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HouseQuestionMarkMERGERS and acquisitions will dominate the real estate investment trust sector in the coming year, as the strong players get bigger at the expense of the smaller trusts, according to a report from the corporate advisory firm PKF.

This comes as investors in the ING Real Estate stable of trusts keenly await the conclusion of proposed takeovers and the internalisation of the industrial and office funds management.

The second annual REIT Monitor report, released yesterday by PKF Chartered Accountants and Business Advisers, shows there is an increasing divide between the so-called ”big eight” real estate trusts and their smaller counterparts.

In its big eight, the report includes trusts such as Stockland, Westfield, Mirvac and CFS Retail, and says they are now generally well placed to continue with expansion plans.

But for the smaller trusts, such as the Centro groups, the ING trusts and Multiplex Prime Property Fund, they are surviving predominantly at the discretion of their senior lenders. The PKF REIT Monitor report covers the 2010 financial year.

Ed Psaltis, the PKF corporate advisory partner, said it was obvious a large gap exists between the big eight and their counterparts when considering gearing levels.

“Over the 2010 financial year, the majority of REITs [63 per cent] were successful in decreasing their gearing levels mainly by paying down debt,” Mr Psaltis said.

”But the number of REITs continuing to trade at heavy discounts could see merger and acquisition activity increase as the strong take over the struggling. Funding for takeovers was finally now available, coinciding with asset prices bottoming out and ASX pricing arguably on the mend in the aftermath of the GFC.”

In last year’s PKF REIT Monitor report it was observed that trusts were moving away from bank debt as their only source of funding.

”Over the 2010 financial year this has continued to occur,” Mr Psaltis said.

Story by Carolyn Cummins www.smh.com.au

Tags: economy, finance, investment, marketing, property, real estate, research

View the original article here

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