Wealth Effects on Unit Holders Following Property Company and A-REIT Rights Issues

1
Wealth Effects on Unit Holders Following Property
Company and A-REIT Rights Issues

• Bill Dimovski
• Deakin University
• Australia

2
What are Rights Issues?

• Renounceable
• Non-Renounceable

3
So how important is Australia?

• WFE ranks ASX as 11th largest in world
• Third largest in raising IPO and SEO capital in
  2009
• Raised over 11 of SEO capital raised by 52
  member exchanges
• A-entities raised A60 billion in equity capital
  in 2008 (A-REITs raised nearly 10 billion in
  2008 and 2009)

4
So how important are A-REITs?

• Own over A200 billion in assets
• 6 of the ASX
• 14 of the global REIT cap
• Major institutions and pension funds are
  investors (Westfield - institutions own 66)
• Raised over A22 billion by rights issue during
  2001-9 (3 times that raised by IPO during the
  same period.

5
Past Literature

• Underwriting costs as of proceeds SEO or
  rights offerings not REITs
• Smith (1977), US 71-75, 3.6
• Lee et al (1996) US 90-94, 5.44
• Corwin (2003) US 80-98, 5.32
• Armitage (2000), UK 85-96 1.53
• Martin-Ugedo (2003), Spain 89-97 2.0
• Bairaji and Dimovski (2011), REITs US , 1996-2010
  4.2,
• Dimovski (2011) REITs Aus 2.9
• Discount
• Balachandran et al. (2008), Australia 95-05
  around 18, Owen and Suchard (2008), Australia
  93-01, around 19.
• Armitage (2000) UK 21
• Smith (1977) US 8
• REITs - Ghosh, Nag Sirmans (2000) 1.14, Goodwin
  PhD2008 1.77
• Dimovski (2011) REITs Aus 9.5

6
Aim

• This paper investigates characteristics of rights
  offerings by A-REITs and Listed Property
  Companies during Jan 2001-June 2009 to see if
  subscribers increased wealth
• Includes a comparison of the share price
  following the issue to the theoretical ex-rights
  share price
• Example a security holder has 1000 securities
  at 10 each prior to rights issue 1 for 1 rights
  offer at a subscription price of 9. The holder
  now has 2000 securities totalling 19000
• Theoretical share price 19000/2000 9.50

7
Data

• The sample period is from 2001-June 2009
• The databases used are FinAnalysis and SNL which
  allow data to be downloaded from ASX
• Over A22 billion raised
• 71 observations, 62 A-REITs, 65 underwritten, 11
  offered renounceable rights
• Only 28 of the 71 showed gt than theoretical
  ex-rights share price all A-REITs

8
Other Summary Stats

• Ave percwealth -2 (median -2)
• Ave positwealth 39 (median 0)
• Ave proceeds - A314m (median 126m)
• Ave held by top 20 s/holders 66
• Post2007 30 (21 in number) after August 2007
• Mktsenti -2 /100th of 1
• Discount 10.2 (median 9)
• Ave uwritten 86
• Pplacealso 38

9
Models

• OLS and Logit

10
Results

• Table 2 all 71 observations
• Higher perc underwritten, higher percwealth (OLS)
  and higher chance of positwealth (Logit)
• Tables 3 and 4 (no outliers) A-REITs
• Those rights issues after Aug 2007 more chance
  of wealth for subscribers.
• Also lower disc and higher perc uwritten, higher
  chance of wealth

11
Conclusion

• The GFC has been a different period for property
  entities for rights offerings
• The need for new equity by REITs Prop Cos has
  allowed subscribers to be more likely to increase
  their wealth by subscribing.
• The PercUwritten variable is interesting more
  underwritten, more likely subscribers increase
  their wealth.
• More highly discounted offerings, less likely
  subscribers increased their wealth.