Australian REITS Retreat Home After $16.4 Billion in Losses By Sarah McDonald
Sept. 1 (Bloomberg) -- Australian property trusts are unloading failed overseas investments from Munich to Michigan after piling up losses equal to almost a third of their market value in the last 12 months.
Westfield Group, the world’s largest shopping-mall owner by market value, and GPT Group, which last month announced plans to dump its overseas properties, are among the companies to rack up losses from foreign ventures. The 16 members of the S&P/ASX 200 A-REIT Index reported combined losses of A$19.5 billion ($16.4 billion) and writedowns of A$21.7 billion in the year to June 30, according to data compiled by Bloomberg.
Australia’s A$1 trillion in pension savings helped fuel a global buying spree from companies such as Centro Properties Group that saw the nation become the biggest overseas buyer of U.S. property from 2005 to 2007. That backfired when property values tumbled and borrowing costs spiked because of the credit crunch, forcing companies to write down and sell offshore assets and replenish balance sheets ravaged by losses.
“A lot of the property companies are completely different to what they were three years ago,” said Chris Hall, who helps manage about $2.7 billion at Argo Investments. “They’re more like how they were when they first started being listed, which is pure vanilla property companies, earning good old fashioned rental income with maybe a bit of development, and that’s it.”
Centro sold more than 50 U.S. properties in the year-ended June 30, from Antoine Square, Houston, to the Village Shoppes of East Cherokee, Woodstock, Georgia. GPT is looking to sell eight assets, including its U.S. seniors housing portfolio, it said last month. Westfield, with 119 malls and more than 10 million square meters of retail space, sold A$2.9 billion of new shares in February as its U.S. malls dropped in value.
Time to Buy?
Adelaide-based Hall said Argo has bought shares in recent capital raisings from property companies, declining to name them.
The S&P/ASX 200 A-REIT Index has jumped 60 percent since a record low in March, pushing its combined market value to A$62.3 billion. Still, it remains 66 percent below the record set in February 2007, before the credit crisis struck.
The property index is now trading at a price-to-book ratio, which measures shares relative to assets, of 0.86 compared with the S&P/ASX 200 Index at 1.90. A number lower than one means the shares are trading at less than the value of their assets.
“I see no sector where I am more likely to double my money over the next five years than the listed property trust sector,” Charlie Aitken, Sydney-based director at Southern Cross Equities, wrote in a note to clients last week. “After the ‘meltdown’ comes the ‘melt up.’”
Buying Spree
Australians spent twice as much as Middle Eastern investors on U.S. real estate from 2005 to mid-2007, and almost three times more than Germans, according to New York-based Real Capital Analytics Inc., a provider of data on the U.S. property market. That investment into the U.S. “evaporated” in 2008, according to an April report from the industry researcher.
Among the biggest buyers was Centro, which last year handed control to banks after failing to refinance A$5.1 billion of debt accumulated as it acquired 650 U.S. malls.
“They were all driven by the same dynamic of excess liquidity, which was a global phenomenon,” said Adnan Kucukalic, director of Australian equities research at Credit Suisse Group AG in Sydney. He said other managers of property companies in Australia tried to copy Centro’s acquisitions, and in the end suffered similar fates.
He wrote a report in July 2007 warning that property companies were not as defensive as they once were because of increased dependence on financial engineering and excess liquidity. After the rout, he now thinks the sector is looking much healthier, with reasonable valuations.
‘Bubble’
“But I don’t believe that the property sector will be coming back to its glory of some three to four years ago any time, because I think that was a bubble,” Kucukalic said.
Westfield, which gets more than a third of its earnings from its U.S. malls, cut A$6.2 billion from the value of its assets in the year to June. Westfield Managing Director Peter Lowy last week said “asset values have probably bottomed.”
GPT in 2005 started a joint venture with Babcock & Brown investing in assets including shopping centers in Munich and Michigan. That was written down to a “nominal amount” at June 30, from A$1.16 billion six months earlier, the company said. GPT reported a first half loss of A$1.2 billion on Aug. 27.
The company will try to sell the offshore investments that made up 20 percent of its assets as at December, it said Aug. 6, to focus on its better-performing domestic portfolio.
Australian property prices weathered the credit crunch, while consumer confidence jumped last month to the highest level in almost two years, adding to signs the nation’s economy has skirted the worst global slump since the Great Depression.
Home prices in 20 U.S. cities fell in June at a slower pace than forecast, signaling the real-estate crisis that triggered the writedowns may be dissipating.
Ends.
Cheers, Pie (:
CER Price at posting:
12.5¢ Sentiment: None Disclosure: Held
