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PKF Asia Pacific REIT Monitor
2011
Signs of Recovery?
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Overview – PKF Asia Pacific REIT Monitor
THIRD ANNUAL EDITION
Continuing four key criteria:
1. Debt maturity profile
2. Composition of debt
3. Gearing levels
4. Discount to NTA
Now covering three full years, from 1 July 2008 to 30 June 2011.
Current year reviewed therefore 1 July 2010 to 30 June 2011.
44 listed REITs in Australia.
For the first time 94 across six more regions, within Asia Pacific.
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A flashback on the year
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S&P/ASX 200 Index S&P/ASX 200 Property Trusts
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Debt maturity profile
1
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1. Debt maturity profile
FY 2010 – debt risk profiles
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1. Debt maturity profile
FY 2011 – debt risk profiles
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Like last year, 7 REITs had no current debt at year end:
1. Brookfield Prime Property Trust
2. Bunnings Warehouse Property Trust
3. Carindale Property Trust
4. Charter Hall Group
5. Goodman Group
6. Growthpoint Properties Australia
7. Multiplex European Property Fund
1. Debt maturity profile
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1. Debt maturity profile – trends
17%
28% 27% 27%
0
5
10
15
20
25
30
FY08 FY09 FY10 FY11
Current portion of debt
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8 of the Big 9 had current debt below the sector average (their average is
only 13%).
Big 9 REITs Current debt
Goodman Group Nil%
Stockland Property Group 1%
GPT Group 2%
Westfield Group 10%
Commonwealth Property Office Fund 11%
Dexus Property Group 14%
CFS Retail Property Trust 15%
Mirvac Group 21%
1. Debt maturity profile – the Big 9
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1. Debt maturity profile – worsening at the high end
Top 10 last year in maturity risk had average current debt of 76%.
Top 10 this year (2011) in maturity risk had average current debt of 85%,
more exposed than 12 months ago.
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Composition of debt
2
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2. Composition of debt – 2011 vs 2010
FY2011 breakup FY2010 breakup
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2. Composition of debt – trend in 3 main sources
Further, total debt fell from last year:
Total debt 2010: $71.5 billion
Total debt 2011: $51.5 billion
(61% of fall – Centro Group)
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2. Composition of debt – banks not lending?
Australian Financial Review 3.11.11
The big four banks in Australia remain cautious on commercial
property lending.
Reserve Bank rate cuts not being reflected in interest rates applied
to property developments, where banks say cost of debt is increasing.
“ ”
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2. Composition of debt – who is lending?
Institutions traditionally providing equity for REITs, now providing
debt finance.
High interest rates that banks are charging means:
– Institutions stepping in with debt finance offerings.
– Their risk adjusted return on debt investments is higher than that for
equity investments.
“ ” Australian Financial Review 11.11.11
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2. Composition of debt – who is lending?
AMPCI private equity style funds are stepping in with debt offerings.
They say bank debt remains scarce and even if the property sector
players can gain approval from banks, the process takes too long.
“ ” Australian Financial Review 17.11.11
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2. Composition of debt – the club continues
Medium term notes
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2. Composition of debt – CMBS on the way out?
CMBS
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2. Composition of debt – CMBS, the future globally?
S&P forecasting that 60% of CMBS in Europe, due by end of 2012 year,
may default.
60% of the 180 European CMBS maturing pre December 2012 have
LVRs of greater than 70%.
19 of them (worth Euro 8.3 billion) have LVRs over 100%.
Australian Financial Review 3.11.11
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Developments
in taxation
for AREITs
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Developments in taxation for AREITs
Managed Investment Trust regime
7.5% withholding tax rate for non-residents
Requisite conditions to satisfy the definition of a ‘managed investment trust’
Transmogrification of capital losses to revenue losses
Tax losses
Recoupment tests – cannot avail the ‘same business test’
Thin capitalisation
Debt/Equity levels – potential denial of borrowing deductions
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Developments in taxation for AREITs
Transfer pricing
International related party transactions
– need to be based on third party market price
Capital gains tax
Non residents subject to tax in relation to land rich entities
Division 250
Leases to tax exempt entities
Trading trusts
Trust may be taxed as a company
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Gearing
3
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3. Gearing – four year trend
Key points
Over 3 years – total debt down from $81 billion to $51 billion ($30 billion).
Even with Centro ($12 billion) this is a big drop.
Key driver of gearing is total assets, which way did revaluations
move this year...?
FY 2008
FY 2009
FY 2010
FY 2011
Average across AREIT sector 42% 47% 45% 42%
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3. Gearing – movements in property values
For the first time since the GFC, AREITs’ property values increased,
sector wide.
In 2009, all REITs saw values fall.
In 2010, 11 REITs (of 48) reversed their fall to record an increase.
2011? 25 REITs (of 44) achieved an increase in their property values.
This has assisted in decreasing gearing percentages.
Break even
$19 bn
$2 bn
$1.7 bn
FY 2009 FY 2010 FY 2011
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3. Gearing – sector wide analysis
Trafalgar Corporate Group
Thakral Holdings Group
Central Retail Trust
ING Real Estate Entertainment Fund
Brookfield Prime Property Fund
Centro Properties Group
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3. Gearing – the divide remains
The Big 9 continue to enjoy gearing at much lower levels than
overall sector average.
FY 2010 FY 2011
Overall sector average 45% 42%
Big 9 average 25% 25%
The ‘go to’ rate appears to be 25%.
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3. Gearing – a history
19%
24% 27%
30% 30% 31% 33% 34%
43% 42%
47% 45%
42%
0%
10%
20%
30%
40%
50%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Total AREIT population
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Discount to NTA
4
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4. Discount to NTA – summary
Key points
In 2010, 39 REITs were trading at discounts to NTA.
In 2011, 40 REITs remained at discounts to NTA.
The Big 9 continue to trade at more healthy levels than sector average.
At 2011 their average was a 3.5% discount to NTA.
This was however assisted by two stapled securities trading at premiums.
– Goodman
– Westfield
FY 2008
FY 2009
FY 2010
FY 2011
Average across AREIT sector (38%) (54%) (28%) (26%)
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4. Discount to NTA – sector wide analysis
ING Real Estate Community Living Group
Brookfield Prime Property Fund
Centro Retail Trust
Tishman Speyer Office Fund
Living and Leisure Australia Group
Charter Hall Office REIT
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4. Discount to NTA – a 16 year history
-60%
-40%
-20%
0%
20%
40%
60%
80%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Financial year end (i.e. 30 June)
Ma
rke
t a
ve
rag
e R
EIT
pre
miu
m / (
dis
co
un
t) to
NTA
Total AREIT population
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International analysis
5
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5. Why Asia Pacific?
Unprecedented interest in Australian REITs from Asian institutions,
due to large discount to NTA for many AREITs – just two examples:
1. March 2011 – China Investment Corporation teamed up with a Canadian
Pension Fund and Australian Group, Goodman, in a takeover of ING
Industrial Fund. This large former listed AREIT is now privatised.
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5. Why Asia Pacific?
The article highlights continuing due diligence by an offshore consortium to
takeover listed AREIT, Charter Hall Office Fund. Singapore’s Sovereign
Wealth Fund, GIC, is part of this consortium.
“ ”
2. November 2011
Australian Financial Review 24.11.11
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5. International analysis – AREIT assets for sale
Asian appetite for Australian property is also being satisfied via AREITs
selling high quality properties.
The above is the latest in a string of AREITs announcing unit buybacks.
Examples:
– Commonwealth Property Office
– Stockland Group
– Challenger Diversified
– Investa Office Fund
Buy backs seen as a way of reducing gap between ASX pricing
and net assets.
“ ”
Australian Financial Review 24.11.11
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5. International analysis – AREIT assets for sale
Stockland as an example:
Over the 2011 calendar year Stockland has sold $625 (AUD) million
in office properties to local and offshore buyers
As per the above article, now Stockland is close to selling circa
$700 (AUD) million in prime industrial assets, to a Singapore listed
group with its own SREITs, Mapletree.
Conclusion:
Asian and Australian REIT markets are now connected more than ever.
“ ” Australian Financial Review 24.11.11
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5. International analysis
Seven regions in Asia Pacific with well established listed REIT markets:
Country REIT population
Australia 44
Hong Kong 8
Japan 35
Korea 5
Malaysia 14
New Zealand 7
Singapore 25
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5. International – discount to NTA
Average discount to NTA across all seven regions as at 30 June 2011
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5. Korea – discount to NTA
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5. New Zealand – discount to NTA
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5. Singapore – discount to NTA
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5. Malaysia – discount to NTA
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5. Hong Kong – discount to NTA
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5. Japan – discount to NTA
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5. Australia – discount to NTA
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The future?
The current European debt crisis has stalled the global REIT recovery.
But in Australia we see further privatisation of listed AREITs:
─ ING Industrial
─ Valad Property Group
─ Due diligence in progress on others
Continued push for simplicity. The new Centro emphasises that,
(though gearing is still high, at above 40%).
Continued growth in wholesale (unlisted) REITs, with offshore institutions
partnering up, in some cases with local Australian institutions or AREITs.
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Questions
