REIT ASIAPAC
J-REITS 2018 SECONDARY OFFERINGS (JPY)
NAME
DATE
ANNOUNCED
CLOSING PRICE
ON DEAL
ANNOUNCEMENT
DATE
PRICING
DATE
CLOSING PRICE
ON PRICING
DATE
% CHANGE
FROM DEAL
ANNOUNCED TO
PRICING DATE
TSEREIT
PERFORMANCE
PERFORMANCE
RELATIVE TO
TSEREIT INDEX
DEAL
PRICE
DEAL
DISCOUNT
ACTIVIA
PROPERTIES 30-Nov-18 477,000 12-Dec-18 454,500 -4.72% -1.09% -3.63% 445,410 -2.00%
HANKYU
HANSHIN
REIT 8-Nov-18 143,600 19-Nov-18 143,900 0.21% 0.91% -0.70% 137,377 -4.53%
MIRAI CORP 16-Oct-18 189,800 24-Oct-18 183,500 -3.32% -0.18% -3.14% 173,452 -5.48%
HULIC REIT 12-Oct-18 162,500 24-Oct-18 158,500 -2.46% 0.35% -2.81% 154,537 -2.50%
ONE REIT 4-Sep-18 246,200 12-Sep-18 233,500 -5.16% 0.17% -5.33% 227,662 -2.50%
Average Drop in Price from Deal announced -3.09%
Average excluding Hankyu Hanshin
-3.91%
Average underperformance Vs TSEREIT
Average underperformance Vs TSEREIT excl Hankyu Hanshin
-3.21%
-3.73%
Source: Bloomberg, B&I Capital (as of 31 December 2018)
PROTECTION OF INVESTORS
IN OTHER MARKETS OVERNIGHT PLACEMENT
WOULD LIMIT LOSS
What is different about Japan? For small capital raises, Singapore
REITs and Australian REITs generally do accelerated bookbuilds,
which involve offering shares in a short period, with little to no
marketing. They are not required to wait for the offer to be close to
ex-date as they can prorate dividends or issue different units that
merge into existing units after ex-dates. Currently, only Nippon
Prologis takes a flexible approach, but they use retained capital
from depreciation to offset the dilution. Domestic institutional investors are typically the smallest part of
the book, and they generally come in once the books are strongly
covered; usually on the last day. A better approach would be to have
an institutional offering for both foreign and domestic investors as
an overnight placement.
The issuer could retain a portion for existing retail investors and
get sub-underwriting from other institutions or investment banks
to cover the portion if retail investors decide not to take up their
entitlement (units at a 2.5% discount).
Often there is a preferential allocation so that existing institutional
investors can participate along with an additional bookbuild. In
Australia, there is even a retail offering that follows at a later stage
via the custodians so that retail investors can subscribe to new units
at the same price. To eliminate risk of a short fall, investment banks
or institutions could underwrite the retail portion to reduce the risk
to the issuer given most deals are multiple times oversubscribed in
Japan.
This would limit the loss in unit price on secondary offerings and
would also limit the selling pressure from retail investors who are
often participating in transactions to make a quick gain due to the
discount.
Retail investors’ portions of secondary offerings and IPOs are
disproportionately large. Take the current offering, Mitsui Fudosan
Logistics Park. The retail tranche was roughly 50% (scaled back
from 56% due to large international institutional demand) of the
transaction while retail investors make up only 9% of the current
shareholder base. The deal was announced on 9 January and closed
on 22 January. The units will become available to retail investors on
4 February, and we expect to see a large volume as they cash out
from the offering.
The approach in other REIT markets gives those managements the
ability to raise equity flexibly and also to do transactions without
the need of warehousing from a sponsor.
Technicalities aside, the argument that has been given for why the
offering period needs to be extended is that domestic retail and
institutional investors need time to analyse the transaction to make
a decision.
The stock exchange, issuers, and the industry should consider the
current practice and look to reform to limit unit price erosion that
results from secondary offerings. Such practice only benefits new
unitholders at the expense of existing unitholders and changes
some of the metrics of the transaction.
We are very sceptical on this point. Retail investors, the bulk of all
secondary offerings, are generally net sellers of J-REITs precisely
because of secondary offerings. They participate in the offering,
and on the day of delivery, there is a massive volume flow as they
move out of the deal and on to the next one. The stock market
statistics support this view as it reflects the sales of secondary
transactions and not the purchases.
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