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Predators eye small REITs

Money_Market_Funds-253x181MERGERS and acquisitions are taking centre stage in the Australian real estate investment trust (AREIT) market as predators take advantage of thawing debt markets and low prices for their smaller prey.

The Goodman Group officially waded into the spotlight with its non-binding and ”indicative” offer for ING Industrial Fund, while Stockland made an exit with the sale of its 13 per cent stake in rival GPT.

Mirvac was also active this year, buying out the Westpac Office Trust, which owns the bank’s head office at 275 Kent Street.

Other deals are mooted in the coming months. But some pundits believe the AREIT sector is still suffering from a number of factors that limited its rebound from the deep impacts associated with the GFC.

The managing director of property securities firm Resolution Capital, Andrew Parsons, said these factors, including the ongoing fall-out from poor stewardship relating to capital management and investment strategies that was savagely exposed by the GFC, continued to haunt the REITs.

He said the ASX/S&P 200 Property Accumulation Index produced a total return of 3.8 per cent for the three months ending September 30. In local currency terms, the AREIT return lagged many other investment classes, including domestic and global equities benchmarks as well as global REITs.

Mr Parson said his RCL AREIT Core Plus mandate outperformed the benchmark thanks to its exposure to takeover target retirement village owner Aevum, coupled with exposure to international REITs including Hong Kong Land (Singapore listed), Aeon Mall (Tokyo listed) and Link REIT (Hong Kong listed). But he said the lack of macro-economic headwinds, including relatively high real domestic bond yield and official interest rates together with the strength of the Australian dollar, was deterring offshore investors as well as affecting the value of the AREIT sector’s offshore holdings.

”As a consequence, institutional investors are shifting away from listed to unlisted real estate and from dedicated AREIT mandates to listed global REIT mandates,” Mr Parsons said in a letter to his clients.

As an indication of the strength of the overseas markets, real estate acquisitions in Asia Pacific continue to outstrip those in the Americas and Europe, the Middle East and Africa (EMEA) backed by strengthening market fundamentals and economies, according to global real estate consulting firm Cushman & Wakefield in its latest Economic Pulse report. The company’s managing director, research services, Asia Pacific, Sigrid Zialcita, said the GDP growth rates across all Asian countries were ”enviably strong in the first half of 2010”.

Story by Carolyn Cummins www.smh.com.au

Tags: banks, economy, finance, investment, property, real estate

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