The Australian listed property trust (LPT) market – driven by sector maturation and an acceptance that size, combined with efficiency and asset diversification provide the best competitive advantage – has and continues to experience high levels of consolidation, Moody’s Investors Service claimed today.
“Given the nature of the property sector, and the quest by LPT managers for continued growth, mergers and acquisitions have and continue to offer an alternative to expanding the asset base through property developments,” says Moody’s senior analyst, Terry Fanous.
According toMacquarie Bankhead of property research Rod Cornish, the number of trusts are definitely in decline and with the significant levels of assets being channelled into listed property trusts many managers are having difficulty in accessing quality institutional grade investments.
“In Australia 55 per cent of institutional grade property investments are owned by LPTs, in the US this figure is only 6 per cent. So managers [in Australia] have been buying up other trusts,” Cornish says.
Recent consolidation activity in the sector includes the takeover of theAMPShopping Centre Trust, the AMP Diversified Trust and the Principal Office Trust.
According to Moody’s this intensity of consolidation is raising the level of event risk for the overall LPT sector.
“Consolidation is also raising the prices of LPTs, and may pressure the remaining industry players to effect combinations that may
not exhibit as strategic a rationale,” Fanous says.
“[However] Moody’s believes that well-thought-through and well-executed merger and acquisition transactions can translate
into positive credit implications for the LPTs concerned, including enhancements to strategic competitive positions, reductions in operating cost structures, and diversification in earnings and asset bases – an important issue in Australia.”
