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Wealth Effects on Unit Holders Following Property Company and

A-REIT Rights Issues

Bill DimovskiDeakin University

Australia

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What are Rights Issues?

Renounceable

Non-Renounceable

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 A$60 billion in equity capital in 2008 (A-REITs raised nearly $10 billion in 2008 and 2009)

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So how important are A-REITs?

• Own over A$200 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 A$22 billion by rights issue during 2001-9 (3 times that raised by IPO during the same period.

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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%

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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

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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 A$22 billion raised– 71 observations, 62 A-REITs, 65 underwritten,

11 offered renounceable rights– Only 28 of the 71 showed > than theoretical ex-

rights share price – all A-REITs

Other Summary Stats

• Ave percwealth – -2% (median -2%)• Ave positwealth– 39% (median 0%)• Ave proceeds - A$314m (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%

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Models

OLS and Logit

€

PERWEALTH = β 0 + β1Lnproceeds + β 2Perctop20 + β 3Post2007 + β 4MktSenti

+β 5DiscountPerc + β 6PercUwritten + β 7REnounceable+ β 8PPlacealso+ ε

€

POSITWEALTH = β 0 + β1Lnproceeds + β 2Perctop20 + β 3Post2007 + β 4MktSenti

+β 5DiscountPerc + β 6PercUwritten + β 7REnounceable + β 8PPlacealso+ ε

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

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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.

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