Trusts feel push for buyback

PRESSURE is mounting on Mirvac, Westfield Retail Trust and Goodman Group to offer investors a share buyback. In doing so, they would join other Australian real estate investment trusts that have made a bid to close the gap between their share price and net tangible asset value.

PRESSURE is mounting on Mirvac, Westfield Retail Trust and Goodman Group to offer investors a share buyback. In doing so, they would join other Australian real estate investment trusts that have made a bid to close the gap between their share price and net tangible asset value.

While not all the AREITS have a deep discount between the share price and NTA value, analysts remain concerned the gap is not narrowing quickly enough.

The chief executive of Mirvac, Nick Collishaw, has consistently said the board is reviewing a range of capital management initiatives, including a buyback.

The senior real estate investment trust analyst for Goldman Sachs Australia, Simon Wheatley, said the volatility of the sharemarket has had an impact on share buyback activity.

He said that since April two more REITs have started share buybacks: CFS Retail and Dexus.

"Strength in the REIT sector in April has meant many REITs have sat on the sidelines with regard to share buyback programs," he said.

The senior property analyst at Morningstar Equities, Tony Sherlock, said to date more than $1.46 billion had been bought back via the sharemarket and there is an estimated $2.6 billion in balance. He says in a new report that with most AREITs trading at large discounts to NTA assets, buybacks create clear value.

"This is already occurring en masse in the Australian property sector, with Commonwealth Property Office, GPT Group and Stockland Group all upscaling the scope of their buybacks," he said.

"The larger capitalisation property stocks not currently undertaking a buyback are Goodman Group, Westfield Retail Trust, Centro Retail Australia, Lend Lease and Mirvac ... We consider Mirvac has a lot to gain from a buyback, given its securities are trading at a 25 per cent discount to December 2011 NTA per security of $1.63."

At its half-year results in February, Mirvac's chief executive, Nicholas Collishaw, advised $200 million of proceeds from assets sales are required for the full-year 2012 operating cash and capital expenditure budgets.

Any proceeds over and above the $200 million "would be seriously considered by the board for use in a buyback".

Mr Sherlock said that with the completed asset sales, there are compelling grounds for a buyback. "Debt refinancing is not considered an impediment as Mirvac had $500 million of liquidity at December 2011 and near-term maturities of $140 million in January 2013," he said.

He said a 5 per cent and 10 per cent buyback, undertaken at $1.25 per security, would be acccretive to his 2014 financial year earnings per security forecasts.

Related Articles