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Article
Publication date: 26 September 2019

Isil Erol and Tanja Tyvimaa

The purpose of this paper is to explore the levels and determinants of net asset value (NAV) premiums/discounts for publicly traded Australian Real Estate Investment Trust (A-REIT

Abstract

Purpose

The purpose of this paper is to explore the levels and determinants of net asset value (NAV) premiums/discounts for publicly traded Australian Real Estate Investment Trust (A-REIT) market during the last decade. A-REITs were severely affected by the global financial crisis as S&P/ASX 200 A-REIT index-listed property stocks experienced 47 per cent discount to NAV, on average, in 2008–2009 crisis. Since 2013, A-REIT sector has exhibited a strong recovery from the financial crisis and traded at high premiums to date. Understanding the relationship between pricing in the public and private real estate markets has taken on great importance as A-REITs continue to trade at significant premium to NAV unlike their counterparts in the USA and Europe.

Design/methodology/approach

This paper follows a rational approach to explain variations in NAV premiums and explores the company-specific factors such as liquidity, financial leverage, size, stock price volatility and portfolio diversification behind the A-REIT NAV premiums/discounts. The study specifies and estimates a model of cross-sectional and time variation in premiums/discounts to NAV using semi-annual data for a sample of 40 A-REITs over the 2008–2018 period.

Findings

The results reveal that A-REIT premiums to NAV can be explained not only by the liquidity benefit of listed property stocks but also positive financial leverage effect. During the past decade, A-REITs have followed an aggressive approach in financing their growth by using borrowed funds to purchase assets as the income from the property offsets the cost of borrowing and the risk that accompanies it. Debt-to-equity ratio has to be considered as an important source of NAV premiums as highly geared A-REITs that favoured debt financing over equity financing traded at significant premiums to NAV of their underlying real estate assets.

Practical implications

The paper includes implications for the REIT market investors. The regression analysis shows that specialty A-REITs with a focus on creative market niches traded at higher premiums compared with other property stocks, especially in the post-GFC recovery period. Specialty REITs are more highly valued by the market than their traditional specialised counterparts (e.g. office and retail REITs), and those pursuing a diversified strategy.

Originality/value

This paper presents an Australian case study as the A-REIT market provides a suitable environment for testing the effect of financial gearing on the REIT premium to NAV. The study provides empirical evidence supporting the importance of debt-to-equity ratio in explaining the variation in A-REIT NAV premiums.

Details

Journal of Property Investment & Finance, vol. 38 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 March 2013

William Dimovski, Luisa Lombardi and Barry Cooper

This is the first paper which aims to investigate factors that might influence the gender composition of boards of directors of Australian Real Estate Investment Trusts (A‐REITs).

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Abstract

Purpose

This is the first paper which aims to investigate factors that might influence the gender composition of boards of directors of Australian Real Estate Investment Trusts (A‐REITs).

Design/methodology/approach

This study follows Mateos de Cabo, Gimeno and Nieto and the gender diversity literature and investigates the existence and number of women directors on the boards of directors of 37 A‐REITs from 2006 to 2011.

Findings

There is evidence that larger (by market capitalization) A‐REITs are more likely to employ a woman director and that A‐REITs with larger boards are more likely to employ a woman director and indeed more women directors. It also appears that A‐REITs whose head office is in Sydney are more likely to employ a woman director and also more women directors.

Practical implications

Women seeking to be engaged as directors of A‐REITs are more likely to be employed by larger A‐REITs (by market capitalization), those with larger boards and those located in Sydney.

Originality/value

This paper adds to the existing literature on gender diversity by examining the factors that appear to influence the employment of women on A‐REIT Boards.

Details

Journal of Property Investment & Finance, vol. 31 no. 2
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 12 November 2019

Bill Dimovski, Rebecca Ratcliffe, Christopher Ratcliffe, Monica Keneley and Scott Salzman

The purpose of this paper is to investigate the accuracy of Australian Real Estate Investment Trust (A-REIT) initial public offering (IPO) dividend forecasts between 1994 and 2016.

Abstract

Purpose

The purpose of this paper is to investigate the accuracy of Australian Real Estate Investment Trust (A-REIT) initial public offering (IPO) dividend forecasts between 1994 and 2016.

Design/methodology/approach

This study compares the dividend forecasts of A-REIT IPOs for the first dividend forecast period in the prospectus, with the actual dividend declared for that forecast period. As well as simple descriptive summary measures, this study also employs an exact logistic regression approach to examine the factors that might influence the IPOs achieving or exceeding the dividend forecast.

Findings

The study identifies that the dividends declared, on average, were greater than the dividend forecast and that more than nine out of ten of the IPOs listed after 1999 achieved or exceeded their prospectus forecast. In addition the authors observe positive mean forecast errors, suggesting dividend forecasts in A-REIT IPOs, are cautiously biased. This is in contrast to the industrial company data reported in Brown et al. (2000) which suggest dividend forecasts are optimistically biased. The study also finds the A-REIT IPOs that did not forecast a dividend, generally did not pay a dividend.

Practical implications

The results will inform dividend seeking institutional and retail investors of the investment opportunities in A-REIT IPOs.

Originality/value

This paper adds to the discussion of the relative predictability of dividends of A-REIT IPOs compared to industrial company IPOs.

Details

Journal of Property Investment & Finance, vol. 38 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 December 2020

James Giannarelli and Piyush Tiwari

This paper examines the extent of the short-run relationship between Australian real estate investment trusts (A-REITs) and direct real estate returns on both a commercial…

Abstract

Purpose

This paper examines the extent of the short-run relationship between Australian real estate investment trusts (A-REITs) and direct real estate returns on both a commercial property sector and a prime and secondary grade basis, i.e. a subsector basis.

Design/methodology/approach

Two-step methodology is used. First, we identify the dynamic interdependencies between A-REITs and each commercial property subsector to determine whether the returns of A-REITs lead each subsector or vice versa. Second, short-run deviations between these asset returns are estimated by measuring their individual response behaviours to changes in key economic and financial market factors that are expected to influence these returns.

Findings

Results suggest that each subsector shares a unique relationship to A-REITs, given each prime and secondary grade commercial property return series varies in behaviour. Some property subsector returns can be predicted by movements in A-REIT returns, whereas returns for others move independent to changes in A-REITs. Similarly, some subsectors commove with A-REITs in response to changes in certain market factors, whereas others diverge. As such, these findings have practical significance to fund managers and portfolio selection, as each commercial subsector embodies its own exposure to A-REITs and vulnerabilities to market forces. Subsectors that commove with A-REITs in response to certain market forces may be used as substitutes in a portfolio. Alternatively, subsectors that diverge from A-REITs in response to market forces may offer diversification benefits when combined.

Practical implications

These findings extend beyond existing research to offer critical decision-making guidance at the acquisition level, as fund managers may more closely consider the impact that prime or secondary grade properties within a given commercial sector may have on a portfolio that consists of public and private Australian real estate. Ultimately, a more informed acquisition may be carried out as consideration of a property's asset grade allows for a deeper insight into the property's risk profile and its anticipated short-run impact on a portfolio.

Originality/value

This paper extends previous studies that focus mostly on aggregate or sector-level returns by measuring REIT and real estate dynamics at the subsector level, allowing for practical significance at not only the portfolio level but crucially at the acquisition level, a pivotal decision-making stage for fund managers. This is also the first paper to study REIT and real estate causality and response patterns to changes in market factors at the Australian sector level.

Article
Publication date: 25 September 2009

Anthony J. De Francesco and Luke R Hartigan

The Australian REIT (A‐REIT) market has undergone significant change over the past ten years with a shift from passive investment strategies to more active investment strategies…

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Abstract

Purpose

The Australian REIT (A‐REIT) market has undergone significant change over the past ten years with a shift from passive investment strategies to more active investment strategies in an attempt to deliver higher return performance. However, this has dramatically changed the risk characteristics of A‐REITs. Essentially, the sector has become more risky. Factors contributing to the increasing risk profile include: rising gearing levels; greater offshore exposure; evolving management structure towards stapled trusts, and growing market concentration. This paper aims to address these issues.

Design/methodology/approach

In an attempt to gauge the impact of the changing risk characteristics over time the paper employs two formal risk measures: time‐varying beta and news impact curves. Both measures indicate that the sector has become more risky. Indeed, it could be argued that the pronounced fall in A‐REIT prices during late 2007 reflects a re‐rating of risk on the upside. The post credit crisis financial climate warrants a review of investment strategies; in particular, growth style investments that may be carrying a high level of embedded risk and opaque income streams.

Findings

Current market sentiment suggests that investors have become more risk averse, and as such, will refocus on A‐REITs that cater for defensive style investments. Such vehicles will have low to moderate gearing levels, hold quality property assets in their portfolio, limited off‐shore exposure, and employ sound management practices.

Originality/value

The heightened risk‐averse environment presents opportunities for new investment products that provide partial exposure to direct property investment as a way to mitigate excessive equity market volatility.

Details

Journal of Property Investment & Finance, vol. 27 no. 6
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 2 August 2013

Chris Ratcliffe and Bill Dimovski

The purpose of this paper is to use Australian Real Estate Investment Trust (A‐REIT) data to empirically examine potential influencing factors on A‐REITs becoming a bidder or a…

Abstract

Purpose

The purpose of this paper is to use Australian Real Estate Investment Trust (A‐REIT) data to empirically examine potential influencing factors on A‐REITs becoming a bidder or a target in the mergers and acquisitions (M&A) area.

Design/methodology/approach

This study uses logistic regression analysis to investigate the odds of publically traded A‐REITs being either a bidder or a target as a function of a number of financial and corporate governance variables.

Findings

Prior research in the US REIT M&A area has shown that target size is inversely related to takeover likelihood; in contrast, the authors' Australian results show that size has a positive impact. Prior research on share price and asset performance has shown that underperformance increases the odds of an entity becoming a target, but this paper's results further support these findings and provide confirmation of the inefficient management hypothesis. For acquirers it was found that leverage, cash balances, management structure, the level of shares held by related parties and the global financial crisis have an important impact on bidder likelihood.

Practical implications

Given that the literature suggests that investors can earn significant positive abnormal returns by owning targets, but incur significant abnormal losses by owning bidders, at announcement, this study will be useful to fund managers and other investors in A‐REITs by investigating the characteristics of those firms that become targets and bidders.

Originality/value

This paper adds to the recent US REIT M&A literature by examining the second biggest REIT market in the world and reporting a number of factors that might influence A‐REITs to become targets or bidders.

Details

Journal of Property Investment & Finance, vol. 31 no. 5
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 7 March 2016

Bill Dimovski

A variety of papers have analyzed the underpricing of REIT IPOs or property company IPOs. The purpose of this paper is to compare the two sectors and examines differences in the…

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Abstract

Purpose

A variety of papers have analyzed the underpricing of REIT IPOs or property company IPOs. The purpose of this paper is to compare the two sectors and examines differences in the underpricing of the two types of IPOs.

Design/methodology/approach

An OLS regression is used to identify factors influencing the underpricing of A-REIT and property company IPOs from 1994 until 2014.

Findings

This study finds that A-REIT IPOs have a significantly lower underpricing on average than Australian property company IPOs. The time taken to list appears to influence the underpricing of both A-REIT IPOs and property company IPOs, in that issues that are filled more quickly have higher underpricing but with the magnitude of the impact being less for A-REITs. The sentiment toward the stock market also appears to impact on the underpricing of A-REIT and property company IPOs again with the magnitude of the impact being less for A-REITs.

Practical implications

The paper provides information to new A-REIT and property company issuers, underwriters and investors.

Originality/value

The study is the first to compare and examine the differences in the underpricing of both REITs and property companies in the one country over the same time period.

Details

Journal of Property Investment & Finance, vol. 34 no. 2
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 26 August 2014

Christopher Ratcliffe and Bill Dimovski

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…

Abstract

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).

Practical implications

Regression analysis shows A-REITs trading at a premium to net tangible assets and A-REITs that use placement funds for their core business have a positive impact on announcement ARs.

Originality/value

This paper adds to the existing literature surrounding private placements and is the first paper, to the authors’ knowledge, to examine the impact of Australian REITs.

Details

Journal of Property Investment & Finance, vol. 32 no. 6
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 6 July 2012

Graeme Newell and Chyi Lin Lee

Corporate social responsibility (CSR) has taken on increased stature and importance in recent years, as property investors have given an increased priority to environmental…

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Abstract

Purpose

Corporate social responsibility (CSR) has taken on increased stature and importance in recent years, as property investors have given an increased priority to environmental, social and corporate governance issues in their property investment decision‐making. The purpose of this paper is to empirically examine the impact of CSR factors and financial factors on the performance of Real Estate Investment Trusts (REITs) in Australia (A‐REITs) and assess whether these three CSR factors are separately priced by A‐REIT investors in uniquely adding value to A‐REIT investment performance.

Design/methodology/approach

Using CSR rating factors and financial factors for the 16 A‐REITs in the ASX200, cross‐sectional multi‐factor models are employed to identify the separate pricing of these CSR factors in A‐REIT performance over 2005‐2010.

Findings

The empirical results show that the environmental, social and corporate governance dimensions of CSR are not currently separately priced by A‐REIT investors, with most of the A‐REIT performance accounted for by the financial factors. Amongst the three CSR dimensions, corporate governance is seen to be the most influential CSR factor on A‐REIT performance.

Practical implications

This paper empirically determines that the CSR dimensions of environment, social and corporate governance are currently less influential than the financial factors of size, book‐to‐market value, gearing and beta in influencing A‐REIT performance. Given the increased role of CSR amongst A‐REITs, corporate governance is seen to have a more influential role in A‐REIT pricing than either environmental or social factors. This finding also has practical implications for CSR practices in other REIT markets internationally.

Originality/value

This paper is the first published property research analysis on the separate role of CSR factors, compared to the traditional financial factors, in the performance of A‐REITs. Given the increased focus on CSR by property investors, this research enables empirically‐validated and practical property investment decisions by A‐REIT investors regarding the separate pricing of these CSR factors in A‐REIT performance.

Article
Publication date: 2 March 2015

Bill Dimovski

Direct costs of Australian Real Estate Investment Trust (A-REIT) initial public offerings (IPOs) were last reported in the literature using data to 2004. Much has occurred since…

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Abstract

Purpose

Direct costs of Australian Real Estate Investment Trust (A-REIT) initial public offerings (IPOs) were last reported in the literature using data to 2004. Much has occurred since then. The purpose of this paper is to introduce and include the A-REIT IPOs over the last ten years and examine the cost and the factors influencing the percentage underwriting and percentage total direct costs by A-REITs IPOs. The study also investigates specifically whether the utilization of an underwriter (who guarantees the success of the capital raising) rather than a stockbroker (who does not guarantee such success) costs significantly more.

Design/methodology/approach

The study examines 87 A-REIT IPOs from January 1994 until December 2013. An OLS regression is performed to identify significant influencing factors on percentage underwriting costs and percentage total direct capital raising costs.

Findings

The study finds that larger capital raisings and those with large investor or institutional involvement identified in the prospectus are significant in reducing underwriting costs. The study does not find that underwritten IPOs are significantly more expensive (or cheaper) than those not underwritten. Additionally, the size of the issue, whether the firm offers stapled securities (is internally managed) and has higher net asset to issue price characteristics reduces the total cost of underwritten IPOs.

Practical implications

The paper provides information to new A-REIT issuers, underwriters and advisors broadly on new issue costs and on factors influencing the IPO issue costs.

Originality/value

The study is the first to examine the costs of A-REIT IPO capital raising data in the years prior to and following the recent global financial crisis period.

Details

Journal of Property Investment & Finance, vol. 33 no. 2
Type: Research Article
ISSN: 1463-578X

Keywords

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