Chris Ratcliffe

The responsiveness of LPT returns and their attributes

Abstract The Australian listed property sector has experienced substantial growth over the past decade. Relative to international property markets, Australia has the highest percentage of listed real estate and the highest proportion that makes up the total equity market in the world, hence, making it an important component of domestic financial markets. This study employs the Stone (1974) two factor asset pricing model to investigate the sensitivity of Listed Property Trust (LPT) returns to market and interest rate returns from 2000 to 2005, and the characteristics (namely, management structure, specialisation and the degree of financial leverage) that may be driving these sensitivities. Our results indicate an increase in the market risk profile of LPTs, suggesting an erosion of the defensive benefits of LPTs against stockmarket volatilities.

Consolidation within the Australian real estate investment trust sector: an evaluation of the impact on unitholder returns

Mergers and acquisitions within the Australian‐real estate investment trusts (A‐REITs) sector have become a noticeable trend in the last decade. Utilising event study methodology, 36 successful A‐REIT mergers and acquisitions between January 1995 and December 2008 were examined. Both target and bidding shareholders experience positive excess returns of 4.27% and 0.54% respectively over the 41 day event window [−20, +20]. Analysis indicates that the cumulative abnormal returns (CARs) for bidding firms are considerably greater than previous research suggests. This study finds higher bidder CARs when scrip or a combination of scrip and cash is used to finance the acquisition. We also find that the relative size or the size of the acquirer have a positive and significant impact on the excess returns of bidding A‐REITs. This suggests that the synergistic benefits from the acquisition are a result of economies of scale and increased market power. There is also some evidence that the relative size and method of payment influence the CARs of target firms during the event window.

A-Reit Bidder Returns: An Evaluation of Public and Private Targets and Method of Payment

Abstract This study examines the wealth effects of fifty-six Australian Real Estate Investment Trusts (A-REITs) acquirers around the announcement date of a merger and acquisition over the period of 1996 to 2010. This study extends Ratcliffe et al (2009) by examining mergers and acquisitions of private entity targets as well as public targets and confirms recent US REIT work in this field. Utilising event study methodology we find that bidding A-REITs earn positive and significant cumulative abnormal returns (CARs) of +0.966% around the three-day announcement period [−1,+1]. Analysis also indicates bidding firms earn higher CARs when the acquisition is financed by scrip and/or a combination of scrip and cash. Consistent with prior REIT research, event study results show that A-REIT acquirers earn higher excess returns when the target is private as compared to a public target, +2.834% and +0.457% respectively. Further investigation, employing regression analysis, shows book-to-market ratio has a negative impact on bidding firms CARs, suggesting that investors penalise high book-to-market A-REITs in an M&A due to their higher risk characteristics. We also find that both specialisation by property type and relative size of the bidder compared to the target has a positive and significant influence on bidder excess returns. Finally, our results show support for the method of payment findings in the event study, with method of payment returning a negative and significant impact on bidder CARs.

Australian Real Estate Management and Development companies and women directors

Purpose – There is a large literature advocating the importance of a greater proportion of women directors on boards of publicly listed firms. The purpose of this paper is to examine the numbers and proportions of women directors, including women executive directors, on listed Australian Real Estate Management and Development (REMD) companies to identify how prevalent women directors are on such boards. Design/methodology/approach – The study examines the numbers and proportions of women directors for 35 REMDs in 2011 and compares this to the broad board composition data on 1,715 Australian Stock Exchange listed entities. Statistically significant findings are evident due to the identified low proportions. Findings – The study finds that of all the Financials Sub Industry sector groups, REMDs have the lowest proportion of female directors on theirs boards – eight women on each of 35 company boards compared to 159 men on these 35 boards at 2011. Of the eight, there were only two women executive directors o...

Market discounts and shareholder benefits : Evidence from Australian REIT private placements

Purpose – The purpose of this paper is to examine the impacts of private placement announcements by Australian Real Estate Investment Trusts (A-REITs) on existing shareholders. The study examines 96 A-REIT private placements from January 2000 to December 2012. Design/methodology/approach – Utilising event study methodology the authors examine the impact on existing shareholders wealth by measuring the abnormal returns (AR) around the placement announcement. The authors extend the analysis to model the A-REITs ARs against a number of explanatory variables to investigate the possible drivers for the observed event study results. Findings – The results support the information signalling hypothesis, in that existing investors in A-REITs earn negative and significant cumulative ARs of −1.3 per cent over the three-day event window [−1, +1]. This result is in contrast to prior studies conducted on industrial firms, for example; Hertzel and Smith (1993), Krishnamurthy et al. (2005) and Wruck and Wu (2009). Practi...

REIT mergers and acquisitions : a meta-analysis

Purpose - Mergers and acquisitions in the real estate investment trust (REIT) sector have been studied in distinct periods and locations, often leading to findings which are relevant only for the period and/or location investigated. The purpose of this paper is to examine the merger and acquisition studies in aggregate using meta-analysis so that broader findings of factors influencing the returns by targets and bidders are divulged. Design/methodology/approach - Using a methodology similar to Veld and Veld-Merkoulova a sample of 15 REIT studies with 35 observations for bidders and 25 observations for targets is analysed. A variety of potential factors influencing the returns for bidders and targets are explored. Findings - Consistent with prior non-REIT research, the evidence shows targets enjoy positive and significant gains in a merger. There is also evidence that acquirers earn significant wealth when all previous studies are examined in aggregate. Meta-analysis results show targets experience higher wealth gains by accepting cash financed deals, but share total gains when both parties are REITs. Additionally, acquirers enjoy improved abnormal returns when the target is privately listed and the use of scrip and/or a combination of scrip and cash produces higher wealth gains for bidding REITs. Originality/value - This paper aggregates the merger and acquisition literature of REITs to understand better factors influencing returns made by bidders and targets.

Another piece of the puzzle: REIT IPO underpricing after the financial crisis

Purpose The purpose of this paper is to investigate the underpricing of real estate investment trust (REIT) initial public offerings (IPOs) from January 2010 to June 2015, as the sector recovered from the global financial crisis. Design/methodology/approach This study analyses the first day returns of US REIT IPOs in the post financial crisis period. The study then employs regression analysis to examine the factors that influence IPO underpricing. Findings The study observes that underpricing, on average, is not significantly different to zero. Furthermore, the REIT IPOs examined display underperformance in the longer term. In contrast to the earlier data samples of Chen and Lu (2006), the authors do not find that underwriting costs are a direct substitute for the indirect cost of underpricing, instead the authors find that higher underwriting costs are associated with higher underpricing. Also in contrast to the mainstream underpricing literature, the data suggest larger capital raisings require higher underpricing. The authors also find that newly listed REITs provided significant excess dividend returns over the post-listing period. Practical implications For institutional and retail investors, the results will help to further inform investment opportunities in REIT IPOs. Originality/value This paper adds to the ongoing academic debate of the lack of underpricing in REIT IPOs relative to industrial companies. Research has shown periods of underpricing are often replaced with periods of overpricing suggesting that the pattern of behavior in REIT markets is substantially different.

Women directors and Australian REIT performance

Abstract This paper follows Noguera’s (2012) study on factors that might influence the return on asset (ROA) performance of REITs, including the engagement of more non-executive directors and more female directors. Using Australian data, the ROA performance of 37 Australian Real Estate Investment Trusts (A-REITs) from 2008 to 2011 is examined. As with Noguera (2012), larger A-REITs are found to tend to have higher ROA performance and A-REITs that employ more debt fare more poorly. However, the findings show that the proportion of non-executive directors and female directors are not statistically related to such performance. A Tobin’s Q measure is also used to provide a more market-based metric of A-REIT performance. The Tobin Q measure shows improved market values for A-REITs over 2010 and 2011 while those with an “office” focus tend to have performed more poorly using this measure. A pooled regression is utilised as well as fixed and random effects approaches to investigate factors influencing REIT performance. The findings suggest useful implications for A-REIT investors and boards.

A duration analysis of the time from prospectus to listing for A-REIT IPOs

Abstract Dimovski (2010) finds that the time from prospectus registration to listing is significantly positively related to the amount of underpricing amongst 45 Australian Real Estate Investment Trust (A-REIT) initial public offerings (IPOs) from 2002 to 2008. This makes the understanding of the time from prospectus registration to listing for A-REITs an important matter. This study analyses 82 A-REIT IPOs from 1994 to 2008 using a Cox proportional hazard model to analyse the duration from prospectus date to listing date. The study finds that A-REIT IPOs issued after 2000 listed more quickly, as did those A-REITs that were underwritten and also those that sought to raise larger amounts of equity capital. Those that proposed higher debt to assets ratios in their prospectuses listed more slowly. When the data is partitioned into 1994 to 1999 and 2002 to 2008 groupings, earlier A-REIT IPOs listed more quickly if they were larger while in the more recent group, those that had higher debt to asset ratios took longer to fill their subscriptions.