Dark week and worse to come for property trusts

Pushed to heady heights by investors who have enjoyed 20%-plus returns from REITs, on average, every year for the past five, the crash has come harder and faster than expected.

This has prompted speculation of further mergers and acquisitions. But unlike the previous frenzy of consolidation in 2004, raising the cash to make offers is much harder. This will effectively be a saviour for many potential targets.

Yesterday, property circles were buzzing with talk Dexus Property Group might use its $3.6 billion market value to make a play for Valad, worth $852 million. The price of Dexus securities fell 10.5 to $1.21, while Valad defied the market and rose 1 to 53.

It was also suggested Dexus might have to issue earning and asset value guidances, given its exposure to European office markets, which have been hard hit.

Other groups such as Lend Lease, Stockland and smaller vehicles including ING Retirement, FKP and Babcock & Brown Communities are also being reviewed by property analysts as the 2007-08 reporting season nears.

Merrill Lynch says it is most concerned over the forecasts for Australand, GPT, Lend Lease, Macquarie DDR Trust, Macquarie CountryWide, Mirvac and Valad. It cited Centro, which is due to update investors on any sale of its US assets, and Rubicon Europe, as being on the brink of bankruptcy.