1. A-REIT BIDDER RETURNS: An Evaluation of Public and Private Targets and Method of Payment Chris Ratcliffe Bill Dimovski

2. Introduction M&As one of few avenues to growth for A-REITs Australia is one of the highest securitized property markets in the world GFC saw market cap fall from A$135b in 2007 to A$46b Feb 2009, as at March 2011 A$79b Chandler (2011) suggest increase M&A activity in future as market conditions improve

3. Introduction Investigate 56 A-REIT M&A announcements 1996- 2010 Prior US REIT studies shown mixed results for bidders of public targets +5.78% (Allen & Sirmans, 1987) -1.21% (Sahin, 2005) Private target → bidders earn CARs +1.52% (Campbell et al. 2005)

4. Prior literature (All REIT-REIT) AuthorStudy period # sampleCARs (%)Event days Allen & Sirmans (1987)1977-8338+5.78*[-1,0] Campbell et al., (1998)1990-9827-1.1[-1,+1] Sahin (2005)1990-9835-1.21*[-1,+1] Eichholtz & Kok (2008)1999-2004430.27[-1,+1] Keisers (2009)1990-200593-0.41[-1,+1] Campbell et al., (2009)1997-20061320.00[-1,+1] * Denotes statistical significance

5. Prior literature (Pub v Private) AuthorStudy period # Sample TypeCARs (%)Event days Campbell et al., (2001) 1994-9840 45 Pub-pub Pub-private -0.6* +1.9* [-1,+1] Campbell et al., (2005) 1995-200153Pub-private+1.52*[-1,+1] Keisers (2009)1990-200570 23 Pub-pub Pub-private -0.76* +0.66 [-1,+1] Campbell et al., (2009) 1997-200670 62 Pub-pub Pub-private -0.95* +1.1* [-1,+1] * Denotes statistical significance

6. Prior literature (method of payment) AuthorStudy period # Sample TypeCARs (%) Event days Campbell et al., (2001) 1994-9840 37 Scrip (Pub-pub) Scrip (Pub-priv) -0.6* +2.2* [-1,+1] Campbell et al., (2005) 1995-2001 (pub-priv) 49 4 Scrip/combo Cash +1.58 +0.76 [-1,+1] Eichholtz & Kok (2008) 1999-200428 15 Scrip/combo Cash +0.23 +0.14 [-1,+1] Ratcliffe et al., (2009) 1996-2007 (Aust data) 22 14 Scrip/combo Cash +1.55* -0.22 [-1,+1] Campbell et al., (2009) 1997-200656 24 Scrip/combo Cash +0.81* +0.07 [-1,+1] * Denotes statistical significance

7. Event Study Method We employed event study methodology as described by Brown and Warner (1985) The market model was estimated for each company over a 120 day estimation period, OLS regression employed to determine the parameter estimations. The following market model is employed: To avoid the bias associated with the estimation of parameters using daily returns with infrequent trading we employ the Scholes and Williams (1977) adjusted beta method

8. Event Study Method The abnormal return (AR) of the common stock in the event window [-20,+20] is calculated as: The cumulative abnormal returns (CAR) for any interval during the event window:

9. Regression Method Regression model was developed to examine the CARs [-1,+1] calculated above for acquirers. Independent variables were selected on the basis of prior literature along with variables unique to the A-REIT structure.

10. Regression Method  RELSIZE – ln(price paid/bidder market capitalisation)  LEV – bidder financial leverage (financial debt/financial debt + equity)  MOP – method of payment, dummy variable 1 if cash used, otherwise 0  PUBLIC – Type of target, dummy variable of 1 if the target is publicly listed, 0 otherwise  BVMV – Book-to-market ratio calculated as book value equity/market value equity  HHPROP – measure of focus/specialisation by property type, calculated as:

11. Data Successful A-REIT M&A’s bidders were identified from the Connect 4 Takeovers Database from Jan 1996 to Dec 2010. Daily share price data was obtained from Bloomberg. Accounting data (leverage, specialisation) was collected from the Connect 4 Annual Reports collection and ASX. A total of 56 transactions were identified.

12. Announcement of 56 M&As by Year Year# announceYear# announce 1996220046 1997020052 1998120063 1999520075 2000920080 2001820091 2002220105 20037Total56

13. Descriptive stats All Obs (n = 56)MeanMedianMaxMinS.D. Mkt Value of Bidder ($M)2120.401484.498056.7245.342077.33 Value of Acquisition ($M)697.66378.748460.5320.001213.28 Relative Size of Acquisition0.4660.2992.4350.0190.515 Public-Public (n = 44)MeanMedianMaxMinS.D. Mkt Value of Bidder ($M)2431.861619.758056.72184.092172.43 Value of Acquisition ($M)833.32427.928460.5324.981337.91 Relative Size of Acquisition0.4350.2902.3620.0190.461 Public-Private (n = 12)MeanMedianMaxMinS.D. Mkt Value of Bidder ($M)978.38676.723981.0945.341147.58 Value of Acquisition ($M)200.22177.75475.0020.00139.28 Relative Size of Acquisition0.5800.3862.4350.0510.688 Means TestDiff in meansp-value Mkt Value of Bidder1453.48(0.030)** Value of Acquisition633.11(0.109) Relative Size of Acquisition-0.146(0.389)

14. Panel A: A-REIT Bidders Total sample (n = 56)Cash (n = 30)_____Combination (n = 26) IntervalCARpValueCARpValueCARpValue [-2,+2]0.880%(0.015)**0.321%(0.622)1.231%(0.016)** [-1,+1]0.966%(0.001)***0.174%(0.707)1.463%(0.001)*** Panel B: Public-Public Total sample (n = 44)Cash (n = 21)_____Combination (n = 23) IntervalCARpValueCARpValueCARpValue [-2,+2]0.326%(0.079)*-0.345%(0.840)0.714%(0.030)** [-1,+1]0.457%(0.017)**-0.286%(0.776)0.947%(0.002)*** Panel C: Public-Private Total sample (n = 12)Cash (n = 9)______Combination (n = 3) IntervalCARpValueCARpValueCARpValue [-2,+2]2.914%(0.060)*1.876%(0.228)5.196%(0.272) [-1,+1]2.834%(0.022)**1.246%(0.262)5.419%(0.349) Event study results ***, **, * statistical significance at 1%, 5% & 10% level

15. Results – regression model Panel APanel B No. of Obs Variable56(p-value)54^(p-value) Intercept0.100(0.049)**0.027(0.193) RELSIZE0.003(0.689)-0.006(0.232) LEV-0.181(0.050)**-0.079(0.125) MOP-0.022(0.179)-0.021(0.034)** PUBLIC-0.043(0.116)-0.005(0.435) BVMV-0.029(0.019)**-0.022(0.042)** HHPROP0.033(0.088)*0.028(0.033)** R2R2 0.2590.266 Adjusted R 2 0.1680.173 White Test46.007(0.006)39.260(0.035) Jarque-Bera122.200(0.000)3.358(0.187) Ramsey Reset25.402(0.123)22.166(0.020) Values corrected for hetroskedasticity. ^ Reported figures corrected for outliers. ***, **, * show statistical significance at the 1%, 5% and 10% level respectively.

16. Conclusion Acquiring A-REITs enjoy positive & significant CARs Choice of payment is important Bidding A-REITs earn higher CARs when target is private BVMV suggests investors penalise high BVMV A- REITs in a M&A due to their higher risk characteristics. Specialisation has a positive impact on CARs