REIT ASIAPAC
MARKET
Market
A US T R ALI A N R E TA I L A S SE T S
OVER LO O K E D I N M&A
TR AN SACT I O N S
Retail REITs exposed to large shopping centres are
trading below Net Asset Value.
The Australian REIT market has seen active
merger and acquisition (M&A) activities in
the last two years. While views are mixed on
whether the trend will persist, the consensus
is that retail assets have fallen out of favour.
According to Angelo Scasserra, Managing
Director, Head of Real Estate at Credit Suisse,
many of the M&As in the last year have proven
to be well-timed. They were supported
by the current low-interest rate cycle and
compressed capital rates. “Listed markets
can provide attractive hunting grounds for
buyers where the value of the target doesn’t
reflect prices in the direct market,” says
Angelo Scasserra,
Managing Director, Head of
Real Estate at Credit Suisse
Scasserra. He added that investors could reap
material savings in stamp duties through the
acquisition of listed shares.
In September, Charter Hall agreed to acquire
all of the units in Australian Unity Office that
it does not already hold for A$3.04 (US$2.06)
cash per unit, which is an 8.9% premium to
its Net Tangible Asset value of A$2.79 on
June 19. Last year, Canada-based Oxford
Properties bought Investa Office Fund for
A$3.4 billion. Earlier this year, Warburg
Pincus-backed ESR Australia completed its
acquisition of PropertyLink Group for about
US$500 million.
“Currently, REITs are trading at significant premia to net
tangible assets driven by the low interest rate environment
and strong investor interest. Unless we see a reversal
in that trend, it will make it difficult for mergers and
acquisitions between REITs to stack up in the near term,
capital, which continues to have a lower
cost and greater willingness to use a higher
level of debt. As such the premium pricing
offered has so far been accepted by the
A-REIT target boards/ shareholders.”
RECENT M& A TRANSACTIONS IN AUSTRALIA (AUD)
TRUST NET TANGIBLE
ASSET (NTA) ^ OFFER PREMIUM PAID PREMIUM ACQUIRER
AUSTRALIAN UNITY
OFFICE $2.67 $2.95 10.5% $3.04 8.9%** Charter Hall / Abacus
(in process)
INVESTA OFFICE $4.95 $5.15 4.0% $5.60 2.4%* Oxford Props (closed)
PROPERTY LINK
$1.04
$1.15
10.5%
$1.20
(Source: APN Property Group)
^ at date of offer.
* to June 18 NTA of $5.47
** to June 19 NTA of $2.79
^^ to Pro-forma June 18 NTA of $1.07
10
12.1%^^
ESR Australia (closed)
Pete Morrissey,
CEO, Real Estate Securities
of APN Property Group
Pete Morrissey, Chief Executive Officer,
Real Estate Securities at APN Property
Group, expects this trend of increasing
M&A activity to continue. “Each of
the above M&A transactions involved
taking private a publicly traded A-REIT
(Australia-REIT) vehicle utilising unlisted
While Jan de Vos, a portfolio manager
at Resolution Capital, also regards M&A
as a constant in the equity markets,
Credit Suisse’s Scasserra added that the
current market, where REITs are trading
at a significant premia to NTA, will make
it difficult for M&A between REITs in the
short term.
“Currently, REITs are trading at significant
premia to net tangible assets driven by the
11
low interest rate environment and strong
investor interest. Unless we see a reversal
in that trend, it will make it difficult
for mergers and acquisitions between
REITs to stack up in the near term,” says
Scasserra. However, he expects REITs
to continue to raise capital to fund asset
purchases.
Morrissey’s view is that “wholesale capital
is likely to be involved as acquirer, given
their lower return hurdles and willingness
to take on greater leverage.” He added that
“offshore acquirers would have also been
assisted by the recent depreciation in the
AUD relative to other major currencies.”