Bwembya Chikolwa interviewed by Nicole Lindsay for Herald Sun 20th August 2009, Property trusts hit hard by US crash,

Listed Australian property companies wrote off more than $8.5 billlion from their ill-fated US investment adventures during this reporting season.

Listed property trusts and downside systematic risk sensitivity

Purpose: This paper aims to identify and examine the determinants of downside systematic risk in Australian listed property trusts (LPTs).

Design/methodology/approach: Capital asset pricing model (CAPM) and lower partial moment-CAPM (LPM-CAPM) are employed to compute both systematic risk and downside systematic risk. The methodology of Patel and Olsen and Chaudhry et al. is adopted to examine the determinants of systematic risk and downside systematic risk.

Findings: The results confirm that systematic risk and downside systematic risk can be individually identified. There is little evidence to support the existence of linkages between systematic risk in Australian LPTs and financial/management structure determinants. On the other hand, downside systematic risk is directly related to the leverage/management structure of a LPT. The results are also robust after controlling for the LPTs' investment characteristics and varying target rates of return.

Practical implications: Investors and real estate analysts should conscious with the higher returns from high leverage and internally managed LPTs. Although there is no evidence that these higher returns are related to higher systematic risk, there could be the compensation for higher downside systematic risk.

Originality/value: This study provides invaluable insights into the management of real estate risk in Australian LPTs with implications for REITs in other countries. Unlike previous studies of systematic risk in REITs or LPTs, this is the first study to assess downside systematic risk and explore the determinants of downside systematic risk in LPTs.

Momentum profits in Australian listed property trusts

This paper examines the profitability of momentum trading strategies in Australian listed property trusts (LPTs). Monthly value-weighted momentum portfolios are formed using the monthly excess returns of LPTs for the period from 1990 to 2005. Overall the findings confirm that a momentum trading strategy in Australian LPTs is a profitable strategy. More specifically, momentum strategies are profitable after adjusting for variance and downside risk where the momentum returns substantially outperform the benchmark. An analysis using different study periods confirm the findings about momentum. The practical implication from this study is that investors can generate substantial abnormal returns by adopting a momentum trading strategy, particularly with a long strategy (i.e. winner portfolios).

Downside systematic risk in Australian listed property trusts

Previous studies on systematic risk have demonstrated the link between financial and management structure determinants and systematic risk. However, systematic risk is estimated by assuming return is normally distributed. This assumption is generally rejected for real estate returns. Therefore, downside systematic risk appears as a more sensible risk measure in estimating market-related risk. This study contributes to this body of knowledge by examining the determinants of downside systematic risk in Australian Listed Property Trusts (LPTs) over 1993-2005. The results reveal that systematic risk and downside systematic risk are empirically distinguishable. More specifically, there is limited evidence on the connection between these financial and management structure determinants and systematic risk. However, downside systematic risk is sensitive to leverage and management structure.

Determinants of listed property trust bond ratings : Australian evidence

Using artificial neural networks (ANN) and ordinal regression (OR) as alternative methods to predict LPT bond ratings, we examine the role that various financial and industry variables have on Listed Property Trust (LPT) bond ratings issued by Standard and Poor’s from 1999-2006. Our study shows that both OR and ANN provide robust alternatives to rating LPT bonds and that there are no significant differences in results between the two full models. OR results show that of the financial variables used in our models, debt coverage and financial leverage ratios have the most profound effect on LPT bond ratings. Further, ANN results show that 73.0% of LPT bond rating is attributable to financial variables and 23.0% to industry-based variables with office LPT sector accounting for 2.6%, retail LPT 10.9% and stapled management structure 13.5%.

The pricing of property trust IPOs in Australia

Following Brounen and Eichholtz (2002) this paper adds to the international literature investigating the underpricing of REIT initial public offerings (IPOs), with a study into Australian property trusts. This study finds that initial day returns can in part be explained by forecast profit distributions (or dividends) and the market sentiment towards property trusts from the date of the prospectus to the date of listing. There is some support for the “winners curse” explanation of underpricing with evidence that large investor or institutional involvement at the outset of the IPO also has some explanatory power.

The costs of raising equity capital by Australian property trust initial public offerings

This paper reports some of the direct costs of raising equity capital by property trust initial public offerings (IPOs) in Australia from 1994 to 2004. It also documents the amount of underpricing by these IPOs. The results indicate the average fees paid to underwriters and/or stockbrokers in managing and marketing the issue was around 3.3% of the public equity capital raised. The average fees paid to legal firms, accounting firms and valuers for their professional involvement and expert reports were 0.4%, 0.2% and 0.1% respectively, totaling 0.7% of the equity raised. Other fees such as printing, listing fees, postage, distribution and advertising cost around 2.1%. The total average direct costs amounted to around 6.1% of the proceeds raised. The average underpricing by these property trust IPOs was 2.6%. This paper also investigates the hypotheses that the percentage direct capital raising costs are influenced by the size of the IPO and whether the IPO is underwritten. This study confirms that larger property trust equity capital raisings have lower percentage total direct cost;, however, it does not find that underwriting significantly influences the percentage of total direct costs for these property trust IPOs.

Factors influencing money left on the table by property trust IPO issuers

While previous listed property trust (LPT) initial public offering (IPO) studies have identified low under pricing returns, this study specifically examines the amount of money left on the table by the pre-IPO owners in this category of IPO. This study investigates 58 property trust IPOs in Australia from 1994 to 2004 and finds that the amount of money left by LPT IPOs is considerably less than industrial company IPOs, implying considerably less uncertainty about the valuation of such IPOs compared to industrials. We also find that more recent (post 2000) LPT IPOs in Australia appear to be significantly different to previous LPT IPOs in both money left and under pricing terms.

The characteristics of property trust IPOs in Australia

This paper follows Ling and Ryngaert (1997) and Brounen and Eichholtz (2001) who investigate the underpricing of REIT initial public offerings (lPOs) in the United States and Europe respectively. This study adds to the international literature by investigating Australian property trusts. It reports a variety of descriptive statistics on 37 Australian property trust IPOs from 1994 to 1999. What it also contributes is the finding that some IPOs have extremely low volumes of shares traded on the first day so the simple use of a closing price at the end of the first day to determine underpricing returns (without reference to the volume of trading) may not always be the optimum method of calculating these returns.

Factors influencing the direct costs of property trust IPOs

Underwriting, legal, accounting and valuation costs average around 3.3%, 0.39%, 0.23% and 0.12% of proceeds raised and are substantial costs to property trust initial public offering (IPO) issuers. As such, identifYing factors that influence these costs is important. This paper investigates factors influencing these costs as well as the total direct costs of raising equity capital by property trust IPOs in Australia from 1994 to 2004. The results suggest clear economies of scale in direct costs. In addition, IPOs that employ more debt are likely to have higher capital raising costs while those that have proportionally higher net asset values and offer stapled securities (and likely to be engaged in property development activities) have lower capital raising costs.

The market for corporate control: the case of Australian listed property

 This study investigates the underlying motivation(s) for mergers and acquisitions in the Australian Real Estate Investment Trust sector. Results across the three periods of pre-, during and post-announcement show that mergers and acquisitions create synergistic benefits for both targets and bidders.

Donationes mortis causa in a dematerialised world

Subject: Real property. Other related subjects: Personal property. Trusts Keywords: Bank accounts; Documents of title; Donatio mortis causa; Electronic documents; Legal charges; Registered land; Shares Legislation: Land Registration Act 2002 (c.9) Cases: Sen v Headley [1991] Ch. 425; Guardian, April 23, 1991 (CA (Civ Div)); Duffield v Elwes 4 E.R. 959 (KB); Birch v Treasury Solicitor [1951] Ch. 298 (CA)

Analysis of IPO dividend forecasts for Australian LPTs

While dividend forecasts in the prospectuses of initial public offerings (IPOs) are common, Brown et al. (2000) have found them to be optimistically biased. This study investigates the dividend/distribution forecasts in the prospectuses of Australian LPT IPOs during the period 1994 to 2004 and finds on average that they are not optimistically biased. Because dividends have important cash flow implications for investors, this study also examines factors that might influence the magnitude of the errors between the forecast and the actual distributions. It finds that LPT IPOs that offer stapled securities have overestimated their distribution paying ability.

The underpricing of A-REIT IPOs in Australia during 2002 to 2008

This study analyses 45 Australian Real Estate Investment Trust (A-REIT) initial public offerings (IPOs) in Australia from January 2002 to June 2008, since the introduction of the single responsible entity to oversee the activities of listed property trusts (LPTs) Rather than the trustee and manager roles. The study finds that this sample of A-REIT IPOs had a significant 3.37% underpricing and that the direct costs of capital raising help explain this indirect cost of underpricing. There is some evidence to suggest that A-REIT IPOs that seek to raise more equity capital have less underpricing, while those that are subscribed to more quickly have higher underpricing. The findings offer insights for issuers who seek to maximize the value of the A-REIT at the time of the IPO, underwriters who guarantee the success of the capital raising and for investors who are looking to invest in Australian A-RE1T 1POs.