There have been some amazing turnarounds on the stock market in the past year.
What was once on the nose is now back in fashion. And perhaps the biggest turnaround has been in the listed property trust sector or the Real Estate Investment Trusts as they are now called.
In the early part of the century, they were all the rage. And in the dog-eat-dog world of business, in an effort to gain an edge on the competition, many REITs expanded offshore using huge amounts of debt to do so.
In the process, many of them transformed themselves into totally different beasts than their original intentions. It took the global financial crisis to sort them out.
The first Australian corporation to hit the skids in late 2007 was Centro, a property trust that specialised in shopping malls. It had expanded heavily into small town America just before the worst property crash in US history created one of the worst recessions in the world’s biggest economy.
Pretty soon all the Australian REITs were under pressure. Investors dumped anything with debt and as unit prices tumbled, those left holding the property giants were terribly burned. Many vowed never to return.
But for the past four years, those running our property groups have worked hard to repair the damage and restore the reputations. That hard work has begun to pay off.
For in doing so, many of the REITs have returned to their roots. And as interest rates have fallen and investors have begun looking for areas that deliver high yields, they’ve rediscovered the property groups.
Most of them now have manageable debt levels, are tightly run and expect reasonable earnings growth into the future. Add attractive dividend yields into the mix and the stockbroking community and their clients suddenly have found the old flame hadn’t quite extinguished.
Just before Christmas, one of the nation’s biggest property groups, GPT, made a bold offer to buy all the industrial and commercial property from another group Australand.
The offer was rejected, but it did start the ball rolling. There’s a strong belief that the property groups have begun eyeing off each other as takeover targets given it is cheaper to expand their property portfolios that way instead of building new projects.
It’s a heady combination; good dividends and the prospect of capital gains from takeover activity.