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International economic uncertainly slows Australian REIT recovery
Released 1 December 2011



The Australian Real Estate Investment Trust (AREIT) sector’s recovery from the global financial crisis continues to be hampered by international economic uncertainty, short-term debt maturity and unsustainable gearing levels, according to the third annual REIT Monitor released by PKF chartered accountants and business advisors today.     

The report shows that, despite considerable efforts from AREITs over the past two years to extend debt maturity and reduce gearing levels, both factors remain far too high. Furthermore, the continuing high level of current debt (debt due within 12 months) across the sector reinforces the need for AREITs to diversify their sources of debt, moving away from an overwhelming reliance on banks.

According to Ed Psaltis, Head of Property and REIT Group at PKF and author of the REIT Monitor, which covers the 2010-11 financial year (FY10/11), average current debt as a proportion of total debt across the AREIT sector is 27%, essentially unchanged for the past two years.

“While the sector average remained steady, 10 AREITs recorded an average current debt of 85%, a 9% increase on the previous financial year.

"However, for the so-called Big Nine AREITs, the average level of current debt is only 13%, further emphasising the divide between the Big Nine and the rest of the AREIT sector, many of which are still experiencing financial distress.

The lack of alternative funding methods is a significant problem for REITs with short-term debt maturity, according to Psaltis.

“The tight bank lending market, with its restrictive terms and conditions, has seen REITs attempt to shift their debt from banks to medium term notes. However, access to this form of debt is limited by the requirement to be rated for credit purposes by a reputable international rating agency, meaning this debt is primarily limited to the Big Nine AREITs,” he said.

Increasingly, traditional equity investments into the REIT sector are now stepping in to provide debt solutions for REITs, filling the void here. 


PKF REIT Monitor findings at a glance

  • AREIT debt maturity risk remains high with an overall sector average of 27%, unchanged from FY09/10
  • The average level of current debt among the 10 most exposed AREITs rose to 85% (up from 76% last year)
  • Use of medium term notes continues to grow at the expense of bank debt and CMBS, rising by 9% over the past two years
  • Look-through gearing was, on average, 6% higher than basic balance sheet gearing with only half of AREITs disclosing their look-through gearing
  • Gearing levels across the AREIT sector fell by a modest 3% (to 42%), while the Big Nine continue to trade at a far lower gearing level of 25%
  • Discount to NTA fell modestly from 28% to 24%, while only four AREITs trading at a premium to NTA
  • AREITs rank last in Asia-Pacific REITs in terms of average discount to NTA, well below all six other regions
  • Rationalisation of the sector likely to continue as Asia-Pacific REITs continue to invest in the AREIT market purchasing iconic Australian commercial and retail property

Strongest and weakest performing REITs

Big Nine REITs
  1. CFS Retail Property Trust
  2. Commonwealth Property Office Fund
  3. Dexus Property Group
  4. Goodman Group
  5. GPT Group
  6. Mirvac Group
  7. Stockland Property Group
  8. Westfield Group
  9. Westfield Retail Trust
REITs with highest debt maturity
  1. Centro Properties Group – 100%
  2. RCL Group – 100%
  3. Redcape Property Trust – 100%
  4. Investa Office Fund – 94%
  5. APN European Retail Fund – 90%
Highest geared REITs
  1. APN European Retail Property Group – 98%
  2. Redcape Property Fund – 85%
  3. Galileo Japan Trust – 78%
  4. Mirvac Industrial Trust – 77%
  5. Centro Properties Group – 72%
Lowest geared REITs
  1. Charter Hall Group – 8%
  2. Investa Office Fund – 13%
  3. Carindale Property Trust – 15%
  4. Stockland Property Group – 15%
  5. Bunnings Warehouse Property Trust – 16%
REITs with greatest price discount to NTA
  1. Galileo Japan Trust – (93%)
  2. RLC Group – (90%)
  3. Mirvac Industrial Trust – (81%)
  4. RNY Property Trust – (71%)
  5. Redcape Property Fund – (65%)
REITs with greatest price premium to NTA
  1. Goodman Group – 44%
  2. Ardent Leisure – 42%
  3. Westfield Group – 23%
  4. Growthpoint Properties Australia – 6%
  5. Charter Hall Group – (3%)