(SYDNEY) Equity deals will take a back seat to debt issuance for Australia's property trusts this year, as they seek to diversify funding sources, a UBS UBS.VX UBS.N executive said on Wednesday.
Initial public offerings (IPO) for office properties may have to wait till 2011, when office property trusts could start trading at or above their net tangible asset (NTA) prices, Tim Church, managing director, head of real estate Australia for UBS, told the Reuters Global Real Esate and Infrastructure Summit.
'We would expect to see a whole lot of bond issuances,' he said. 'For the moment, we're done with broad-based equity issuance. The recapitalisation has largely occured.' One of the popular instruments will be convertible bonds, a type of bond that the holder can convert into shares.
'We have started to see the CMBS (commercial mortgage-backed securities) market start to open again. And we expect hybrid and convertibles to be more frequently used as well. It's proven to be a very cost effective form of equity,' Mr Church said.
'I think it will be a combination of replacing debt and, I think, some of them will be for new acquisitions or developments,' he added.
There have been reports in local media that Brookfield Multiplex, a subsidiary of Canada's Brookfield Asset Management, and private property developer Grocon may list their office assets.
Mr Church said these offerings may face headwinds as existing office trusts were trading on average at about a 25 per cent discount to net tangible assets (NTA), making it tough for newcomers to get their IPOs off the ground.
'It makes it very difficult for managers to get an IPO up unless they are willing to sacrifice the value of the portfolio substantially to make it attractive for investors to commit,' he said.
He added these IPOs may wait until share prices recover to reasonable levels. 'I would expect that during 2011 is a period that we start to see them trading back at or above NTA,' he added.
Morgan Stanley's Australian real estate unit, Investa Property Group, scrapped its IPO plan last November as the offer price did not meet investors' expectations.
Australian REIT (real estate investment trust) shares were hammered during the global credit crisis with the A-REIT index .AXPJ tumbling more than 70 per cent. But after raising nearly A$20 billion (S$24 billion) of capital in 2008 and 2009, many trusts have managed to put their houses in order. So far this year, the A-REIT index has outperformed the benchmark S&P/ASX 200 index .AXJO.
Mr Church said a lot of short-term holders participated in the capital raisings, making share prices volatile, but that is changing.
'I think we are moving to a much more stabilised period of ownership amongst some longer-term holders,' he said. -- Reuters
Source: Business Times, 17 Jun 2010