INVESTORS may sell shares in more expensive listed property trusts to take up shares in the rebirthed Centro Retail Australia (CRF), according to Citigroup property analysts.
In a research note published yesterday, Citi's property team said if Centro was successfully amalgamated to form Australia's ninth largest real estate investment trust late this year it would also have an impact on the direct property market and on competing centres.
Using the experience of the spin-off of Westfield Retail Trust (WRT) from the Westfield Group in November last year, Citi said some investors would sell "less cheap" trusts to take up shares in the Centro trust.
Citi said there were a number of possible scenarios.
The first was that if investors sold out of trusts that had done well recently to fund the purchases of Centro shares, then trusts such as Charter Hall Retail, Charter Hall Office, Mirvac, GPT, CFS Retail Property Trust (CFX) and Investa Office Fund (IOF) would probably be sold down.
The team said if less-cheap REITs were sold, then GPT, CQR and IOF might be most vulnerable.
If, however, they chose to swap Centro with other retail stocks, said Citi, then Charter Hall Retail, CFX, the Westfield trusts and (to a lesser extent) GPT might be vulnerable.
The team concluded that if all these factors were taken together, the most vulnerable stocks would be Charter Hall Retail , CFX and GPT as investors sold them to buy the new Centro stock. It took the A-REIT sector four months to fully digest the flow-on effect from the Westfield Retail Trust spinout in November, the research note said.
Citi said the successful creation of a new Centro would remove the concern that the debt-laden group's retail assets would be placed en masse on the market, depressing the value of other retail stocks.
The most obvious impact of the listing of the new Centro trust would be an estimated 4.7 per cent expansion in the sector's benchmark indices.
The stock will rank ahead of the Commonwealth Property Office Fund in size, but behind the likes of Dexus, Goodman, Mirvac and CFX.
If unitholders approve the amalgamation in next month, Centro will have $7 billion of assets under management.
CER Price at posting:
25.5¢ Sentiment: Hold Disclosure: Held
