Basel III puts REITs in the spotlight
As much as $2 billion will wash through the real estate investment trust sector in the next few weeks after most of them are now trading ex-dividend and a significant proportion of the cash is tipped to be reinvested in the REITs.
A percentage will also go to capital raisings.
Already up to $1 billion has been raised from institutional placements and more are tipped as the REIT sector looks for more direct asset purchases.
There is also the spectre of mergers and acquisition among REITs, as funds managers look at their businesses and to simplify part-ownership structures for the new financial year.
Brokers say a deal could be in the wind involving the two listed trusts - Commonwealth Property Office Fund (CPA) and CFS Retail Trust (CFX) - with GPT Group and possibly Charter Hall and the CBA.
GPT Group and the Commonwealth Bank/Colonial First State have declined to comment on market speculation, although the ownership interests in the two trusts are periodically reviewed by the bank's managers.
JPMorgan analyst Richard Jones said recently the trigger for the latest round of speculation was from the changes under Basel III, where bank capital requirements from holding listed equity investments have doubled.
He said that could make it harder for the CBA to justify holding its 7.8 per cent investment in CFS Retail (worth about $430 million) and 6.2 per cent in CPA (about $150 million).
Mr Jones said one outcome could be for Colonial to sell or internalise its Colonial First State Global Asset Management (CFSGAM) property platform and the interests in the two trusts. That could trigger asset sales, such as CPA's half share in the 5 Martin Place development in Sydney.
"The CFSGAM Property business manages about $20 billion in assets under management across CFX, CPA, the listed New Zealand fund, and wholesale funds and joint ventures," Mr Jones said.
"We estimate the business generates about $70 million in earnings before interest and tax and if put to the market could sell for about $650 million."
Another tier to a deal could be the Gandel Group, which is CFX's largest shareholder with 15.5 per cent, which also gives it a first right of refusal on CBA's 7.8 per cent ownership in CFX, which is valued about $430 million.
"We believe Gandel's existing ownership in CFX is more than adequate exposure, so we don't expect it would exercise its right over the units," Mr Jones said.
Another potential deal is what would CapitaLand do with its stake in Australand. Simon Scott, of Moelis & Co, said after the retraction of the GPT bid last month, Australand should now be priced more off operating fundamentals.
"There is still the spectre of both corporate activity and/or a sell-down of the CapitaLand stake. However, we do not expect the major holder to be a seller below net tangible assets of $3.49, a share," he said.
"Therefore, the price would need to settle at more than $3.70 to allow of an appropriate discount to be offered to the market [5 per cent-plus]."
The speculated deals come as the REIT sector continues to be hard hit, in line with the rest of the sharemarket.
Last week, investors, mainly from offshore, sold out of the sector because of the weaker Australian dollar to the greenback.