REIT Returns. Journal of Real Estate Research, 14(3), 183 – 214.
Hoesli, M., & Serrano, C. (2007). Securitized Real Estate and its Link with Financial Assets and Real Estate: An International Analysis. Journal of Real Estate Literature, 15(1), 59 – 84.
Issac, D. (1998). Property Investment. London: Macmillan Press.
Lecomte, P. & Ooi, J. (2013). Corporate Governance and Performance of Externally Managed Singapore REITS, Journal of Real Estate Finance and Economics, 46(4), 664 – 684.
Jiamchoatpatanakul, N. (2017). Solutions for Thai Property Funds’ Performance Improvements, Journal of Investment and Management, 6(1), 28 – 36.
Jiamchoatpatanakul, N. (2018). Carefully Study the Information before Making an Investment Decision: Prominence of the Specific Factor Toward Thai Property Fund Investment, Journal of Social Science Asia, 4(1), 1 – 14.
Jiamchoatpatanakul, N. & Tangchitnob, J. N. (2014). Does Size matter to Performance and How? : Case of Thai Property Fund Market. Journal of Industrial Education, 13(3), 165 – 172.
Jiamchoatpatanakul, N. & Tangchitnob, J. N. (2015a). Do managerial and operational risk factors impact performance of the indirect real estate vehicle? : Case of Thai Property Fund. Journal of Research in Economics and International Finance, 4(2), 39 – 47.
Jiamchoatpatanakul, N. & Tangchitnob, J. N. (2015b). Is Guarantee Better? : Case of Thai Property Fund. TMC Academic Journal, 10(1), 1 – 19.
Jiamchoatpatanakul, N. & Thisadrondilok, K. (2015). Impact of Debt Leverage on the Thai Property Fund’ Performance. ASEAN Journal of Management & Innovation, 2(2), 13 – 23.
Jui, K. & Tan, K. (2017). Why Do Overconfident REIT CEOs Issue More Debt? Mechanisms and Value Implications, ABACUS, 53(3), 319 – 348.
Katzler, S. (2017). Improving strategic decisions for real estate investors: Perspectives on allocation and management, Journal of KTH Royal Institute of Technology. Retrieved July 26, 2018, from https://www.diva-portal.org/smash/record.jsf?pid=diva2%3A1095022&dswid=-7141
Kim, D. & Wiley, J.A. (2018). NAV Premiums & REIT Property Transactions, Journal of Real Estate Economics. Retrieved July 22, 2018, from https://onlinelibrary.wiley.com/doi/10.1111/1540-6229.12243
Lee, N. J., Sing, T. F. & Tran, D. H. (2013). REIT Share Price and NAV Deviations: Noise or Sentiment?, International Real Estate Review, 16(1), 28 – 47.
Lee, S. L. (2010) The Changing Benefit of REITs to the Mixed–Asset Portfolio, Journal of Real Estate Portfolio Management, 16(3), 201 – 216.
Lee, Y. M. (2012). The Effectiveness of Privatization of Public Shopping Centers and Identification of Asset Enhancement Opportunities. Working Paper.
Li, L. (2012). The Determinants of REIT Volatility. Working Paper. Retrieved July 16, 2018, from https://www.reri.org/research/article_pdf/wp184.pdf.
Ling, D. C., Ooi, J.T.L. & XU, R. (2016). Asset Growth and Stock Performance: Evidence from REITs, Journal of Real Estate Economics. Retrieved July 20, 2018, from https://onlinelibrary.wiley.com/doi/abs/10.1111/1540-6229.12186
Monson, S., Bao, H.X. & Lizieri, C. (2017). Behavioral Interpretation of the NAV Discount Puzzle in Listed Real Estate Companies, working paper.
Morri, G., & Baccarin, A. (2016). European REITs NAV discount: do investors believe in property appraisal? Journal of Property Investment & Finance, 34(4), 347 – 374.
Morri, G., McAllister, P., & Ward, C. (2005). Explaining deviations from NAV in UK property companies: rationality and sentimentality. working paper, presented at 12th ERES Annual Meeting, Dublin.
Moss, A. & Prima, A. D. (2014). Asia Pacific Listed Real Estate: A Contextual Performance Analysis. Working Paper.
NESDB (2018). Thai Economic Performance in Q4 and 2017 and Outlook for 2018. Retrieved July 20, 2018, from
https://www.nesdb.go.th/nesdb_en/ewt_dl_link.php?nid=4360&filename=Macroeconomic_Planning
Ooi, J.T.L., Mori, M. & Wong, W.C. (2018). Rationale behind IPO Underpricing: Evidence from Asian REIT IPOs, Journal of Real Estate Economics. Retrieved July 20, 2018, from
https://onlinelibrary.wiley.com/doi/10.1111/1540-6229.12243
Pavlov, A. D., Steiner, E. & Wachter, S. M. (2016). REIT Capital Structure Choices: Preparation Matters, Journal of Real Estate Economics, 46(1), 160 – 209.
Quan D. C. & Titman S. (1999). Do Real Estate Prices and Stock Prices Move Together? Journal of Real Estate Economics, 27(2), 183 – 207.
Ratcliffe, C. & Dimowski, B. (2007). The Responsiveness of LPT Returns and Their Attributes. Journal of Pacific Rim Property Research, 13(3), 280 – 297.
SET (2018). Market Statistics. Retrieved July 10, 2018, from https://www.set.or.th/en/market/market_statistics.html.
Steiner, E. (2017). REIT capital structure: The value of getting it right. Cornell Hospitality Report, 17(13), 3-13.
Sun., L., Titman, S. D. & Twite, G. J. (2014). REIT and Commercial Real Estate Returns: A Postmortem of the Financial Crisis, Journal of Real Estate Economics, 43(1), 8 – 36.
Yong, J., Allen, D. E. & Lim, L. K. (2009). A Multi–Factor Analysis of A–REIT Returns. Working Paper.