Longitudinal study of the significance of trusts and companies listed on the New Zealand stock exchange under the property sector

Abstract

According to economic theory the ownership structure of an entity impacts on its governance, behaviour, and performance. Globally, governments and investors have been demanding that Listed Property Vehicles (LPVs) improve these attributes, and as such, such entities have adopted Real Estate Investment Trust (REIT) structures or other optimal structures, such as a Stapled Security structure. Following this global trend, New Zealand’s LPVs – generally considered by investors to be the equivalent of REITs - began focusing on their ownership structures, including unit trust and company structures. This focus has more recently resulted in a number of the listed property trusts converting to company structures.

The purpose of the study is to determine the significance of trusts and companies listed under the Property Sector of the New Zealand Stock Exchange (NZX), during the 20 years to November 2013. During this period, both trusts and companies contributed to the value of the overall LPV Sector: whilst prior to December 1993, constituents in this sector were established as companies.

Methodology for this study involved developing three new monthly market capitalisation series over the study period for the Listed Property Trusts (LPTs), the Listed Property Investment Companies (LPICs), and the overall LPV Sector. Data for these series and for the existing monthly NZX All market capitalisation series were sourced from the NZX. Comparative analysis undertaken between these series demonstrate that the LPV Sector is now a major NZ asset class - having grown in significance and now accounting for approximately 9% of the value of the NZX. Indeed, companies presently make a greater contribution than trusts to the value of the overall LPV Sector. Further, the results highlight that the Property Sector was dominated by companies from December 1993 to 1999, at which point the trusts, having matured and grown in number, became the dominant sub-sector for the next 13 years (until June 2013). These findings reveal the major contribution that trusts and companies have made to New Zealand’s listed property market. It provides government, investors, LPVs and researchers with a better understanding of the historical significance of these listed property ownership structures.