The Alternative Investment Market (AIM) is an important UK growth-focused stock market. The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of property companies on the AIM stock market over 2005-2015. The post-Global Financial Crisis (GFC) recovery of property companies on AIM is highlighted, as well as their performance compared with property companies on the London Stock Exchange (LSE) main board.
Using monthly total returns, the risk-adjusted performance and portfolio diversification benefits of property companies on the AIM stock market over 2005-2015 are assessed and compared with a range of other asset classes. Sub-period analysis is used to assess the post-GFC recovery of the property companies on AIM.
Property companies on AIM delivered poor risk-adjusted returns over 2005-2015, with limited portfolio diversification benefits with the overall AIM stock market. However, since the GFC, property companies on AIM have delivered strong risk-adjusted returns, with improved portfolio diversification benefits with the overall AIM stock market. This post-GFC performance is shown to be more than a small cap effect, reflecting the property portfolios in these AIM property companies. Despite this strong post-GFC performance, the AIM property companies under-performed property companies on the LSE main board on a risk-adjusted basis.
AIM provides an important platform for property companies seeking start-up and growth opportunities in a less-regulated funding environment. This has been reinforced by strong risk-adjusted performance in a post-GFC context. However, the stronger risk-adjusted performance of LSE listed property companies and their superior scale, resources and higher quality property portfolios present challenges for increased investor support for the AIM property companies going forward.
This paper is the first published empirical research analysis of the risk-adjusted performance and diversification benefits of property companies on the AIM stock market. This research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of property companies on the AIM stock market in a portfolio.
Newell, G. and Marzuki, M. (2018), "The significance and performance of property companies on the AIM stock market", Journal of European Real Estate Research, Vol. 11 No. 1, pp. 28-43. https://doi.org/10.1108/JERER-09-2016-0033Download as .RIS
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Copyright © 2018, Emerald Publishing Limited
Listed property in the UK is the largest property securities market in Europe, accounting for over £55bn in market capitalization (EPRA, 2016) and having significant property portfolios. These UK property securities include UK REITs (e.g. Land Securities, British Land, Hammerson, Derwent London, SEGRO) and UK property companies (e.g. Capital & Counties, Unite, Grainger) and are listed on the main board of the London Stock Exchange (LSE). Previous UK listed property research has focused around these UK REITs (Baum and Devaney, 2008; Newell and Marzuki, 2016; Pavlova et al., 2014) and UK property companies (Kovac and Lee, 2008; Lee, 2009; Westgaard et al., 2008).
As well as the main board of the LSE, the Alternative Investment Market (AIM) is also available for small, growth companies seeking to start-up or needing capital to expand. At December 2015, AIM comprised 1044 companies with £73bn in market capitalization (LSE, 2016). Property companies are an important component of AIM, comprising 43 companies with £4.6bn in market capitalization at December 2015 (LSE, 2016).
There has been previous research concerning AIM around regulatory issues (Gerakos et al., 2013; Hornok, 2015; Mendoza, 2008; Nielsson, 2013; Parsa and Kouhy, 2008; Piotroski, 2013; Stringham and Chen, 2012), corporate governance and disclosure issues (Mallin and Ow-Yong, 1998, 2010, 2012) and capital markets issues (Black and Gilson, 1998; Campbell and Tabner, 2014; Espenlaub et al., 2012; Mason and Harrison, 2002; Rousseau, 2007), in a range of business ethics, corporate governance, law and finance/accounting journals. Most typically, these papers seek to determine whether lower levels of corporate governance and regulation affect performance. There has been no previous empirical research regarding property companies on AIM.
Research into equivalent growth markets or “junior” markets in Europe, Asia and the Americas is also limited, largely focused on descriptive issues (e.g. regulatory, operational) rather than empirical analysis, with no analysis regarding property companies on these growth markets. This includes the equivalent growth markets in Germany (Burghof and Hunger, 2004; Vismara et al., 2012), Italy (di Salvatore and Scardaccione, 2009), Tokyo/Hong Kong/Singapore (Mizuno and Tabner, 2008) and Canada (Carpentier and Suret, 2010, 2011; Carpentier et al., 2010).
As such, given this research gap, the purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification benefits of the property companies on AIM in a mixed-asset portfolio in the UK over August 2005-December 2015. A post-Global Financial Crisis (GFC) analysis is also conducted to assess the post-GFC recovery of the investment dynamics of the property companies on AIM, as well as their performance compared with the property companies on the main board of the LSE. This sees three specific research questions concerning the property companies on AIM as the empirical focus of this research:
How have the AIM property companies performed on a risk-adjusted basis in a UK mixed-asset portfolio?
Have the AIM property companies enhanced their performance in the post-GFC period?
How have the AIM property companies performed compared with the LSE main board property companies?
These research questions enable considerable insights into the role of the property companies on AIM in a mixed-asset portfolio, and the ongoing strategic implications for investors concerning the AIM property companies as an effective listed property investment vehicle.
Significance of the Alternative Investment Market
AIM is complementary to the LSE main board. Established in 1995 as part of the LSE, its purpose is to support small, growth companies to enable start-ups and support those requiring capital to expand. The benefits of AIM include raising capital effectively, providing an investor exit strategy and to raise international visibility; seeing AIM play a key role in this funding environment.
While complying with the EU regulatory framework and UK company law, AIM provides a less regulated structure, suiting smaller companies who are not ready for a traditional listing on the LSE. This sees a more accessible structure (e.g. no minimum market capitalization, no trading record), less strict disclosure (e.g. financials), international “fast track” and being significantly less expensive than an LSE main board listing. The AIM listing process timeline of structuring, due diligence, marketing and completion is typically 12 weeks (LSE, 2015a). AIM also seeks to provide an environment for successful companies to subsequently transfer from AIM to listing on the LSE main board. A number of property companies have made this important transition from AIM to the LSE main board in recent years; this includes LondonMetric, Hansteen, Redefine International, Primary Health Properties, Unite and Raven Russia.
For companies seeking to list on AIM, an advisory role and regulatory responsibility is taken on by nominated advisors (NOMADS), both for due diligence during the IPO process and ongoing corporate advisor support. These NOMADS are registered and include the various corporate advisors/accounting firms (e.g. Grant Thornton) and investment banks. Full details of the operational, regulatory, structural and compliance responsibilities for companies on AIM are given in LSE (2015a, 2015b, 2015c) and GranThornton (2010). This sees AIM as a dedicated growth market and the leading growth market internationally. Equivalent growth markets are established in Europe (e.g. AIM Italia, Mercado Alternativo Bursatil), Asia (e.g. Tokyo PRO) and the Americas, with these various growth markets enjoying differing levels of success and performance.
Since being established in 1995, over 3,600 companies from over 100 countries have listed on AIM, raising over £95bn (via IPOs and further issues) to support their growth and development (LSE, 2015a, 2016). The significant growth prior to the GFC, significant impact of the GFC and post-GFC recovery of AIM is shown in Figure 1 (number of companies), Figure 2 (market capitalization) and Figure 3 (capital raised) over 1995-2015.
In December 2015, there were 1,044 companies listed on AIM with a total market capitalization of £73bn; seeing 19 per cent as international (non-UK) companies. Turnover in 2015 was £31bn. In total, 111 companies were de-listed in 2015, of which 4 were transfers to the LSE main board. The main AIM sectors are financials (23 per cent of market cap), consumer services (17 per cent), industrials (15 per cent), health care (15 per cent) and technology (10 per cent). The leading companies on AIM are shown in Table I, reflecting the diversity of companies on AIM (LSE, 2016). A number of institutional investors actively support AIM, e.g. BlackRock, Invesco.
To put the size of AIM in the context of the size of the LSE main board, the market cap of the LSE main board (£2,184bn) is 30 times larger than AIM (£73bn). Similarly, the average company market cap for the LSE main board (£2.4bn) is 34 times larger than for AIM companies (£70m). This clearly reinforces AIM’s mandate as a less regulated growth market over its 20-year history, compared to the LSE’s mandate of established listed companies.
Significance of property companies on Alternative Investment Market
The property companies on AIM are an important element of AIM’s activities. In December 2015, there were 43 property companies listed on AIM, with a market cap of £4.6bn accounting for 6.3 per cent of the AIM market cap and 4.1 per cent of AIM companies. These property companies comprised REITs (4; £1.2bn; 27 per cent of property sector market cap) and property investment and services (39; £3.4bn; 73 per cent of property sector market cap; including investment, estate agency, valuation and development). The average size of the property companies on AIM (£106m) is 51 per cent larger than the average size of a company on AIM (£70m). Over 2007-2015, £7.2bn in capital was raised in the AIM property sector, being 13 per cent of the total capital raised on AIM (LSE, 2016).
Property companies on AIM have raised significant equity, clearly showing the effectiveness of AIM as a market for raising capital for this style of listed property company. Over 2001-2015, £11.9bn was raised, comprising £6.0bn by IPOs and £5.9bn as new further issues. This shows the effectiveness of both IPOs and further issues as sources of raising capital; being equally balanced in their effectiveness and impact in capital raisings. This sees property companies on AIM accounting for 13.3 per cent of all capital raised on AIM over 2001-2015. Of the £89.3bn raised in total on AIM, £37.3bn was via IPOs (41.8 per cent) and £52.0bn was new further issues (58.2 per cent). This sees AIM property companies as more effective and balanced in both styles of capital raisings, with the overall AIM market biased towards new further issues ahead of IPOs. Given the property companies on AIM account for approximately 7.9 per cent of the total AIM market cap over this 2001-2015 period, their success in raising capital is more effective than the overall AIM market; being 13.3 per cent of total capital raised.
Like the overall AIM market, the property sector on AIM saw significant growth prior to the GFC, major decline in the GFC, and steady growth post-GFC. For example, Figure 4 shows the number of property companies on AIM increasing from only 19 in 1998 to 108 in 2007, and then decreasing from 108 to only 43 since the GFC. Figure 5 also shows the property companies market cap decreasing by 74 per cent from £12.9bn in 2007 to £3.4bn in 2008, then recovering 35 per cent to its current level of £4.6bn in 2015. The impact of the GFC on AIM property companies is further evidenced by AIM property companies accounting for 13.2 per cent of the AIM total market cap pre-GFC in 2007; but only being 6.3 per cent in 2015 (LSE, 2016).
Contributing factors to this reduction in the number of property companies on AIM since the GFC includes both property companies successfully transitioning to the main board of the LSE and property companies delisting from AIM having gone insolvent. Over 2001-2015, 117 property companies were “lost” on AIM, comprising seven property companies transitioning to the LSE main board and 110 property companies being insolvent. This split of 6.0 per cent transitioning and 94.0 per cent being insolvent highlights the higher risk attached to AIM companies. This was most evident over 2007-2011. This was particularly the case for those being insolvent being dominated by those with international property exposure, particularly in the emerging markets.
This trend for property companies on AIM was consistent with the overall AIM market trend over 2001-2015, with 2,310 companies “lost” on AIM, comprising 80 (3.5 per cent) transitioning and 2,230 (96.5 per cent) being insolvent. On the upside, property companies transitioning from AIM to the LSE main board (6.0 per cent) exceeded the overall AIM transition level (3.5 per cent).
The AIM property companies have considerable geographic diversification in their property portfolios. While the UK and Germany dominate this property exposure, other significant regions include Central/Eastern Europe (11 countries, including Russia, Turkey, Bulgaria, Romania, Hungary, Greece, Ukraine, Malta, Croatia, Serbia and Cyprus), Asia (including China, Hong Kong and India), as well as South Africa, Panama, Dominican Republic and Grenada. Considerable variation in real estate transparency across these counties’ markets is clearly evident, ranging from high transparency (UK, Germany), transparent (e.g. Romania, Hungary), semi-transparent (e.g. Russia, Turkey, Bulgaria, China) to opaque (e.g. Panama, Dominican Republic) (JLL, 2016), with real estate transparency being a critical investment feature for institutional investors. As indicated above, those property companies on AIM with lesser quality international property exposure in the emerging markets were major contributors to those “lost” to AIM since the GFC. Currently, approximately 39 per cent of AIM property companies have UK property exposure, 58 per cent have international property exposure and 3 per cent have both UK and international property exposure.
Similarly, the AIM property companies have a wide range of property sectors in their portfolios. While retail, office, industrial/logistics and residential dominate the property sectors, others include self-storage, leisure, hotels, tourism/resorts, health care, entertainment and development land. Previously, ski resorts and wind farms were also included in these AIM property portfolios. In total, the AIM property companies have over £6.8bn in property assets under management.
Table II provides details of the leading property companies on AIM; with four of these property companies in the largest 50 AIM companies. These property companies reflect the diversification by property type and geographic region mentioned above. Among these leading property companies are REITs (e.g. NewRiver Retail, Secure Income), property investors (e.g. Market Tech, Summit Germany) and property services (e.g. Purplebricks). Other AIM listed companies (classified under the Equity Investment sector) that have significant property activities include:
New Europe Property Investment: £2.4bn; office, retail property in Romania, Slovakia and Serbia; £1.3bn AUM; and
GlobalWorth: £265m; office, logistics, residential and development land in Romania; £604m AUM.
These two AIM companies have not been included in the AIM property company analysis, as they are not part of the FTSE/EPRA/NAREIT AIM property index.
Recent changes have also been evident amongst the property companies on AIM. This includes private equity take-overs and subsequent de-listing (e.g. Max Property was acquired by Blackstone in June 2014; Songbird Estates was acquired by Brookfield/Qatar Investment Authority in February 2015) and new REITs (e.g. NewRiver Retail; Secure Income; RE Investors; K&C). Importantly, several property companies have used AIM as a launch pad and transferred from AIM to the LSE main board. This includes LondonMetric, Hansteen, Redefine International and Raven Russia, with the most recent transfer being Market Tech in January 2016 after being established on AIM in December 2014. This is a key element in AIM’s mandate, as it provides a more appropriate platform (via LSE main board) for continued growth, more opportunities due to a higher profile on the LSE, increased liquidity and better access to capital from a broader base of potential local and international investors (Kesseler, 2015).
Clearly, the AIM property companies are a dynamic sector in terms of property investment strategies by region and property type; particularly in the emerging property markets and emerging property sectors; reflected in higher risk levels. The following sections will highlight the risk-adjusted performance of the AIM property companies and compare this performance to the property companies on the LSE main board.
Monthly gross total returns (£) were assessed over the 10-year period of August 2005-December 2015 for the AIM sectors (Property, All Share, 100), the equivalent LSE sectors (shares overall, small cap, property), bonds and cash. The AIM property index used was the FTSE/EPRA/NAREIT AIM total return index. Equivalent asset class series used were the FTSE AIM All Share, FTSE AIM 100, FTSE UK shares, FTSE small cap shares, S&P UK Property (REITs and property companies), UK 10-year gilts and UK 90-day bills.
FTSE/EPRA/NAREIT AIM index
The performance of property companies on AIM was assessed using the FTSE/EPRA/NAREIT AIM index, available since August 2005. At December 2015, this AIM property index comprised ten (10) property companies with a total market cap of £2,960M; being 65per cent of the AIM property companies sector. These property companies included Market Tech, NewRiver Retail, Sirius Real Estate, LXB Retail and Conygar. These AIM index property companies had over 650 properties and over £3.2 B in property assets under management, largely in the retail, office and industrial sectors. Typically, 8-10 property companies have comprised this AIM property company index. Recent years have seen property companies move in and out of this AIM property companies index, this reflects successful movements to the LSE main board, private equity takeovers of leading property companies, and new property companies listing on AIM. This FTSE/EPRA/NAREIT AIM series was used in preference to the AIM property super-sector series which is part of the 19 AIM super-sectors, but only available for a shorter time period since November 2009.
For the various asset classes, risk-adjusted returns were assessed over August 2005-December 2015; this being the full period for the establishment of the FTSE/EPRA/NAREIT AIM property index. While the AIM market was established in 1995, the FTSE/EPRA/NAREIT AIM property index is only available since August 2005, reflecting the smaller number of property companies in the early stages of the development of AIM. Hence, the analysis period in this paper is only available for 2005-2015, rather than the full 20-year history of AIM.
Average annual returns were calculated as the annualized monthly average return. Risk-adjusted returns were assessed using the Sharpe ratio. Mixed-asset portfolio diversification benefits were assessed using correlation analysis. A post-GFC analysis was also conducted over July 2009-December 2015 to assess the post-GFC recovery for property companies on AIM.
Alternative Investment Market property company performance analysis
Figure 6 presents the performance of the AIM property index compared to the AIM All Share index over 2005-2015. The impact of the GFC and gradual post-GFC recovery are clearly evident for both AIM markets, with the impact of the GFC being more significant for the AIM property companies than the overall AIM market.
Table III presents the risk-adjusted performance analysis for AIM property companies over August 2005-December 2015. AIM property companies (−1.94 per cent p.a.) showed poor performance, only marginally better than the overall AIM market (−2.32 per cent p.a.). AIM property companies also had higher risk than the overall AIM market (25.51 versus 20.43 per cent). In comparison, property companies on the LSE main board showed better performance than the AIM property companies (3.16 versus −1.94 per cent p.a.), but less than the overall LSE market (3.16 versus 5.56 per cent p.a.). The AIM property companies had higher risk levels than the LSE property companies (25.51 versus 22.66 per cent). On a risk-adjusted basis, the AIM property companies under-performed the LSE property companies (−0.15 versus 0.06). This under-performance by the property companies on AIM was more reflective of companies being liquidated rather than property companies successfully transferring to the main board of the LSE.
Given the smaller size of the AIM property companies, an effective comparison is with the FTSE small cap stocks on the main board of the LSE to determine whether this performance was part of a broader small company effect. As seen in Table III, small caps delivered similar performance to shares across the return, risk and risk-adjusted return space. This reinforces the lesser performance of the AIM property companies over 2005-2015, independent of there being a smaller capitalisation stocks effect. Hence, specific characteristics of the property companies on AIM contributed to this lesser performance, independent of being a broader smaller companies’ effect.
Table IV presents the AIM property company correlation analysis over August 2005-December 2015. Over this period, AIM property companies were highly correlated with the AIM stock market (r = 0.71), reflecting marginal portfolio diversification benefits. A similar correlation was also evident between property companies on the LSE main board and the overall LSE market (r = 0.66). AIM property companies showed strong diversification benefits with bonds (r = −0.21). There was some degree of diversification benefit between AIM property companies and LSE property companies (r = 0.57), providing more diversification benefits than between the overall AIM market and LSE market (r = 0.70).
The significant correlation between the property companies on AIM and small caps on the main board of the LSE (r = 0.71) is similar to that seen with the overall main board on the LSE (r = 0.57). This again indicates more than just a small cap effect with the diversification benefits of the property companies on AIM, with small caps and the overall main board being significantly correlated (r = 0.80).
Post-GFC Alternative Investment Market property company performance analysis
While AIM property companies showed poor returns, high risk and marginal portfolio diversification benefits over 2005-2015, the post-GFC analysis of the AIM property companies was quite a different picture. This is clearly shown in Figure 7, particularly in comparison to the overall AIM market, with strong out-performance over 2014-2015.
Table V presents the post-GFC risk-adjusted performance for the AIM property companies over July 2009-December 2015. The AIM property companies delivered the higher returns in their post-GFC period (14.97 per cent p.a.), exceeding the overall AIM market (6.27 per cent p.a.). While AIM property companies risk levels (17.47 per cent) still exceeded the overall AIM market risk level (15.33 per cent), these post-GFC AIM property company risk levels were below those seen over the full period (17.47 versus 25.51 per cent). The resulting risk-adjusted returns (via Sharpe ratio) see the AIM property companies out-performing the overall AIM market in the post-GFC period (0.83 versus 0.38).
Compared with property companies on the LSE main board, the AIM property companies delivered lower returns (14.97 versus 17.34 per cent p.a.) at marginally higher risk (17.47 versus 17.06 per cent). This resulted in the LSE main board property companies delivering better risk-adjusted returns than the AIM property companies (0.99 versus 0.83). The property companies on the LSE main board also out-performed the overall LSE market on a risk-adjusted basis (0.99 versus 0.75).
The comparison of property companies on AIM with small caps on the main board of the LSE saw similar average annual returns (14.97 versus 14.82 per cent p.a.), higher risk for the AIM property companies (17.47 versus 12.14 per cent) and marginally superior risk-adjusted returns for the small caps (0.83 versus 1.19). Small caps also out-performed overall shares on the LSE in the risk-adjusted return space. This shows a small cap effect operating in this post-GFC environment, but with property companies on AIM delivering more than just this small cap effect, particularly in the higher risk dimension.
On a risk-adjusted basis across these two stock markets, LSE listed property companies was the second best-performed after small caps, followed by AIM property companies, then LSE shares and AIM shares. This confirms the stronger small cap effect in the post-GFC environment.
The portfolio diversification benefits of the AIM property companies in the post-GFC period are shown in Table VI. Over this period, the AIM property companies were less correlated with the overall AIM stock market (r = 0.40), seeing improved portfolio diversification benefits when compared to the full period of 2005-2015 (0.40 versus 0.71). Strong diversification benefits continued to be seen for the AIM property companies with bonds (r = −0.04).
While the AIM property companies saw improved diversification benefits with the overall AIM market in the post-GFC period, this was not the case for the LSE property companies with the overall LSE stock market. In fact, the post-GFC diversification benefit (r = 0.76) was less than for the full period (r = 0.66).
AIM property companies and LSE property companies also saw improved diversification benefits post-GFC compared to the full period (0.32 versus 0.57). In comparison, the overall AIM market and LSE market showed comparable diversification benefits post-GFC compared to the full period (0.65 versus 0.70).
Compared with small caps, the property companies on AIM showed a similar correlation to the overall shares on the main board of the LSE (0.41 versus 0.36) in the post-GFC period. This correlation between the property companies on AIM and small caps is less evident in the post-GFC period (2009-2015) compared to the full analysis period of 2005-2015 (0.41 versus 0.71). This shows a lesser small cap effect in the post-GFC period and more of a contribution by property companies on AIM beyond this overall small cap effect. This complements the risk-adjusted returns benefits of the property companies on AIM beyond just the small cap effect.
This stronger risk-adjusted performance of the AIM property companies in the post-GFC period with improved portfolio diversification benefits was also evident for French REITs (Newell et al., 2013); although UK REITs showed improved risk-adjusted returns, but did not have improved diversification benefits (Newell and Marzuki, 2016).
However, it is important to note that while improved performance was evident for the AIM property companies, they were out-performed on a risk-adjusted basis by the property companies on the LSE main board in the post-GFC period (0.83 versus 0.99).
Overall, while past performance is no guarantee of future performance, this post-GFC analysis presents an improved context for AIM property companies moving forward, both in terms of performance and the AIM mandate of being a funding environment to support the growth and development of new companies. By showing that more than just a small cap effect was evident, this post-GFC analysis confirmed the stronger presence of a unique AIM property companies’ effect beyond just a small cap effect. This is further reinforced with the favourable comparison of AIM property company performance with the other European listed property company markets in recent years and particularly in the post-GFC context (Table VII). As such, in terms of the original two research questions (RQ1 and RQ2) in this paper, this empirical analysis confirms the significance of property companies on the AIM stock market, particularly in the post-GFC environment. However, for RQ3, the property companies on the LSE main board delivered superior performance to the AIM property companies. This raises several strategic issues regarding investor support of AIM property companies going forward.
Property investment implications for property companies on Alternative Investment Market
AIM has provided an important platform for property companies seeking start-up and growth opportunities in a less regulated structure and funding environment, with several AIM property companies using AIM as a platform to subsequently transfer to the LSE main board. Seven property companies on AIM have made this successful transition to the main board of the LSE; these being Ablon, Raven Russia, Hansteen, LondonMetric, Primary Health Properties, Unite and Redefine International. This sees AIM fulfilling the role as a springboard for successful property companies to achieve a main board listing. Several smaller REITs have also been set-up on AIM. This includes NewRiver Retail, Secure Income, Real Estate Investors and K&C; seeing UK REITs move beyond the main board of the LSE.
This paper has addressed three key research questions and empirically highlighted the performance of the AIM property companies over 2005-2015, particularly in the risk-adjusted performance of AIM property companies in the post-GFC environment, and a comparison with the performance of property companies listed on the LSE main board.
While the AIM property companies performed poorly over 2005-2015, they achieved improved returns at lower risk with enhanced risk-adjusted returns and enhanced diversification benefits with AIM shares since the GFC. Similarly, in the post-GFC context, the property companies on the LSE out-performed the AIM property companies by delivering higher returns (17.34 versus 14.97per cent p.a.) at lower risk (17.06 versus 17.47 per cent) and superior risk-adjusted returns (0.99 versus 0.83), offset marginally with lesser diversification benefits with shares (0.76 versus 0.40). While a small cap effect is evident, the property companies on AIM delivered more than just a small cap effect in this post-GFC environment, by delivering an added performance dimension with this AIM property company effect. Importantly, property companies on AIM showed they were delivering more than just a small cap effect in this post-GFC period; reinforcing the property companies dimension, beyond just a small cap effect.
This superior performance of the LSE listed property companies compared to the AIM listed property companies presents a major challenge for the AIM property companies going forward. This is particularly in the context of obtaining major investor support, given the significantly larger size of the LSE listed property companies (average market cap of £1.7bn versus £136m) (EPRA, 2016) and reflected in their superior property AUM scale, larger higher quality and more diversified property portfolios and more substantial professional skills base and property investment organizational infrastructure. This reinforces the specialist “growth” nature of many of the AIM property companies and their targeted property types and geographic strategies that meet the risk requirements for specific investors and their investment strategies. This is further reinforced with the AIM mandate of providing a platform for companies seeking start-up and growth opportunities in a less regulated environment to the traditional more regulated LSE main board listing; this being achieved by several property companies in recent years. This sees two key dimensions to this AIM property company analysis, i.e. performance analysis (investor perspective) versus a strategic growth funding environment for start-up and raising capital (property company perspective) beyond just a small cap effect.
Other risks and operational issues that will impact on the AIM property companies going forward are listing competition from the other growth markets globally, uncertainty concerning several of the emerging markets in Central/Eastern Europe that have been targeted by the AIM property companies, need for an increased and broader investor support for AIM, increased AIM costs regarding responsibilities and NOMAD requirements, and an increased focus on corporate governance.
Overall, property companies on AIM provide an additional dimension to the effective listed property investment vehicles in the UK. The strategic benefits are highlighted in this paper, including performance analysis, diversification benefits, exposure to international/emerging property markets in a less regulated environment; as well as more than just a small cap stock effect. While this adds another layer of risk, as evidenced in the performance analysis and the liquidation of a large number of property companies on AIM (particularly those with international property exposure in emerging markets), it has also seen property companies’ successfully transition from AIM to the main board of the LSE, this being a key mandate of AIM. The robustness of these post-GFC benefits of property companies on AIM will need to be further tested over longer timeframes, as well as seeing a continued competitiveness with property companies on the main board of the LSE which offer the more traditional dimensions of listed property exposure, including diversified, high-quality property portfolios and experienced professional management teams.
Profile of leading companies on AIM: December 2015
|New Europe Prop. Inv.||Equity investment instruments||£2,425m|
|Hutchison China Meditech||Pharmaceuticals||£1,542m|
|Market Tech||Real estate||£991m|
|James Halstead||Building materials||£987m|
|Origin Enterprises||Farming and fishing||£757m|
|Breedon Aggregates||Building materials||£739m|
|Fevertree Drinks||Soft drinks||£690m|
Source: Authors’ compilation from LSE (2016)
Profile of leading property companies on AIM: December 2015
|Property company||Property sectors||Property locations||Market cap|
|Market Tech||Office, retail, residential, development||UK||£991m|
|Secure Income||Health care, leisure||UK, Germany||£446m|
|Summit Germany||Office, retail, logistics||Germany||£331m|
|Sirius Real Estate||Office, industrial, self-storage||Germany||£269m|
|Conygar||Office, retail, industrial||UK||£160m|
|Inland||Development land, residential||UK||£160m|
|Dolphin Capital||Development land, leisure||Greece, Cyprus, Croatia, Turkey, Dominican Republic, Panama||£131m|
|Real Estate Investors||Retail, office||UK||£130m|
|Mirland Dev.||Office, retail, development land||Russia||£75m|
Source: Authors’ compilation from LSE (2016) and various AIM property company websites
AIM Property company performance analysis: August 2005-December 2015
|Asset class||Average annual return (%)||Annual risk (%)||Sharpe ratio|
|AIM all share||−2.32||20.43||−0.20|
|FTSE small cap.||6.90||17.16||0.30|
AIM Property company diversification benefits: August 2005-December 2015
|Correlation||AIM 100||AIM all share||AIM property||Shares||FTSE small Cap.||Listed property||Bonds|
|AIM all share||0.98*||1.00|
|FTSE small Cap.||0.79*||0.84*||0.71*||0.80*||1.00|
Significant correlation (p < 0.05)
AIM Property company post-GFC performance analysis: July 2009-December 2015
|Asset class||Average annual return (%)||Annual risk (%)||Sharpe ratio|
|AIM all share||6.27||15.33||0.38|
|FTSE Small Cap.||14.82||12.14||1.19|
AIM Property company post-GFC diversification benefits: July 2009-December 2015
|Correlation||AIM 100||AIM all share||AIM property||Shares||FTSE small Cap.||Listed property||Bonds|
|AIM all share||0.98*||1.00|
|FTSE small Cap.||0.80*||0.83*||0.41*||0.78*||1.00|
Significant correlation (p < 0.05)
Performance of European property securities*: £: December 2015
|Country||Average annual return (%)|
Includes both REITs and property companies
Source: Authors’ compilation from EPRA (2016)
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