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Gulf widens between large and small AREITs

Samantha Hodge  |  10 Dec 2012Text size  Decrease  Increase  |  

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Samantha Hodge is a journalist with InvestorDaily, a Sterling publication.


While confidence returned to the Australian real estate investment trust (AREIT) sector during the 12 months to 30 June, a significant divide has opened up between the major players and their smaller counterparts.

According to Sebastian Stevens, BDO corporate finance partner and author of the accounting group's AREIT survey, major players have strengthened their positions while smaller players continue to face challenges.

"The major AREITs are well-positioned to withstand any future economic downturn. They should perform strongly if and when a sustained property recovery eventuates," Stevens said.

"There is, however, a divide in the AREIT sector and those on the smaller end of the spectrum have yet to adequately resolve issues linked to gearing and underperforming assets.

"In order to diversify their sources of debt and lower their reliance on mainstream banks, AREITs need a variety of debt funding sources. However, many sources of funding are only accessible to the larger players. These smaller AREITs will continue to be subject to market and investor uncertainty, and remain marked down by the market."

According to the BDO survey, the sector recorded an 11 per cent total return over the 12 months to 30 June 2012, and outperformed the broader market by 18 per cent following a long period of underperformance.

The survey indicates the risk profile of the sector has reduced significantly since the global financial crisis, which saw it lose 70 per cent of its value.

The survey also highlights 29 out of 36 AREITs recorded a positive total return for the year, with property values increasing by an average of 0.5 per cent.  Overall, the 36 AREITs included in the 2012 survey have combined assets of more than $138 billion.