1. NAV Discounts in European Listed Property Companies: A Panel Regression Approach Rebecca Goodall and Michael White ERES 2011, Eindhoven

2. 02 December 20152 NAV discounts/premiums = Price per share NAV per share

3. 02 December 20153 The commercial significance of discounts 1)The “puzzle” is not that puzzling. Morri and Ward (2005) argue that there are good grounds for deviation (i.e. a premium or a discount). 2) Schutte and Unlu (2009) explain that ‘price stability is critical for the decision making at the corporate level because managers rely on forecasted prices to make various long-term decisions regarding capital structure (issuance of equity versus debt), payout policy (dividend and share purchases), and corporate acquisitions/divestitures’ 3) If share price anomalies/frictions are to blame can management tackle “investibility” issues and reduce the discount?

4. 02 December 20154 NAV debate stock take No comprehensive explanation Contradictions Not enough time series data Data sets used

5. 02 December 20155 Building on previous research 1) Brounen and ter Laak (2005) ‘Discount = f(Constant, Size, Leverage, Mean Return, Freefloat, Total Risk, Systematic Risk)’ 2) Barkham and Ward (1999) conclude that market sentiment (noise trading) is the prime driver of the discount. So how do different shares react to noise? 3) Schutte and Unlu (2009) show that sell-side analyst coverage can reduce noise So do firms with more coverage have a lower discount?

6. 02 December 20156 The model Discount =f(Constant, Market Cap, Trading Volume, Free float, EPRA index membership, Focus, Market Cap of Exchange, Analyst Coverage) If a share is easy to invest in and is also being marketed through the sell-side it should be more popular with investors ceteris paribus and the share price should rise, leading to a lower NAV discount?

7. 02 December 20157 Market capitalisation Past researchProxyResultComment Bond and Shilling (2004) Market CapNot stat. significant Data set reflects ‘major European propcos’ Brounen and ter Laak (2005) Size as the nat. log of the end-of-year total balance sheet value Negative relationship between balance sheet value and NAV discount Authors argue that rationale is ambiguous. Balance sheet value? Schutte and Unlu (2009) Nat. log of the calendar year-end market cap in millions of dollars (against noise, not NAV!) Negative relationship between market cap and size Sample set excluded non-traditional corporation forms such as REITs. Goodall and White: Proxy: Market Capitalisation of share (Nr of shares * price) Expected relationship: Negative

8. 02 December 20158 EPRA index membership Past researchProxyResultComment Brounen and ter Laak (2005) Membership of EPRA Index NegativeLink membership to liquidity Goodall and White: Proxy: binary dummy for EPRA index membership Expected relationship: Negative

9. 02 December 20159 Sell-side analyst coverage Past researchProxyResultComment Schutte and Unlu (2009) Residual volatility and noise impacted by the intensity of analyst coverage (estimated as the log. transformation of the number of estimates/revisions on the stock following initiation) ‘analyst coverage makes stock prices less noisy’ Argue that security analysts play role in helping investors discriminate between news related to company fundamentals and noise which leads to increased price stability. Dhiensiri, Sayrak and Zarowin (2004) Effect of first-time coverage initiations on the future earnings response coefficient (FERC) ‘analysts’ activities make market prices reflect more future earnings information’ Goodall and White Proxy: Nr of analysts covering the company at year end 2010. Similar to Piotroski and Roulstone (2004) who considered the sum of analysts’ revisions. Expected relationship: Negative

10. 02 December 201510 Data and Methodology Data for the analysis stage come from the Kempen universe plus some additional sources This is still an on-going process at this stage Kempen comprises over 50 property companies across Europe The final dataset will consist of data over time and will permit a panel regression approach to be adopted. Panel unit root tests and cointegration tests will be employed The structure of the dataset will permit testing for index membership effects, and allow identification of any cyclical impacts

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12. 02 December 201512 Conclusion Discount =f(Constant, Market Cap, Trading Volume, Free float, EPRA index membership, Focus, Market Cap of Exchange, Analyst Coverage) Results will be available for ERES 2012!!! Contact details: Michael.white@ntu.ac.uk, rebecca.goodall@ntu.ac.ukrebecca.goodall@ntu.ac.uk

13. NAV Discounts in European Listed Property Companies: A Panel Regression Approach Rebecca Goodall and Michael White ERES 2011, Eindhoven

14. 02 December 201514 Regional and use-type focus Past researchProxyResultComment Bond and Shilling (2004) Economics focus (firm value compared to residual volatility as a percentage of total volatility) Positive (at 10% level) Economic focus is a quite an abstract concept when looking at propcos Brounen and ter Laak (2005) HHI for regions and property types Regions – unrelated Use - negative Domestic focus of propcos in 2002. Internationalisati on since then. Goodall and White Proxy: HHI for sector and regional focus Expected relationship: High focus leads to lower NAV discount

15. Further variables Trading volume Free-float Market cap of the exchange the company is listed on

16. 02 December 201516 Trading volume and free-float Past researchProxyResultComment Brounen and ter Laak (2005) Free-float (traded stock as a percentage of the total value of the balance sheet). negativeProxy gives insight into capital structure, but not volume. Benveniste, Capozza and Seguin (2001) Free-floatxxx Gemmill and Thomas (2002) XxxxxxXxx Goodall and White Proxy: Free-float as the proportion of issued shares not held by strategic investors Expected relationship: High liquidity and high free-float leads to low NAV discount

17. 02 December 201517 Market cap of exchange Past research ProxyResultComment xxxXxx xxxXxxxxxx Goodall and White Proxy: Market cap of the exchange the company is listed on Expected relationship: Negative