A-REITs facing ‘slow burn to privatisation’ unless stock prices rise: Charles Moore

The A-REITs sector will continue to consolidate and privatise unless stock prices rise to reflect the value of the assets they hold, listed property trust executives have warned.

Commonwealth Property Office fund manager Charles Moore says that if trusts continue to trade at a discount to their net tangible asset there will likely be a “slow burn to privatisation” as well as “consolidation in the A-REIT sector, where scale and liquidity, alongside performance, will play a more important role in maintaining relevance”.

Moore was speaking at the Australian Financial Review Commercial Property Conference this week following remarks by Investa chairman and chief executive Scott MacDonald that if stocks continued to trade at a discount “they will all get taken out and you will lose your A-REIT industry”.

Their comments follow the recent decision by shareholders of Charter Hall Office REIT to sell the company to a consortium of institutional investors from Singapore and Canadia. It will be delisted from the ASX in mid-April should all conditions of the agreement be met.

Goldman Sachs is forecasting a 2012 calendar year capital return for the REIT sector of 15.5%, a yield of 6.87% and a total return of 22.4%.

For the year to date (to March 22) the S&P/ASX 200 A-REIT Sector is up just over 6% tracking below that of the benchmark S&P/ASX 200, which is up 6.8%.

Moore has defended the asset sell-off initiated by many A-REITS since the collapse of Lehman Brothers in 2008 as well as implementing strategic reforms, calling these steps the “building blocks” for a recovery.

He says an improvement in returns generated by A-REITS should provide the incentive for retail investors to return to the sector after they abandoned it following the GFC, resulting in a collapse in values.

Also speaking at the same conference Carmel Hourigan, Lend Lease’s managing director of investment management in Australia, said A-REITS continued to be punished for the sins of the past.

She also says unlisted property trusts are again in favour with investors at the same time as super funds look to set up their own in-house property trusts.

However, she says A-REITs offer better long-term growth prospects for investors.


Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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