Wealth Effects on Unitholders following Property Company and A-REIT Rights Issues

Over A$22 billion of new equity capital has been raised by way of rights issues by 71 Australian listed property entities (including A-REITs) during 2001 to 2009. While the rights offerings raise important equity capital for the issuers, this study investigates whether investors have profited from the rights offerings. The theoretical ex-rights share price is calculated for these issuers to find that on average subscribers have actually suffered a decrease in wealth. This study examines factors that might influence this percentage difference to the theoretical ex-rights share price following rights issue subscriptions. The findings suggest that issues that have a greater proportion that is underwritten and those with a higher risk profile offer a greater likelihood that investors will increase their wealth from the issue. There is some evidence also, regarding A-REITs, that larger discounts may reduce the likelihood of investors increasing their wealth from the issue.