The Costs of Raising Equity Capital by Australian Property Trust Initial Public Offerings

Dimovski, William

doi:10.1080/14445921.2005.11104184

Cited by 7 publications

(5 citation statements)

References 21 publications

(30 reference statements)

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“…While the studies above explore industrial and mining entities, there are three studies that specifically explore underwriting costs related to REITs but all are on the underwriting costs of REIT initial public offerings (IPOs) rather than secondary equity capital raisings. Chen and Lu (2006) investigated 197 US REIT IPOs from 1980 to 1999 and report a clustering of gross spreads of 7.0 percent in the 1980s and 6.5 percent in the 1990s while Dimovski (2006) investigated 57 A‐REIT IPOs during 1994‐2004 to find underwriting costs of around 3.3 percent. The third study is by Kutsuna et al (2008) on the underwriting fees of Japanese REIT (J‐REIT) IPOs.…”

Section: Related Literaturementioning

confidence: 99%

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: Related Literaturementioning

confidence: 99%

A‐REIT rights issues

Dimovski

2013

Journal of Property Investment &Amp; Finance

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“…In Australia, Dimovski (2006) and Dimovski and Brooks (2007) have worked on reporting some of the direct costs of equity capital raised by Australian REIT IPOs during 1994-2004. Briefly, they report average underwriting fees of 3.3 percent and find economies of scale in direct costs.…”

Section: Equity Capital For Us Reit Iposmentioning

confidence: 99%

The direct costs of raising external equity capital for US REIT IPOs

Bairagi

Dimovski

2012

Journal of Property Investment &Amp; Finance

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PurposeThe purpose of this paper is to investigate the total direct costs of raising external equity capital for US real estate investment trust (REIT) initial public offerings (IPOs).Design/methodology/approachThe study provides recent evidence on total direct costs for a comprehensive dataset of 125 US REIT IPOs from 1996 until June 2010. A multivariate OLS regression is performed to determine significant factors influencing the level of total direct costs and also underwriting fees and non‐underwriting direct expenses.FindingsThe study finds economies of scale in total direct costs, underwriting fees and non‐underwriting expenses. The equally (value) weighted average total direct costs are 8.33 percent (7.52 percent), consisting of 6.49 percent (6.30 percent) underwriting fees and 1.87 percent (1.22 percent) non‐underwriting direct expenses. The study finds a declining trend of total direct costs for post 2000 IPOs which is attributed to the declining trend in both underwriting fees and non‐underwriting direct expenses. Offer size is a critical determinant for both total direct costs and their individual components and inversely affects these costs. The total direct costs are found significantly higher for equity REITs than for mortgage REITs and are also significantly higher for offers listed in New York Stock Exchange (NYSE). Underwriting fees appear to be negatively influenced by the offer price, the number of representative underwriters involved in the issue, industry return volatility and the number of potential specific risk factors but positively influenced by prior quarter industry dividend yield and ownership limit identified in the prospectus. After controlling for time trend, the paper finds REIT IPOs incur higher non‐underwriting direct expenses in response to higher industry return volatility prior to the offer.Originality/valueThis paper adds to the international REIT IPO literature by exploring a number of new influencing factors behind total direct costs, underwriting fees and non‐underwriting direct expenses. The study includes data during the recent GFC period.

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“…Again, they corroborate the economies of scale argument. While studies in the costs of capital raising area generally focused on industrial companies, Dimovski (2006) reports the direct capital raising costs of Australian LPT IPOs during 1994 to 2004. He finds that average total direct costs are around 6.1%, however they average nearly 8% for LPT IPO capital raisings of up to A$65 million and average just over 4% for capital raisings of over A$150 million.…”

Section: Cost Of Underwriting Literaturementioning

confidence: 99%

“…The purpose of this paper is to focus on some of these direct costs. Dimovski (2006) reports that in Australia, 57 LPT IPOs raised nearly A$10 billion during 1994 to 2004. This suggests the average LPT IPO raised around A$170 million.…”

Section: Introductionmentioning

confidence: 99%