The level of representative underwriting and the underwriting costs of REIT SEOs

Bairagi, Ranajit Kumar; Dimovski, William

doi:10.1108/14635781211194782

Cited by 3 publications

(4 citation statements)

References 45 publications

(102 reference statements)

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“…The findings of this study of Australian REIT rights issues concurs with the findings of the Bairagi and Dimovski (2012) study on US REIT SEOs in that the level of share price volatility is important in influencing underwriting fees. Future research exploring explanatory characteristics in other REIT jurisdictions may help to determine if such findings apply more generally to the entire REIT sector.…”

Section: Discussionsupporting

confidence: 85%

“…One variable in particular that is not significant in influencing percentage underwriting costs in this A‐REIT sector study is the size of the capital raising. Interestingly, Bairagi and Dimovski (2012) report that the underwriting fees for US REIT SEOs are also not statistically significantly influenced by the size of the capital raising. It could be that REITs are generally expected to seek large amounts of seasoned equity capital from underwriters and investors.…”

Section: Discussionmentioning

confidence: 98%

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A‐REIT rights issues

Dimovski

2013

Journal of Property Investment &Amp; Finance

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PurposeThis is the first REIT paper to seek to empirically examine potential influencing factors on the discounts and underwriting fees of Australian REIT rights issues.Design/methodology/approachUsing a methodology similar to Owen and Suchard, and Armitage, a sample of 62 A‐REIT rights issues during 2001‐2009 is analyzed. A variety of potential factors influencing discounts and underwriting fees are explored.FindingsOver A$20 billion was raised by A‐REIT rights issues during 2001‐2009 (this around three times that raised through A‐REIT initial public offerings during the same period). The mean offer price was discounted around 9.5 percent from the current market price and underwriting fees averaged 2.9 percent of gross proceeds raised – both substantially less than for industrial rights issues. The standard deviation of daily returns for the past year appears to influence the percentage discount offered to subscribers. This volatility was particularly noticeable in 2008 and 2009, during the global financial crisis, where new issues were discounted substantially so as to raise equity to repay debt. This historical risk variable appears paramount in determining the discounts to subscribers and fees to underwriters.Practical implicationsA‐REITs seeking to minimize the discounts offered to subscribers and to minimize their underwriting costs with rights issue equity capital raisings must first minimize their share price volatility.Originality/valueThis paper adds to the international costs of capital raising literature of REITs by examining such costs with A‐REIT rights issues and is the first paper to examine factors influencing these costs.

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Section: Discussionsupporting

confidence: 85%

Section: Discussionmentioning

confidence: 98%

A‐REIT rights issues

Dimovski

2013

Journal of Property Investment &Amp; Finance

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“…Another important consideration to be taken in introducing REITs instruments into the market is the cost of REITs unit issuance, particularly the underwriting discount cost. A study by (Bairagi & Dimovski, 2012b) on US Seasoned Equity Offerings (SEOs) REITs that there are some significant determinants of underwriting discount cost, such as dollar offer price per share, gross proceeds, interest rate on US 10 year-treasury bill, and number of total underwriters and number of representative underwriters. Authors suggestion to enhance efficiency of SEOs REITs issuance is by stating that issuers can allocate underwriting process among some underwriters.…”

Section: Methodsmentioning

confidence: 99%

Literature Review on REITs and Islamic REITs and Lessons Learned for Islamic REITs in Indonesia

Indrawan

Wahyuningsih

2019

ijief

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Real Estate Investment Trusts (REITs) as a new instrument in many capital markets is an interesting topic.Although not yet to be popular globally, REITs has gained popularity as flexible, cost efficient and profitable real estate investment vehicle for investors as well as provide liquidity for real estate sector, especially in advanced markets like in US, Japan and Singapore. The emergence of Islamic Financial Institutions (IFIs) coincided with increasing popularity of REITs open opportunity for development of Islamic REITs (I-REITs) as competitive but sharia compliant REITs compared to the conventional one. The dominance of Malaysia as market player of I-REITs as well as many underresearched areas open opportunity for betterment of the current I-REITs markets. This paper is a literature review with two objectives. First, to compile and review existing articles on REITs, both conventional and Islamic, and second, to gain lesson learned as material for development of I-REITs in Indonesia as ultimate goal. It is expected that this literature review will generate ideas for future development proposals on I-REITs, particularly in Indonesia. This study found that literature on I-REITs is relatively thin compared to its conventional counterparts, and Indonesia is still left behind in I-REITs development despite regulatory framework is already in force. Therefore, further effort to promote supply and demand of I-REITs in Indonesia should be taken as a way to diversify Islamic investment avenues for sharia oriented investors.

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“…Andrikopoulos et al (2017) also focused on UK SEOs, regarding institutional ownership and the linkage to offer price discounts. As shown by Bairagi and Dimovski (2012) or Gokkaya et al (2013), underpricing and discounting of SEOs are often used as control variables for the direct cost of raising capital.…”

Section: Literature Reviewmentioning

confidence: 99%

Underpricing and market timing in SEOs of European REITs and REOCs

Lorenz

2019

JPIF

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Purpose The purpose of this paper is to contribute to the literature on seasoned equity offerings (SEOs) by examining the underpricing of European real estate corporations and identifying determinants explaining the phenomenon of setting the offer price at a discount at SEOs. Design/methodology/approach With a sample of 470 SEOs of European real estate investment trusts (REITs) and real estate operating companies (REOCs) from 2004 to 2018, multivariate regression models are applied to test for theories on the pricing of SEOs. This paper furthermore tests for differences in underpricing for REITs and REOCs as well as specialized and diversified property companies. Findings Significant underpricing of 3.06 percent is found, with REITs (1.90 percent) being statistically less underpriced than REOCs (5.08 percent). The findings support the market timing theory by showing that managers trying to time the equity market gain from lower underpricing. Furthermore, underwritten offerings are more underpriced to reduce the risk of the arranging bank, but top-tier underwriters are able to reduce offer price discounts by being more successful in attracting investors. The results cannot support the value uncertainty hypothesis, but they are in line with placement cost stories. In addition, specialized property companies are subject to lower underpricing. Practical implications An optimal issuance strategy taking into account timing, relative offer size and the choice of the underwriter can minimize the amount of “money left on the table” and therefore contribute to the lower cost of raising capital. Originality/value This is the first study to investigate SEO underpricing for European real estate corporations, pricing differences of REITs and REOCs in seasoned offerings and the effect of market timing on the pricing of SEOs.

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The level of representative underwriting and the underwriting costs of REIT SEOs

Cited by 3 publications

References 45 publications

A‐REIT rights issues

A‐REIT rights issues

Literature Review on REITs and Islamic REITs and Lessons Learned for Islamic REITs in Indonesia

Underpricing and market timing in SEOs of European REITs and REOCs

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