CAROLYN CUMMINS August 18, 2012
THE 2012 earnings reporting season has reached half-time with analysts calling it a mixed bag of results for the real estate investment trusts and executive changes putting a focus on performance.
While all the figures are in line with expectations, given the final distributions were released in early July, the directors' narratives for the coming year have left some investors unsettled.
It's not that REIT managers are overly pessimistic or negative, but that the underlying economic outlook has cast a pall of uncertainty over growth momentum.
Of those that have reported, the theme is that the Sydney and Melbourne office markets are flat or moving to an oversupply. Nationally, retail is still tough and industrial is stable, thanks to a lack of developable land and the rise in the internet requiring storage for goods sold online. All of them, with the exception of Westfield Group, said they will call Australia home and if they can't buy any assets, will look to joint ventures to form new wholesale funds.
DEXUS Property has defied the trend with the purchase of 50 Carrington Street for $58 million.
The deal was part of the group's plan to increase its exposure to the national office market.
But the standout has been changes in management, from the top down.
In 2013, given the flat state of the office, industrial and retail markets, management's performance will be scrutinised.
With the changes - the sudden departure of Mirvac's chief executive, Nick Collishaw (said to be late October), the retirement of Stockland's Matthew Quinn and the much-speculated changes at FKP Property - investors are nervous.
Further fuelling discussion was the reshuffle that took place at GPT Group, with Mark O'Brien shifting to strategy, Mark Fookes moving from retail to finance and the arrival of Carmel Hourigan as the new head of investments.
Ms Hourigan's position at the head of Australian Prime Property Fund is likely to be filled internally.
UBS's real estate analysts have asked whether Mirvac's changes are too much too soon. At Mirvac Mr Collishaw is to be replaced by the long-standing property executive Susan Lloyd-Hurwitz.
This follows the recent appointments of Greg Dyer as finance director and Bevan Towning as chief executive of Platform, all announced within the space of six weeks.
During the transition, the chairman of Mirvac, James MacKenzie, will take responsibility for executive leadership at the group.
Mr MacKenzie said Mirvac was going through a new phase, involving a different set of challenges from strengthening the balance sheet and simplifying the business to executing on its development pipeline.
This prompted the search for a replacement chief executive. The board also outlined the need to ''accelerate cultural change in the business'', achieved alongside the need to continue to improve return on invested capital from its development division.
UBS analysts said: ''Whilst the chairman was adamant that this would be an orderly transition and that there would be no surprises at the August results on Tuesday, the announcement questions whether the business is performing to the board's expectations or underperformance prompted the need to make immediate changes to the senior management team.
''Our 2013 full-year [price] valuation of $1.30 and recommendation of neutral remain unchanged.
''Tactically, we would be underweight Mirvac given the likely instability in management/uncertainty in the business during this transition period.''
Macquarie Equities' analysts agreed that a change in the chief executive a week out from results was a concern. However, ''in light of comments made by the chairman in relation to the upcoming result and the group's earnings outlook'' they saw ''little reason to change our earnings at this stage''.
''Whilst the transition period is somewhat concerning, given the change in the chief financial officer as well, we retain our outperform recommendation,'' Macquarie Equities said.