Why Australian REIT investors are looking closer to home

As recently as 2009, 46% of the real asset holdings of Australian real estate investment trusts (A-REITs) were held in overseas markets, predominantly in the US.

Investing outside Australia had become more common as property assets became more expensive in Australia and overseas assets represented diversification benefits. Interest was stimulated by the relatively low cost and availability of capital. Centro exemplified the aggressive debt-fuelled expansion strategy by acquiring three US portfolios for more than US$10 billion in the 18 months to February 2007. 

However, as the GFC unfolded, A-REIT investor sentiment turned against overseas asset holdings as prices collapsed. Wide-scale withdrawal back to Australia was undertaken. This was achieved by sale of both portfolios of assets and investment management entities.Significant losses were incurred as a result.

Companies no longer listed in Australia include the failed American and European Rubicon Funds and Macquarie DDR Trust, which held a portfolio of American community shopping centres. It was acquired by American EPN Group this year. 

Overseas assets now represent approximately 30% of real assets held. 

Westfield responded to the market by splitting some of its Australian and New Zealand assets into a new externally managed pure A-REIT in late 2010 while the balance of the international assets sit inside the larger Westfield Group alongside the funds management company. 

While the Australian property market represents only approximately 2% of the global direct investment property market, Australian investors are wary of further overseas exposure without a comprehensive portfolio strategy and appropriate, well-considered allocation policies applied by experienced global REIT managers.