Australian REITs Set for Big Year of M&A in 2013, CLSA Says

Australian property trusts are set for a “big year” of mergers and acquisitions in 2013 after divesting overseas assets, said CLSA Asia Pacific Markets.

The S&P/ASX 200 REIT Index had a total return of 33 percent last year, compared with 20 percent for the benchmark S&P/ASX 200 Index, the biggest outperformance relative to equities after 2002, according to CLSA. The REIT index will have total return of 15 percent this year, according to CLSA’s forecast.

GPT Group, Australia’s second-largest diversified property trust, last year made a bid for part of a smaller rival, Australand Property Group, while Dexus Property Group is on the hunt for commercial properties after saying it is exiting its U.S. operations.

“After its second-best performing year on record, A-REITs are poised for a strong 2013 with M&A and earnings growth key drivers,” John Kim and Sholto Maconochie, real estate analysts at CLSA, wrote in an e-mailed note. “A-REITs are now focused on finding niches locally in the Australian market, with most having divested offshore assets.”

GPT, which bid only for Australand’s commercial and industrial divisions, will be successful in acquiring Australand with a partner to take over the target’s residential division, CLSA said. While Australand rejected the bid on Dec. 14, saying it doesn’t offer a “compelling value proposition,” GPT said it was committed to its takeover efforts.

Acquiring Assets

GPT, with the fourth-lowest borrowing costs among Australian REITs, “is well-positioned to acquire assets, with a low cost of debt, low gearing and a low cost of equity,” Kim and Maconochie wrote. “As M&A changes the A-REIT landscape, we may see rationale for the formation of GPT2 -- an Australia-focused high-quality REIT owner and manager, similar to GPT.”

The most likely candidates are Colonial First State Global Asset Management Pty, which may merge its two listed trusts Commonwealth Property Office Fund and CFS Retail Property Trust with its property arm; and Charter Hall Group which could combine with its listed retail property trust, CLSA said.

Colonial spokesman Mathew Chandler and Charter Hall spokeswoman Rachel Mornington-West didn’t immediately respond to e-mailed requests for comment.

Goodman Group, Westfield Retail Trust and Charter Hall Group are CLSA’s top picks, they said.

Before it's here, it's on the Bloomberg Terminal.