The Initial Return Performance of
Turkish REIT IPOs
Kerem Arslanli*, Stephen Lee**
And Dilek Pekdemir***
*Istanbul Technical University, Urban & Environmental Planning and Research Center, Taskisla Building
No:114 Taksim ISTANBUL. Tel: +90212 2492834.
**Cass Business School, City University London, 106 Bunhill Row, London, EC1Y 8TZ, England. Tel: +44
20 7040 5257.
***DTZ Pamir & Soyuer, Hakki Yeten Caddesi, 15/7, Şişli 34365 Istanbul Turkey. Tel: +90 (212) 231 5530
ext.126
Introduction:
Initial Public Offerings (IPOs) of equity securities often exhibit
underpricing; i.e. common stock values tend to rise significantly from the
offer price on the first day of trading.
The evidence for Real Estate Investment Trust (REIT) IPOs is less
consistent. Early studies found evidence of overpricing; while later
studies found evidence of underpricing.
The present study examines the IPOs of the 17 Turkish REITs listed on
the Istanbul Stock Exchange from 1997 to 2010 and shows evidence of
significant underpricing on the first day of trading.
Introduction:
The most commonly used theory in the real estate literature as stated by
Ling and Ryngaert (1997), Brounen and Eichholtz (2002) and Dimovski
and Brooks (2006) to explain the initial underpricing was developed by
Rock (1986) and involves the “winner's curse.”
The REIT IPO market, like the overall IPO market, also exhibits
clustering or “waves” of issuances. Some periods, are “hot” markets
with many new IPOs coming to the market. Other periods, are “cold”
markets with very few IPO issuances. A number of theories and models
have been put forward to explain this clustering.
The Capital Demand Hypothesis,;
The Information Asymmetry Hypothesis and;
The Investor Sentiment Hypothesis.
Introduction:
Turkish REITs present an opportunity to test both the “winner curse” and
the “REIT wave” hypotheses. First, most Turkish REITs have a particular
portfolio of properties in mind when they issue an IPO. Second, as Figure
1 shows, since 1997 REIT IPOs in Turkey have shown both “hot” and
“cold” market waves.
Turkish REITs:
Turkish REITs were established in 1995 following the issue of the
Communiqué on Principles Regarding Real Estate Investment
Companies, Serial VI No. 11 in 1995.
Like of REITs around the world Turkish REITs must deal primarily
with portfolio management.
In accordance with the Communiqué, the REIT’s portfolio is
required to be diversified based on industry, region and real estate
and is to be managed with a long-term investment purpose.
Turkish REITs:
At most, 10% of its portfolio value may be invested in time deposits
or demand deposits.
Investments in foreign real estate and capital market instruments
regarding may only constitute no more than 49% of REIT ’ s
portfolio value.
The land and lots in the portfolio of the REIT, on which any project
has not been realized for five years as of the acquisition date, may
not exceed 10% of its portfolio value.
Turkish REITs:
Table 1: Average Holdings of Turkish REITs End 2010
Holdings
97-11
97-99
00-06
07-10
Land
Retail
Office
Residential
Hotel & Entertainment
Logistics & Warehouse
Development Commercial
Development Residential
Securities & Money Market
Participation
12%
23%
9%
10%
5%
8%
4%
9%
14%
5%
14%
13%
14%
8%
4%
0%
2%
10%
24%
11%
0%
64%
14%
0%
3%
0%
0%
0%
20%
0%
13%
21%
6%
13%
6%
13%
6%
12%
7%
2%
Total
100%
100%
100%
100%
Methodology :
Results:
Table 2: Initial and Excess Return Performance of Turkish REITs: 1997-2010
97-11
BHR
EBHR
97-99
BHR
EBHR
00-06
BHR
EBHR
07-10
BHR
EBHR
07-09
BHR
EBHR
10
BHR
EBHR
Average
8.66
8.73
Average
14.11
13.61
Average
3.29
5.29
Average
6.22
6.24
Average
19.04
19.74
Average
-4.02
-4.55
SD
13.44
13.45
SD
9.35
7.88
SD
7.72
9.81
SD
16.22
16.83
SD
14.79
15.34
SD
8.17
7.88
T-test
2.66
2.68
T-test
3.70
4.23
T-test
0.60
0.76
T-test
1.15
1.11
T-test
2.57
2.57
T-test
-1.10
-1.29
Prob
0.02
0.02
Prob
0.01
0.01
Prob
0.66
0.59
Prob
0.28
0.30
Prob
0.08
0.08
Prob
0.33
0.27
Wil
2.25
2.15
Wil
2.10
2.10
Wil
0.00
0.00
Wil
0.91
0.36
Wil
1.28
1.28
Wil
0.55
1.35
Prob
0.02
0.03
Prob
0.04
0.04
Prob
1.00
1.00
Prob
0.36
0.72
Prob
0.20
0.20
Prob
0.58
0.18
Conclusions:
We have set two goals for this paper. First, we seek to document the
initial return performance of REIT IPOs in Turkey since 1997.
Second, we seek to compare our findings with previous studies of
REIT IPO pricing and clustering literature. The preliminary analysis of
the 17 Turkish REIT IPOs yield some interesting results.
First, the level of underpricing in Turkish REIT IPOs is substantially
below that for US REITs but in line with the most recent studies in
Europe and supports the “winners curse” explanation.
Second, Turkish REITs show distinct IPO waves, with both “hot” and
“cold” periods, and as suggested in the literature leading to higher
returns in the “hot” markets. Nonetheless, the latest results for 2010
suggest overpricing of Turkish REIT IPOs has occurred, which may be
a result of investors irrationally as to the prospects of the real estate
market.
Any Questions?