REITs fall again in rollercoaster week, except GPT

The listed property sector looks set to trade down for a second day in a row.

Stockland has continued to fall despite releasing a strong set of financial results yesterday and is down 14.5 cents to $2.53 in the first hour of trading.

Westfield is down 14¢ to $7.59 while Leighton Holdings is down 57¢ to $18.72.

GPT is the only major stock in the index trading up on the back of today’s profit upgrade. Its share price has risen 10c to $2.81.

Yesterday, Stockland CEO Matthew Quinn attributed the “subdued” performance of its share price due to investors pricing in a structural correction in the housing market when it viewed it as only a cyclical change.

It has been a rollercoaster week for the listed property trust sector since global markets started unravelling

On Monday A-REITs dropped 3.1% of their value. On Tuesday the sector rallied by 1.29% with some of the stocks like Westfield Group and the Westfield Retail Group making strong gains.

However, on Wednesday the sector again tracked down, falling 1.8% and shedding $5.7 billion of its value to just above $56 billion.

In the first 11 days of the August, the sector has shed more than 8% of its value and is down more than 14% of the year.

Despite the volatility of the sector, analysts do not expect a repeat of what happened to the sector during the GFC due to A-REITs adopting a more defensive position.

According to Scott Courtney, head of research at Morningstar, the average gearing level of REITs is currently about 30% compared with 40% before the GFC.

"This is the fundamental difference. This is why they are in a better position to weather the impact of a global crisis than before," he says. "They are comfortably well below their covenant levels, whether it is measured against interest repayments or asset values,” he told The Australian.

They have also sold off their non-core assets and diversified their funding sources by tapping into the commercial bond market, and re-negotiated their debt repayment deadlines.

With the lower gearing levels, head of property equity at NAB Bill Halmarick told the Australian Financial Review listed property trusts no longer suffered from severe capital constraints.

However, he does not believe a drop in base rates will encourage more borrowing. Instead he says trusts might look to lock in cheaper interest rates swaps or hedging positions.

The paper quotes an investment banker who says the opposite – that REITs should use the current cheap debt environment to increase borrowing and look to make opportunistic asset acquisitions.

In 2008 the S&P/ASX300 AREIT Accumulation Index produced an annual return of -55.30%.

Morningstar analyst Bianca Rose attributing the poor performance to A-REITs “taking on too much debt, paying out unsustainably high dividends, paying expensive management fees to related companies, and sourcing earnings from newer, less stable income sources rather than from traditional Australian property rental income sources”.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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