Rumours rife in REITs sector
A percentage will also go to upcoming 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 the 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 wings involving the two listed trusts, Commonwealth Property Office Fund (CPA) and CFS Retail Trust (CFX) with GPT and possibly Charter Hall and the CBA.
GPT Group and the Commonwealth Bank/Colonial First State have declined to comment on speculation, although the ownership interests in the two trusts are periodically reviewed by the bank's internal managers.
JP Morgan analyst Richard Jones said recently that the trigger for the latest round of speculation stemmed from the changes under Basel III, where bank capital requirements from holding listed equity investments have doubled.
He said that could make it more difficult 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 result in Colonial selling or internalising its Colonial First State Global Asset Management (CFSGAM) platform and the interests in the two trusts.
That could trigger asset sales such as CPA's half share in 5 Martin Place in Sydney.
"The CFSGAM Property business manages about $20 billion in assets across CFX, CPA, the listed NZ fund, and wholesale funds and joint ventures," he said. "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, CFX's largest shareholder at 15.5 per cent, which gives it first right of refusal on CBA's 7.8 per cent stake, valued around $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 CapitaLand will do with its stake in Australand.
The deal rumours come as share prices in the REIT sector continue to be hard hit, in line with the rest of the market.
Last week investors, mainly from offshore, sold out of the sector thanks to the weaker Australian dollar.
Frequently Asked Questions about this Article…
The article says up to $2 billion could wash through the real estate investment trust (REIT) sector in the coming weeks as most REITs are now trading ex-dividend. A significant proportion of that cash is tipped to be reinvested, while a percentage may go to upcoming capital raisings.
Yes. According to the article, up to $1 billion has already been raised from institutional placements, and more capital raisings are expected as the REIT sector looks for direct asset purchases.
The article reports rumours and broker commentary that mergers and acquisitions are a real possibility as funds managers review and simplify part-ownership structures. Brokers have flagged potential deals involving Commonwealth Property Office Fund (CPA) and CFS Retail Trust (CFX) with groups such as GPT, Charter Hall and possibly the Commonwealth Bank (CBA).
JP Morgan analyst Richard Jones is quoted saying changes under Basel III have doubled bank capital requirements for holding listed equity investments. That could make it harder for the Commonwealth Bank to justify holding its stakes in CFS Retail (about 7.8%, valued near $430 million) and CPA (about 6.2%, valued near $150 million), and might trigger disposals or structural changes.
The article suggests one possible outcome is Colonial selling or internalising its Colonial First State Global Asset Management (CFSGAM) platform and its interests in CFX and CPA. The CFSGAM property business reportedly manages about $20 billion in assets and generates roughly $70 million in earnings before interest and tax — and could, the analyst says, be worth about $650 million if put to the market.
The article notes the Gandel Group is CFX's largest shareholder at 15.5% and holds a first right of refusal on the Commonwealth Bank's 7.8% stake (valued around $430 million). Analysts quoted in the article believe Gandel's existing stake provides adequate exposure, so they do not expect it to exercise that right.
The article mentions another potential deal to watch is what CapitaLand will do with its stake in Australand. It also notes that GPT Group and the Commonwealth Bank/Colonial First State declined to comment on speculation.
The article says REIT share prices have been hard hit in line with the broader market. It also reports that last week mainly offshore investors sold out of the sector, a move the article links to the weaker Australian dollar.
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