The directs costs of A-REIT IPOs
| Date | 02 March 2015 |
| Published date | 02 March 2015 |
| DOI | https://doi.org/10.1108/JPIF-12-2014-0072 |
| Pages | 196-204 |
| Author | Bill Dimovski |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
PRACTICE BRIEFING
The directs costs of A-REIT IPOs
Bill Dimovski
Department of Finance, Deakin University, Geelong, Australia
Abstract
Purpose –Direct costs of Australian Real Estate Investment Trust (A-REIT) initial public
offerings (IPOs) were last reported in the literature using data to 2004. Much has occurred since
then. The purpose of this paper is to introduce and include the A-REIT IPOs over the last ten years
and examine the cost and the factors influencing the percentage underwriting and percentage total
direct costs by A-REITs IPOs. The study also investigates specifically whether the utilization of an
underwriter (who guarantees the success of the capital raising) rather than a stockbroker (who
does not guarantee such success) costs significantly more.
Design/methodology/approach –The study examines 87 A-REIT IPOs from January 1994 until
December 2013.An OLS regression is performed to identifysignificant influencing factorson percentage
underwriting costs and percentage total direct capital raising costs.
Findings –The study finds that larger capital raisings and those with large investor or
institutional involvement identified in the prospectus are significant in reducing underwriting
costs. The study does not find that underwritten IPOs are significantly more expensive (or cheaper)
than those not underwritten. Additionally, the size of the issue, whether the firm offers stapled
securities (is internally managed) and has higher net asset to issue price characteristics reduces the
total cost of underwritten IPOs.
Practical implications –The paper provides information to new A-REIT issuers, underwriters and
advisors broadly on new issue costs and on factors influencing the IPO issue costs.
Originality/value –The study is the first to examine the costs of A-REIT IPO capital raising data in
the years prior to and following the recent global financial crisis period.
Keywords Australia, IPO, A-REITs, Finance, Direct costs, Underwriting costs
Paper type Research paper
1. Introduction
In the last 20 years 87 Australian Real Estate Investment Trusts (A-REITs) have listed
on the Australian Stock Exchange (ASX) and have raised over A$15 billion from the
public. In most instances initial public offering (IPO) firms engage underwriters to
guarantee the success of the capital raising. In Australia, firms do not need to engage
underwriters to list. In these instances, IPO firms can simply commission a stockbroker
to manage the marketing of the issue without utilizing an underwriter to guarantee
the success of the capital raising. Of the 87 A-REIT IPOs, 73 were underwritten and 14
simply used stockbroker services.
The purpose of this paper is to investigate the costs and the characteristics of the
A-REIT IPOs over the last 20 years. This paper intends to explore the costs of new IPO
issues and the factors that influence the direct costs of the initial equity capital raising
to provide information to new A-REIT issuers, underwriters and advisors. The direct
cost of an IPO is important since only the net proceeds remain for investment. Lee et al.
(1996), Chen and Wu (2002) and Kooli and Suret (2002) report the direct costs of IPOs in
the USA, Hong Kong and Canada averaged 11, 10.4 and 14.4 percent, respectively.
Early work by Dimovski and Brooks (2007) on A-REITs till 2004 identified average
direct costs of 6.1 percent. More recently using US data, Bairagi and Dimovski (2012)
report US REITs average direct costs of 8.3 percent.
Journal of Property Investment &
Finance
Vol. 33 No. 2, 2015
pp. 196-204
©Emerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-12-2014-0072
Received 8 December 2014
Revised 8 December 2014
Accepted 11 December 2014
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
196
JPIF
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