CAROLYN CUMMINS September 08, 2012
CLOSE to $10 billion worth of commercial real estate is up for sale as the real estate investment trust sector absorbs the news from the 2012 reporting season.
Key assets on the market include the Woolworths portfolio, said to be worth about $900 million; the Raine Square development, in Perth, valued about $500 million; and the BlackRock portfolio, estimated to be worth about $468 million.
In retail there is the Top Ryde City shopping centre, being sold by the private Beville Group, with a value of about $400 million. According to JPMorgan's property analysts, in the past 12 months there have been 107 big transactions totalling $12.6 billion, with $7 billion of office assets, $3 billion in retail, $1 billion of industrial, $1 billion in hotels and hospitality, and $330 million in the tough housing sector.
The analysts said that amount was up significantly from the $9.7 billion in sales reported in February, which was a big month.
They said offshore and unlisted institutional investment continued to dominate, with net investment of $2.8 billion and $300 million respectively.
The sales were made as the earnings growth of the sector was recorded at an average 3 per cent in the 2012 financial year.
According to UBS's real estate analysts, that was in line with market expectations.
The average distribution growth was 5 per cent, which was also in line with expectations.
UBS's team said despite growth in earnings before interest and tax declining, the outlook for sound growth into the 2013 financial year remained, as the real estate investment trusts (REITs) looked to focus on costs.
''UBS's 2013 earnings per security growth of 3.5 per cent is unchanged and has been increased in the 2014 financial year to 5.1 per cent,'' the analysts said.
''Across the sector, earnings were largely unchanged throughout reporting season as a lower interest rate environment provides a buffer.''
During the reporting season, the big upgrades across the sector included GPT, from lower debt costs and reduction in overheads. GPT owns a half-share in the MLC Centre, among other big assets.
''We have a preference for retail over office and residential,'' UBS said. ''Key picks include Westfield Retail Trust, Centro Retail Australia and Westfield Group.
''While we are cautious on the office sector, we anticipate earnings upgrade for Commonwealth Property Office Fund, with the 2013 financial year acquisitions likely to drive further upgrades.''
In a report on the reporting season, analysts at Bank of America Merrill Lynch said the good news for the retail sector was that vacancies did not increase.
''Most landlords retained 70 [per cent]-80 per cent of tenants on expiry with minimal incentives,'' the analysts said. ''Office portfolios shone, with vacancies reducing.
''Several REITs have now reset their hedge books to reflect 5.5 per cent rates for 2013.''