Friday, September 6, 2013

REITs fight to retain traction

While the auditors were signing off the accounts for the 2013 profits, investors were voting with their feet and selling down their exposure to the real estate investment trusts.

It seemed a move of stealth and secrecy as most eyeballs were on the set of accounts being distributed to the analysts, media and investors.

But even a cursory glance at the share prices would show that most REITs have gone back to net tangible asset value in recent times.

While its not quite a sunset on the REIT sector, the lead-up to Christmas will see the chief executives out on the hustings to assure investors that all is well with them.

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But as cash recycles to the improving overseas markets the Aussie REITs will continue to face headwinds of the overseas investors reducing their allocations to Australia.

In contrast, bricks and mortar remained the most sought after with more than $6 billion of properties changing hands in the past two quarters. But at the REIT level, its been more outflow than inflow.

The sell down has mainly come from overseas funds who took flight with the dollar's fluctuations, firming of bond yields - here and abroad - and the uncertainty in the lead-up to today's election results.

Given the sell down has been gradual its difficult to put a headline number on the exact dollar amount, but it's suffice to say it amounts to a few billions.

According to brokers, the weakness came from a concern about the softening retail and office assets, which led to a very active global property securities funds rotation out of Australia. Instead, the cash has gone back to the US and even Europe where the underlying market conditions were showing strong gains.

According to Westfield's co-chief executive in Los Angeles, Peter Lowy, the US is powering along with the heavy discounting from retail tenants a thing of the past.

Even parts of Europe are back on track. An agent, just back from Greece, remarked during the week that leasing signs were taken down and replaced with a tenant. There was also the growing anticipation in Australia and overseas of a Coalition victory, that would cause confusion about which tax was to be abolished and cuts to the public service.

This occurred at a time when local REIT specialists saw a lack of funds flow, for the same reasons, and equities investors turned their hands to higher beta sectors, like retail stocks or mining.

In the air is also the spectre of mergers and acquisitions, which is another turn off for some investors, particularly from overseas who are not privy to the local chatter.

Fund managers tend to shy away from corporate activity, unless they are direct investors. Buy on rumour, sell on fact.

The concern now is that it's all rumour and very few facts and that volatility has spooked some players.

So as we all head to the polling booth today, REIT managers will be hoping if the Coalition wins and winds back some taxes that will reboot the economy, which would make REITs a viable investment.

ccummins@fairfaxmedia.com.au


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