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

So how important is Australia? WFE ranks ASX as 11 th 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) 3

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 (3 times that raised by IPO during the same period. 4

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 % –Martin-Ugedo (2003), Spain % –Bairaji and Dimovski (2011), REITs US, %, –Dimovski (2011) REITs Aus 2.9% Discount –Balachandran et al. (2008), Australia 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 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 /100 th of 1% Discount – 10.2% (median 9%) Ave %uwritten – 86% Pplacealso– 38% 8

9 Models OLS and Logit

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 10

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. 11