nav discounts in european listed property companies: a panel regression approach rebecca goodall and...
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NAV Discounts in European Listed Property Companies: A Panel Regression Approach
Rebecca Goodall and Michael White
ERES 2011, Eindhoven
April 18, 2023 2
NAV discounts/premiums =
Price per share
NAV per share-1
April 18, 2023 3
The commercial significance of discounts
1) The “puzzle” is not that puzzling.
Morri and Ward (2005) argue that there are good grounds for deviation (i.e. a premium or a discount).
2) Schutte and Unlu (2009) explain that ‘price stability is critical for the decision making at the corporate level because managers rely on forecasted prices to make various long-term decisions regarding capital structure (issuance of equity versus debt), payout policy (dividend and share purchases), and corporate acquisitions/divestitures’
3) If share price anomalies/frictions are to blame can management tackle “investibility” issues and reduce the discount?
April 18, 2023 4
NAV debate stock take
• No comprehensive explanation
• Contradictions
• Not enough time series data
• Data sets used
April 18, 2023 5
Building on previous research
1) Brounen and ter Laak (2005)
‘Discount = f(Constant, Size, Leverage, Mean Return, Freefloat,
Total Risk, Systematic Risk)’
2) Barkham and Ward (1999) conclude that market sentiment (noise trading) is the prime driver of the discount.
So how do different shares react to noise?
3) Schutte and Unlu (2009) show that sell-side analyst coverage can reduce noise
So do firms with more coverage have a lower discount?
April 18, 2023 6
The model
Discount =f(Constant, Market Cap, Trading Volume, Free float, EPRA index membership, Focus, Market Cap of Exchange, Analyst Coverage)
If a share is easy to invest in and is also being marketed through the sell-side it should be more popular with investors ceteris paribus and the share price should rise, leading to a lower NAV discount?
April 18, 2023 7
Market capitalisationPast research Proxy Result Comment
Bond and Shilling (2004)
Market Cap Not stat. significant
Data set reflects ‘major European propcos’
Brounen and ter Laak (2005)
Size as the nat. log of the end-of-year total balance sheet value
Negative relationship between balance sheet value and NAV discount
Authors argue that rationale is ambiguous.
Balance sheet value?
Schutte and Unlu (2009)
Nat. log of the calendar year-end market cap in millions of dollars (against noise, not NAV!)
Negative relationship between market cap and size
Sample set excluded non-traditional corporation forms such as REITs.
Goodall and White: Proxy: Market Capitalisation of share (Nr of shares * price)Expected relationship: Negative
April 18, 2023 8
EPRA index membership
Past research
Proxy Result Comment
Brounen and ter Laak (2005)
Membership of EPRA Index
Negative Link membership to liquidity
Goodall and White: Proxy: binary dummy for EPRA index membershipExpected relationship: Negative
April 18, 2023 9
Sell-side analyst coveragePast research Proxy Result Comment
Schutte and Unlu (2009)
Residual volatility and noise impacted by the intensity of analyst coverage (estimated as the log. transformation of the number of estimates/revisions on the stock following initiation)
‘analyst coverage makes stock prices less noisy’
Argue that security analysts play role in helping investors discriminate between news related to company fundamentals and noise which leads to increased price stability.
Dhiensiri, Sayrak and Zarowin (2004)
Effect of first-time coverage initiations on the future earnings response coefficient (FERC)
‘analysts’ activities make market prices reflect more future earnings information’
Goodall and WhiteProxy: Nr of analysts covering the company at year end 2010. Similar to Piotroski and Roulstone (2004) who considered the sum of analysts’ revisions. Expected relationship: Negative
April 18, 2023 10
Data and Methodology
Data for the analysis stage come from the Kempen universe plus some additional sources
This is still an on-going process at this stage
Kempen comprises over 50 property companies across Europe
The final dataset will consist of data over time and will permit a panel regression approach to be adopted.
Panel unit root tests and cointegration tests will be employed
The structure of the dataset will permit testing for index membership effects, and allow identification of any cyclical impacts
April 18, 2023 110.0 200.0 400.0 600.0 800.0 1000.0 1200.0 1400.0 1600.0
AffineAltarea-Cogedim
BefimmoBig Yellow Group plc
CA ImmoCapital Shopping Centres
Cityconconwert
Derwent LondonDeutsche Wohnen
Eurocommercial PropertiesFDL
Fonciere des RegionsGAGFAH
GecinaHamborner REIT
HufvudstadenImmofinanz
KlépierreLand Securities
MobimoPrologis European Properties
Safestore holdings plcSILIC
SpondaTAG Immobilien
VastNed RetailWereldhave
NNAV 10
NNAV 10
April 18, 2023 12
Conclusion
Discount =f(Constant, Market Cap, Trading Volume, Free float, EPRA index membership, Focus, Market Cap of Exchange, Analyst Coverage)
Results will be available for ERES 2012!!!
Contact details: [email protected], [email protected]
NAV Discounts in European Listed Property Companies: A Panel Regression Approach
Rebecca Goodall and Michael White
ERES 2011, Eindhoven
April 18, 2023 14
Regional and use-type focusPast research Proxy Result Comment
Bond and Shilling (2004)
Economics focus (firm value compared to residual volatility as a percentage of total volatility)
Positive (at 10% level)
Economic focus is a quite an abstract concept when looking at propcos
Brounen and ter Laak (2005)
HHI for regions and property types
Regions – unrelated
Use - negative
Domestic focus of propcos in 2002. Internationalisation since then.
Goodall and WhiteProxy: HHI for sector and regional focusExpected relationship: High focus leads to lower NAV discount
Further variables
• Trading volume
• Free-float
• Market cap of the exchange the company is listed on
April 18, 2023 16
Trading volume and free-floatPast research Proxy Result Comment
Brounen and ter Laak (2005)
Free-float (traded stock as a percentage of the total value of the balance sheet).
negative Proxy gives insight into capital structure, but not volume.
Benveniste, Capozza and Seguin (2001)
Free-float xxx xxx
Gemmill and Thomas (2002)
Xxx xxx Xxx
Goodall and WhiteProxy: Free-float as the proportion of issued shares not held by strategic investorsExpected relationship: High liquidity and high free-float leads to low NAV discount
April 18, 2023 17
Market cap of exchange
Past research
Proxy Result Comment
xxx Xxx Xxx Xxx
xxx Xxxx xxx xxx
Goodall and White Proxy: Market cap of the exchange the company is listed onExpected relationship: Negative