another article in australian

this from australian yesterday

http://www.theaustralian.news.com.au/business/story/0,28124,25074795-25658,00.html


"UP to two-thirds of listed property trustsmay disappear in the next two years as investors desert the sector.

And it is possible the list will include some big names.

With their securities trading under 20c, the question is how these penny-stock trusts will recover.

The collective loss in market value over the past year is nearly $9 billion. Today, combined market capitalisation is just $1.4 billion.

Three trusts managed by Macquarie -- Macquarie Office, Macquarie Countrywide and Macquarie DDR -- and two of the five managed by ING Real Estate are trading below 20c a security.

Citigroup property analyst Peter Cashmore said it was hard to see how stocks that had fallen to such levels could recover.

"They can move 10 per cent on a day, but that is only 2c.

"It will come a point when the managers have to ask themselves honestly if they can continue to collect fees when the fees are more than trust's earnings.

Patersons property analyst Jonathan Kriska said: "It is an absolute train wreck. By this time next year, two-thirds of the trusts won't exist any more."

Mr Kriska said 67 trusts were still listed on the ASX, including small operations such as Challenger Wine Trust.

He said the most vulnerable were those capitalised at less than $100 million with high gearing levels, such as Valad.

The heavily indebted trusts had to reduce their gearing to around 30 per cent to survive, Mr Kriska said.

Some property analysts and fund managers question whether the Macquarie Group will persist with its listed vehicles, which have obviously lost market support.

Macquarie is reviewing Macquarie DDR Trust, considering options ranging from asset disposals to a return of capital to unitholders.

"You can bet they are burning a lot of candles at Macquarie, pondering over the future of their trusts. You have to give them credit that if there is an option, they will find it," a Sydney-based fund manager said.

A leading property analyst said: "In my view, arguably Macquarie could sell the whole real estate platform and exit the business."

ING Real Estate's listed trusts are also languishing, trading at a fraction of their net tangible assets.

ING Industrial Fund and ING Real Estate Community Living Group -- its retirement village trust -- are trading below 20c a security, while the larger ING Office Fund is at 29.5c.

"ING has been an institutional real estate investor globally for a long time," the property analyst said.

"But they face the same question as every listed trust -- how will they recover from the current levels?

"In the end, ING may sell the assets and return the capital to unitholders if they don't see a future for them."

Citigroup analyst Jackie Tin, in a recent client note, said the gearing of ING Industrial, Macquarie DDR, RNY and Tishman Speyer -- if performance fees of $134 million were included -- were all close to their covenant limits.

The main option for these trusts was to sell assets to bring debt levels down, but the market is still frozen.

Otherwise, they have to raise equity.

Mr Cashmore said the problem was that capital raised would be obliterated in the next round of revaluations. For instance, Macquarie Office raised $508 million in late December, but by early this month, it wrote down $693 million after asset revaluations.

Mr Kriska said the trusts could try to raise equity, but they would not be able to raise enough to help pay down their debt. As a result, they would still be forced to sell assets or even the business itself.

Valad was a takeover target, he said.

"It has $3.7 billion in assets, yet a market capitalisation of only $59 million," he said.

A Sydney fund manager said: "In a normal world you would expect to see mergers and acquisitions already. But this is not a normal world, because banks are not lending."

He said banks were not prepared to fund property deals.

"Other funding sources, including commercial mortgage-backed securities (CMBS) and foreign banks, have dried up."

The fate of these trusts may lie with their financiers rather than their managers.

Centro was forced to do a debt to equity swap with its lenders.

The Sydney fund manager believes more trusts could go down this route as they breach their loan covenants.

Mr Cartledge said potential buyers were waiting for trusts to go into liquidation, so they could pick up their assets cheaply from receivers.

Asset allocator Ken Atchison said many of these trusts were trading comfortably, with earnings covering their interest repayment two or three times.

"At four or five cents a security, it is possible to buy up to 20 per cent of the company," said Mr Atchison.

This is exactly what Simon Marais, chief executive of Orbis Australia, has been doing in recent months.

Orbis is now a substantial shareholder in Macquarie DDR Trust (5.1 per cent), pub owner ALE (11.5 per cent), Galileo Japan Trust (7.52 per cent) and ING Real Estate (15 per cent)."

no mention of valad in above orbis substantial shareholder list.