REITs and REOCs and their initial stock market performance: a European perspective

Abstract

Purpose -The purpose of this study is to examine the differences between initial public offering (IPO) pricing in the real estate sector and to provide insight into how real estate investment trust (REIT) and real estate operating company (REOC) IPOs perform in a comparative framework.Design/methodology/approach -The sample consists of 107 European REIT and REOC IPOs from nine European countries over the period 2000-2015. The initial returns are examined by creating subsamples based on the two business forms, countries and specific timeframes (before, during and after the global financial crisis). A multiple regression analysis is applied to identify the ex-ante uncertainty factors, IPO and firm characteristics, which may impact on the different underpricing levels of REITs and REOCs.Findings -European property companies are on average significantly underpriced by 4.63 per cent. The results also reveal that REITs provide a significantly lower underpricing of 2.02 per cent than REOCs, with a positive initial return of 5.69 per cent. The causal treatment effect of the legal form of the company and the underpricing is confirmed by propensity score matching. Among the most influential factors for a lower REIT underpricing, besides the REIT-status itself, are the volatility, offer size and market phase of the IPO. During the global financial crisis (GFC) (2008)(2009)(2010), underpricing exceeds the initial return for the total sample by approximately 70 per cent.Originality/value -This is the first study investigating differences in the underpricing level of REITs and REOCs in a European setting, including the GFC as an extraordinary market phase. The authors provide evidence that REIT IPOs compared to REOC IPOs "leave less money on the table".

Cash flow uncertainty and IPO underpricing: evidence from income guarantee in Thai REITs

“…However, compared to stock IPOs, the difference in magnitude is significant: for US IPOs between 1980 and 2019, the average initial return is 18% (Ritter, 2020). Underpricing of REITs also tends to be less than real estate operating companies (REOCs), as documented in Australian REITs by Dimovski (2016) and European REITs by Ascherl and Schaefers (2018). Chan et al (2013) conjecture that the finding may be due to the fund-like nature of REITs and the redeployability of real estate assets, but their statistical tests rely on REIT characteristics that vary at country level [6].…”

Under Invoicing in the Residential Real Estate Market in Pakistan

“…The economic theory of causality can be explained this way: If the riskfree rate of return increases, ceteris paribus, the rate of savings will likewise increase. To the extent that savings increases, again ceteris paribus, one would expect to observe an increase in business investment activity, including activity in the real estate market as well as increase in business activities in the aggregate economy (Ascherl & Schaefers, 2018;Brobert, 2016). Infrastructure and sector development and increasing residential construction both affect the dynamic equilibrium of the residential housing market (Hromada, 2015).…”

“…It is generally presumed that as the risk-free rate of return increases, ceteris paribus, the rate of savings will likewise increase. To the extent that savings increases, again ceteris paribus, one would expect to observe an increase in business investment activity, including activity in the real estate market as well as increase in business activities of overall economy (Ascherl & Schaefers, 2018;Brobert, 2016). The increase in real estate transactions will tend over time to cause an increase in the prices of real property.…”

A Comparative Analysis of R.E.I.T.s, R.E.O.C.s and P.R.E.O.C.s Using a Stochastic Frontier Approach

“…Authors also discovered that R.E.I.T.s served as a primary information broadcast channel to private firms. While analysing R.E.I.T.s and R.E.O.C.s, Ascherl and Schaefers (2018) found that the former provided a significantly lower under-pricing than the latter, although Chinese scientist Bo-Sin et al 2008, who studied R.E.I.T.s and private companies in the U.S., Australia, Japan and Singapore, concluded that Trusts should not be viewed as a complete substitute for direct property investment. Brounen et al (2016) carefully studied 732 listed R.E.…”