BDO Kendalls’ 2008 A-REIT survey reveals the highest levels of gearing in its 14 year history and significant drops in Net Tangible Assets of the entities surveyed.
The 2008 BDO Kendalls A-REIT survey, released today, has confirmed that significant profit downgrades, distribution suspensions and asset write-downs over the past 12 months have had a major impact on the performance of the A-REIT sector. Only one of the 58 entities surveyed recorded a positive return for the 2008 financial year.
This annual benchmark survey, now in its 14th year, covers the period 1 July 2007 to 30 June 2008. The survey is one of the most comprehensive in the A-REIT sector and includes 58 entities with combined total assets of $217 billion, including for the first time, entities with a major focus on property development. Movement in the sector over the last 12 months has seen six entities included in the 2007 survey dropped from this year’s survey, as their market caps fell below the $50m size benchmark. The 2007 survey included 47 entities with combined total assets of $164 billion.
Sebastian Stevens, National Head of BDO Kendalls’ Corporate Finance Division, commented, “The global economic climate coupled with battered investor sentiment has had a profound affect on the Sector. Historically, A-REITs have been expected to hold their value in testing financial environments, but it appears that the sector has experienced far more economic pain over the last year than the broader market”.
Entities in the survey have been classified as either a traditional unit trust or a stapled entity/company, in recognition of the diversity of structures and operations which now exist in the sector. “This classification more appropriately distinguishes the results of entities that have implemented a strategy of earnings diversification by adopting a stapled or corporate structure, from those that remain rent collectors”, said Mr Stevens.
The top performing traditional unit trusts in this year’s survey are Challenger Wine Trust, Australian Commercial Property Trust and CFS Retail Property Trust. The top performing stapled entities/companies in the survey are Devine Limited, Cromwell Group and Australand Property Group.
Financial Criteria
For the first time in the history of the survey, the median NTA of entities surveyed has fallen (by 4%), driven principally by the fall in property valuations.
Mr Stevens said that the strong sector results in 2007 and 2006 have been more than offset by the sector’s poor 2008 performance. Approximately half of the entities surveyed have witnessed their property valuations fall over the year. Generally, distribution policies have been more conservative while in some cases distributions have been suspended altogether.
Gearing Analysis
“The sector’s current gearing level – 44% - is the highest in the survey’s 14 year history. This helps to explain why the sector as a whole has been marked down since the emergence of credit market concerns in mid to late 2007”, said Mr Stevens.
The sector has experienced significant volatility in the last 12 months, and is perceived to be riskier than ever before. Gearing levels are now 100% higher than they were ten years ago. Much of the debt taken on over the past decade has been used to acquire assets including funds management businesses and overseas property, which have been among the hardest hit over the past year. “Since June 30, the S&P/ASX 200 Property Index has fallen a further 33%. We expect to see additional asset write downs and property devaluations reported in the A-REIT’s 31 December 2008 results.
We expect Stockland’s recent acquisition of an interest in GPT Group to herald the beginning of some merger and acquisition activity in the sector. We will be watching with interest and reporting trends and the results of the period to 31 December 2008 in our Half Year A-REIT survey to be released in February 2009”, said Mr Stevens.
For further information please contact:
Sebastian Stevens
National Head of Corporate Finance
BDO Kendalls
P: (02) 9286 5477
M: 0413 218 555
Note to editors:
BDO Kendalls offers a wide range of business and corporate advisory services to individuals and clients ranging from large corporates to small and medium growth-focused organisations - representing a broad range of industry sectors, as well as government departments and the public sector.
BDO Kendalls is a member of the BDO International network. BDO International is the world’s fifth largest international accounting and consulting organisation, with a total fee income of US$ 4.704 billion and a worldwide network made up of 626 offices in 110 countries. Some 31,500 BDO partners, directors and staff provide business advisory services throughout the world. In Australia, BDO Kendalls can offer the expertise of more than 140 partners and directors supported by over 1200 staff.
Our service lines include: Audit & Assurance, Business Recovery & Insolvency, Performance Improvement, Corporate Finance, Forensic Services, Corporate & International Tax, Private & Entrepreneurial Client Services. Our services also include a range of specialisations. For more details, visit our website at www.bdo.com.au. BDO Kendalls is a national association of separate partnerships and entities.
Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees.