Page 1

A-REIT

SURVEY 2011


2

CONTENTS

CONTENTS

GETTING THE INSIDE INFORMATION ................................................... 3

5. FULL RANKINGS ............................................................................32

1. TOP 3 PERFORMERS ........................................................................ 4

6. DETAILED SURVEY RESULTS .......................................................... 34

2. PARTICIPANTS AND CRITERIA ........................................................12 Survey Participants ...................................................................................................14 Survey Criteria ...........................................................................................................15 Survey Period ............................................................................................................15

7. EXPLANATION OF CRITERIA AND RANKINGS ............................... 44 Financial Criteria ...................................................................................................... 44 Investment Criteria .................................................................................................. 44 Method of Ranking .................................................................................................. 45

3. SECTOR REVIEW ............................................................................16

8. CORPORATE FINANCE AT BDO...................................................... 46 About BDO ............................................................................................................... 50

4. SURVEY FINDINGS ........................................................................22 Financial Criteria for Ranking ............................................................................... 24 Investment Criteria for Ranking ..............................................................................25 Sector Composition ................................................................................................ 26 Property Valuations .................................................................................................27 Property Transaction Activity ................................................................................. 28 Merger and Acquisition Activity ............................................................................ 28 Sector Gearing ........................................................................................................ 29 Location of Property Assets.................................................................................... 30 Cost of Borrowings .................................................................................................31 Weighted Average Lease Expiry ..............................................................................31

A-REIT SURVEY 2011

9. DISCLAIMER................................................................................... 51 Sources of Information ............................................................................................51 Glossary......................................................................................................................51


INTRODUCTION

3

GETTING THE INSIDE INFORMATION The BDO Corporate Finance Team is pleased to present the 17th edition of the BDO A-REIT Survey. The 2011 Survey covers the 12 month period ending 30 June 2011, a period of consolidation and relative stability for the Sector after it suffered substantial price falls between 2007 and 2009.

KEY FINDINGS • 30 of 40 entities recorded a positive total return for the year

Capital management initiatives undertaken during 2009 and 2010 repaired the balance sheets and reduced the gearing of a number of entities, and helped to reduce risk and restore confidence in the Sector. 2011 has seen property transaction and merger and acquisition activity return on the back of this more stable operating environment.

• Volatility of the Property Index lower than the All Ordinaries at 30 June 2011

Whilst a degree of uncertainty currently exists around global and local macro-economic conditions, the major A-REITs are now well positioned to withstand any future property downturn. Equally, they should benefit from a strong upside if and when a sustained property recovery eventuates.

• Entities are still generally trading at a discount to NTA (23%) but this discount has decreased since 2010 (37%) and 2009 (55%)

• Increase in the median NTA for the first time since 2007 • Average increase in property values of 0.6%

However, those A-REITs that have yet to adequately resolve issues around gearing and under performing assets will continue to be subject to investor uncertainty and remain marked down by the market. The year ahead therefore represents another interesting and hopefully positive year for the Sector. On behalf of the A-REIT Survey team assisting me compile the 2011 Survey (Steven McCarthy and Cato Morgan) and the national corporate finance team, we hope you enjoy the 2011 Survey and wish you the best for 2012.

Sebastian Stevens National Corporate Finance Leader

A-REIT SURVEY 2011


4

TOP 3 PERFORMERS

1. TOP 3 PERFORMERS


TOP 3 PERFORMERS

5

TOP 3

Ranked entities are all Property Index members

CQO

Charter Hall OfďŹ ce REIT ranked number one overall

OFFICE

Sector well represented among the best performing REITs

A-REIT SURVEY 2011


6

TOP 3 PERFORMERS

1

CHARTER HALL OFFICE REIT Charter Hall Office REIT (ASX:CQO) invests in high grade office buildings predominantly located in major business districts across Australia and the United States. CQO is managed by Charter Hall Group. It is a member of the S&P/ASX 200 Property Index. At 30 June 2011 CQO owned 19 properties in Australia and 14 properties in the United States. In line with its strategy to reweight its portfolio exposure to Australia, CQO has finalised its exit from its non-core markets with the sale of its Japanese portfolio during FY11 and the exit of its German asset post financial year end. On 3 August 2011 it announced the proposed sale of its entire US portfolio for a gross price of US$1.7 billion. CQO’s total unit-holder return of 43% for the year was the highest return of any of the S&P/ASX 200 Property Index members. Consistent with the strong performance exhibited by the office subsector through the year, CQO delivered increased earnings, higher distributions, lower debt and strong portfolio management metrics. Units in CQO also demonstrated a high level of liquidity, with CQO being one of the most actively traded REITs on the ASX during FY11. Key achievements of CQO during the year included: • Increase in statutory earnings to $69.2 million, up from a loss of $91 million in FY10 • Reduction in its look-through gearing from 45% to 43% • Increase in full year distributions of 9.5% to 20.25 cents per unit – representing a 7% distribution yield which was 100% tax deferred • Repaid, refinanced or removed all debt due to mature prior to FY14 • Portfolio occupancy of 87%, comprising 96% in Australia and 82% in the United States • Increase in its WALE from 4.7 years to 5.1 years.

PRESENTED BELOW IS CQO’S NTA PER SECURITY AND ASX PRICE OVER THE 12 MONTHS TO 30 JUNE 2011 NTA

PRICE

5.0

4.0

$

3.0

2.0 JUL 2010 A-REIT SURVEY 2011

DEC 2010

JUN 2011


TOP 3 PERFORMERS

7

43% One year return

$50M

Increase in the value of its Australian assets

20.25

Cents per unit paid in distributions

100%

Tax deferred distribution

96%

Australian occupancy

5.1

Years WALE “We made significant progress towards our strategy articulated in 2008 to re-weight towards Australia by signing a contract to sell the entire US portfolio against an uncertain backdrop. Additionally, we delivered on our objectives of re-leasing vacant space and repaying, removing or refinancing debt, enhancing the quality of earnings during the year.” CHARTER HALL OFFICE REIT – CEO, ADRIAN TAYLOR

136% Liquidity


8

TOP 3 PERFORMERS

2

GPT GROUP GPT Group (ASX:GPT) is a diversified property group. It is focussed on the ownership, management and development of real estate in retail, office and industrial markets. GPT comprises 8% of the S&P/ASX 200 Property Index. At 30 June 2011 GPT’s assets totalled $9.3 billion. 59% of its assets were classified as retail and 29% as office. GPT’s diversified property portfolio delivered solid operational performance in the six months to 30 June 2011, achieving 3.6% comparable income growth. After undertaking some substantial restructuring and capital management initiatives in recent years, GPT now has a solid, conservatively geared balance sheet. Gearing at 30 June 2011 stood at 21%. Net tangible assets per security have been increasing on the back of positive valuation movements across its portfolio. Some key achievements of GPT during FY11 included: • Increase in its NTA per security to $3.64, up 6% during the year • Discount to NTA reduced to 15% • Paid cash distributions of 17.2 cents for the full year • 6% distribution yield - which was 100% tax deferred • High occupancy levels with retail at 99.9%, and office and industrial at 97.5%. PRESENTED BELOW IS GPT’S NTA PER SECURITY AND ASX PRICE OVER THE 12 MONTHS TO 30 JUNE 2011

NTA

PRICE

4.0

3.5

$

3.0

2.5 JUL 2010

A-REIT SURVEY 2011

DEC 2010

JUN 2011


TOP 3 PERFORMERS

“GPT’s performance in the first half of 2011 reflects the strength of the business, which has been reinvigorated over the past two years. We continue to deliver on our promises, with 8 per cent earnings growth and low debt costs, completing a further sell down in our wholesale funds and finalising the last non-core asset sales.” GPT GROUP – CEO, MICHAEL CAMERON

9

19% One year return

6%

Increase in NTA per security

134% Liquidity

17.2

Cents full year distribution

100%

Tax deferred distribution

2%

Increase in value of investment properties

A-REIT SURVEY 2011


10

TOP 3 PERFORMERS

3

INVESTA OFFICE FUND Investa Office Fund (ASX:IOF) invests in commercial property in core CBD markets throughout Australia and select offshore markets in the US and Europe. In March 2011, management of IOF was transferred from ING Management Limited to Investa Property Group. IOF is a member of the S&P/ASX 200 Property Index. At June 30 2011, IOF held 16 properties in Australia, four in the US, and three in Europe totalling $2.6 billion in property assets. Over the past 12 months, the sale of three offshore assets have been finalised in line with the strategy of repositioning IOF’s portfolio to focus on the Australian CBD office markets. At 30 June 2011 65% of IOF’s portfolio was located in Australia; whilst during FY11 68% of IOF’s rental income was derived from Australia. IOF has low gearing and a tenant register comprised predominantly of government and blue chip tenants. It recorded a total one year unit holder return of 19% and exhibited high levels of trading liquidity through the year. Earnings per unit for the year increased by 231% to 5.3 cents per unit (FY10: 1.6 cents per unit) predominantly due to positive asset revaluations. Key metrics of IOF at 30 June 2011 included: • Look through debt to total assets of 21% • Portfolio occupancy of 93% • WALE of 4.8 years • 3.9 cents per unit distributions paid representing a 6% distribution yield.

A-REIT SURVEY 2011


TOP 3 PERFORMERS

11

19% One year return

“From an operational perspective, the past 12 months have been focused on improving vacancy, delivering on our redevelopments and reducing offshore and suburban exposure, in line with our strategy of focusing on Australian CBD office markets”

8%

Operating cash yield

INVESTA OFFICE FUND – FUND MANAGER, TINO TANFARA

93%

PRESENTED BELOW IS IOF’S NTA PER SECURITY AND ASX PRICE OVER THE 12 MONTHS TO 30 JUNE 2011 NTA

0.8

Portfolio occupancy

PRICE

4.8

0.7

Years WALE

$ 0.6

124% 0.5 JUL 2010

DEC 2010

JUN 2011

Liquidity

A-REIT SURVEY 2011


12

PARTICIPANTS AND CRITERIA

2. PARTICIPANTS AND CRITERIA


PARTICIPANTS AND CRITERIA

13

40

Participants included in the 2011 Survey

$148B

Combined assets of participants

25%

Of the entities surveyed are classiďŹ ed as retail

TWO

Industrial focused entities on the ASX

A-REIT SURVEY 2011


14

PARTICIPANTS AND CRITERIA

SURVEY PARTICIPANTS The 2011 Survey incorporates entities within the real estate investment trust sector of Australia as at 30 June 2011. 40 entities with combined total assets of $148 billion have been included in the 2011 Survey. Entities that have been classified as property developers, or have market capitalisations less than $10 million, have been excluded from the 2011 Survey. Each year, the eligibility of participants for inclusion in the BDO A-REIT Survey is reassessed. ENTITY NAME

SIZE1

SECTOR

Abacus Property Group

1,602

Diversified

Australian Education Trust

354

Office

APN European Retail Property Group

526

Retail

Astro Japan Property Group

1,325

Diversified

Australand Property Group

3,760

Diversified

Aspen Group

598

Diversified

Brookfield Prime Property Fund

656

Office

Bunnings Warehouse Property Trust

1,242

Retail

Challenger Diversified Property Group

876

Diversified

Centro Retail Group

1,790

Retail

CFS Retail Property Trust

8,491

Retail

Charter Hall Group

958

Diversified

Cromwell Property Group

1,539

Diversified

Centro Properties Group

6,715

Retail

Commonwealth Property Office Fund

3,861

Office

Charter Hall Office REIT

3,225

Office

Charter Hall Retail REIT

1,905

Retail

Dexus Property Group

7,988

Diversified

EDT Retail Trust

1,328

Retail

Galileo Japan Trust

855

Diversified

Goodman Limited

7,565

Industrial

Growthpoint Properties Australia

1,190

Diversified

GPT Group

9,347

Diversified

ING Real Estate Entertainment Fund

236

Diversified

Generation Healthcare REIT

199

Diversified

ING Real Estate Community Living Group

421

Office

Investa Office Fund

2,505

Office

ALE Property Group

894

Diversified

Mirvac Group

9,138

Diversified

Mirvac Industrial Trust

433

Industrial

Multiplex European Property Fund

424

Retail

Real Estate Capital Partners USA Property Trust

260

Diversified

RNY Property Trust

461

Office

Stockland Trust Group

14,571

Diversified

Trinity Group

152

Diversified

Trafalgar Corporate Group

153

Office

Thakral Holdings Group

1,084

Diversified

Tishman Speyer Office Fund

1,065

Office

Westfield Group

35,929 Retail

Westfield Retail Trust

12,431 Retail

1. Total reported assets as at 30 June 2011 ($ millions)


PARTICIPANTS AND CRITERIA

SURVEY CRITERIA Explanation of the criteria used in the 2011 Survey together with the methods of weighting and ranking is included at Section 7. A summary of the scoring for the 2011 Survey is as follows: TOTAL OVERALL SCORE OF 2011 SURVEY WEIGHTED SCORE

%

Financial criteria

100

50

Investment criteria

100

50

TOTAL OVERALL

200 100

The financial and investment criteria and their respective weightings are as follows: FINANCIAL CRITERIA Cash yield on weighted average net assets

WEIGHTED SCORE 20

Distribution yield

20

Tax advantaged distributions

20

Movement in NTA

20

Premium/(Discount) to NTA

20

PERFECT SCORE INVESTMENT CRITERIA

100 WEIGHTED SCORE

Total return (one year)

50

Total return (three year)

25

Volume of trading on ASX

25

PERFECT SCORE

100

SURVEY PERIOD The 2011 Survey only takes into account information disclosed in each entity’s annual report for the year ended 30 June 2011. For those entities with 31 December year ends, half year reports to 30 June 2010 and 2011 have been used together with the annual report to 31 December 2010 to create comparable results for the year ended 30 June 2011.

15


16

SECTOR REVIEW

3. SECTOR REVIEW


SECTOR REVIEW

17

5.8%

Total return of Property Index for FY11

67%

Property Index remains 67% off its 2007 highs

10

Entities recorded negative returns for the period

A-REIT SURVEY 2011


18

SECTOR REVIEW


SECTOR REVIEW

19

OVERVIEW The 12 months to 30 June 2011 was a period of stability and consolidation for most entities in the A-REIT sector. FY11 provided managers with a relatively stable external operating environment. Those REITs that had repaired their balance sheets during 2009 and 2010 were able to focus on their fund’s core strategies and undertake active portfolio management. The major REITs have now significantly reduced their look-through gearing levels from around 40% in June 2008 to approximately 30% currently. These REITs are now well positioned to withstand any near term pressures that may be experienced by the property sector. FY11 also saw a welcome return to property transaction activity with a number of significant transactions completing. Offshore pension funds, in particular, were attracted by strong valuation metrics and a stable Australian economy. However, despite the improving strength of the larger REITs, smaller entities in the Sector have found accessing funding (both equity and debt) more difficult and a number of these entities continue to have very leveraged balance sheet positions. Whilst some REITs have been able to recover their security price to a level above their NTA per security, the smaller end of the Sector continues to trade at a significant discount to NTA. It was these smaller REITs that were the target of significant acquisition interest in the Sector over the year, the first sign of meaningful acquisition activity in the Sector since the global financial crisis. Both overseas financial investors and re-capitalised local REITs were active acquirers.

The one year, three and five year total annual (capital and dividend) returns to 30 June 2011 for each of the REITs that are members of the Property Index are set out in the table below: PROPERTY INDEX TOTAL ANNUAL RETURNS TO 30 JUNE 2011 A-REIT NAME

ASX CODE

1 YEAR 3 YEAR 5 YEAR RETURN RETURN RETURN

Stockland Trust Group

SGP

-2.1%

-5.8%

-6.3%

GPT Group

GPT

19.0%

-24.8%

-24.3%

Mirvac Group

MGR

1.4%

-17.8%

-15.4%

Dexus Property Group

DXS

21.3%

-6.0%

-2.3%

Australand Property Group

ALZ

26.9%

-3.4%

-9.3%

Charter Hall Group

CHC

-3.8%

-10.8%

-8.9%

Abacus Property Group

ABP

21.8%

-18.1%

-13.9%

Westfield Group

WDC

-3.9%

-5.9%

-2.6%

CFS Retail Property Trust

CFX

2.9%

6.3%

6.0%

Charter Hall Retail

CQR

25.8%

1.7%

-8.9%

Bunnings Warehouse Property Trust

BWP

4.8%

10.8%

5.6%

Commonwealth Property Office Fund

CPA

7.7%

-2.2%

-1.1%

ING Office Trust

IOF

18.7%

-7.2%

-5.5%

Charter Hall Office

CQO

42.7%

-17.9%

-17.9%

Goodman Group

GMG

16.8%

-31.2%

-28.3%

5.8%

-9.7%

-10.0%

S&P/ASX 200 (GICS) Property Accumulation Index

RETURNS

Source: UBS

The performance of the A-REIT sector (based on the Property Index) relative to the All Ordinaries for the period between February 2007 (the date when the Property Index reached its all time high) and 30 June 2011, is set out below:

• Despite a modest recovery, the Sector has not recovered relative to other equity indices since the global financial crisis. The total return (capital and dividends) for the Property Index for the 12 months to 30 June 2011 was 5.8%. The equivalent return for the S&P/ASX 200 All Ordinaries Index was 9.3% • Whilst the Property Index has somewhat recovered from its lows of March 2009 (when it was approximately 80% below its February 2007 high), at 30 June 2011 it remained 67% off its high • The Property Index has averaged a total annual return of negative 10% over the last five years. Only two of the REITs that comprise the Property Index (CFS Retail Property Trust and Bunnings Warehouse Property Trust) have recorded a positive return over the past five years • Westfield, the world’s largest REIT (and which comprises 28% of the Property Index) recorded a negative 3.9% return for the year ending 30 June 2011, underperforming the Property Index • 10 entities in the Sector recorded negative returns for the period.

CAPITAL RETURNS OF S&P/ASX 200 PROPERTY INDEX AND ALL ORDINARIES INDEX – FEBRUARY 2007 TO JUNE 2011 ALL ORDINARIES PROPERTY INDEX 100%

2007

2008

2009

2010

2011

Source: Bloomberg A-REIT SURVEY 2011


20

SECTOR REVIEW

A-REIT SURVEY 2011


SECTOR REVIEW

21

VOLATILITY The volatility of the Property Index compared to the All Ordinaries (for the period between February 2007 and 30 June 2011) is set out below. Volatility has been calculated on an annualised rolling one month ‘Close-Close’ basis. • Since February 2007 the Sector has experienced increased volatility compared to the All Ordinaries • Between February 2007 and November 2008, volatility increased measurably as the real risks of the Sector became apparent and it was exposed to the full impact of the global financial crisis • Volatility reached its peak in October 2008 when the Property Index moved more than 5% in a day on 13 occasions out of 23 trading days • Volatility has subsequently reduced during FY10 and FY11 as recapitalisations and other capital management initiatives have reduced the Sector’s perceived risk. The volatility of the Sector is now generally consistent with the volatility of the All Ordinaries. However, towards the end of FY11, the All Ordinaries exhibited higher volatility than the Property Index. VOLATILITY OF ALL ORDINARIES AND PROPERTY INDEX ASX PROPERTY 200 INDEX

ASX ALL ORDINARIES

120%

80%

40%

FEB 2007

FEB 2009

JUN 2011

A-REIT SURVEY 2011


22

SURVEY FINDINGS

4. SURVEY FINDINGS


SURVEY FINDINGS

23

13

Entities did not pay a distribution during FY11

0.6%

Average increase in property values

23%

Median discount to NTA

47%

Average sector gearing

A-REIT SURVEY 2011


24

SURVEY FINDINGS

FINANCIAL CRITERIA FOR RANKING RANKING CRITERIA

HIGH – FY11

Cash yield on weighted average net assets

19.3%

Distribution yield

LOW – MEDIAN – MEDIANFY11 FY11 FY10 -19.7%

6.7%

6.2%

20.4%

0.0%

6.2%

2.7%

100.0%

0.0%

26.6%

1.5%

Movement in NTA

45.9%

-209.7%

0.5%

-14.3%

Premium/(Discount) to NTA

37.8%

-108.2%

-23.3%

-37.1%

Tax advantaged distributions

A-REIT SURVEY 2011

The 2011 Survey has again presented some very interesting results in the financial criteria: • The median operating cash yield has increased slightly during FY11 indicating that the active portfolio management undertaken by managers through the year has resulted in improved rental yields • 13 entities did not pay a distribution during FY11 (compared with 19 from the previous year), resulting in an increase in the median distribution return. The entities that currently have suspended distributions generally have low market capitalisations and significant exposure to overseas assets. We note that a number of entities have indicated that they will recommence dividends once their capital management actions are complete • For the first time since 2007, the median NTA has increased. The increase in NTA was primarily due to an increase in property valuations across the Sector. There was also comparatively fewer dilutive capital raisings undertaken during FY11, relative to the previous three years • The Sector continues to trade at a substantial discount to NTA (median discount of 23%). As security prices have increased, this discount has reduced compared to the FY10 discount (37%).


SURVEY FINDINGS

INVESTMENT CRITERIA FOR RANKING RANKING CRITERIA Total return (one year) Total return (three year) Volume of trading on ASX

HIGH – FY11

LOW – MEDIAN – MEDIAN – FY11 FY11 FY10

233.3%

-73.1%

12.5%

22.1%

16.1%

-74.9%

-10.2%

-34.0%

148.9%

2.8%

43.3%

54.2%

25

The median total return (capital and dividends) for FY11 of the entities surveyed was 13%, extending the recovery in Sector returns following a 22% return in FY10. This reflects the increasing confidence in the Sector after the turbulent 2008 and 2009 years. • 30 entities out of 40 achieved positive returns in FY11, a similar ratio to FY10. We note only four entities achieved positive returns in FY09 • Trinity Consolidated Group (TCQ) achieved the highest return for the year (233%) on the back of a substantial profit turnaround from FY10. During FY11, TCQ resolved several long standing legal issues and sold their Japanese assets, which contributed to a significant improvement in its NTA and gearing metrics. ING Real Estate Community Living Group (130% one year return) and Centro Retail Group (109% one year return) also performed strongly in FY11 coming off low bases • There has been an increase in three year returns for FY11, as the effect of two years of positive performance now constitute a more significant portion of the three year timeframe. The median three year return has increased from negative 34% to negative 10.2%, while 10 entities recorded positive three year returns, a similar proportion to FY10 • In 2011 liquidity was at a more historically consistent level. Trading volumes evident in previous periods associated with a high number of sellers in the market and an increased number of capital raisings no longer had an impact on liquidity.

A-REIT SURVEY 2011


26

SURVEY FINDINGS

SECTOR COMPOSITION

MAKE-UP OF THE PROPERTY INDEX BY ENTITY

The combined market capitalisation of all 40 Sector participants totalled $76 billion at 30 June 2011. The 16 entities that comprised the leading A-REIT market index (the S&P/ ASX200 Property Index) make up 94% ($72 billion) of this total. An additional four entities with a combined value of $1.7 billion are included in the S&P/ASX300 Property Index.

CFS RETAIL PROPERTY TRUST

GOODMAN GROUP

GPT GROUP STOCKLAND WESTFIELD RETAIL TRUST

The next largest entity was Stockland Trust Group which comprised 12% of the Property Index.

MAKE-UP OF THE PROPERTY INDEX BY SUB-SECTOR

The 24 non Property Index members contributed $4 billion to the combined market capitalisation of the Sector at 30 June 2011.

Given that the retail sub-sector has Westfield Group and Westfield Retail Trust as members, this sub-sector contributes $36 billion (47%) to the Sector’s market capitalisation. The industrial sub-sector now only comprises two entities (Goodman Group and Mirvac Industrial Trust) and is the smallest of the sub-sectors.

A-REIT SURVEY 2011

WESTFIELD GROUP

MIRVAC GROUP

The Sector continues to be dominated by Westfield Group which represented nearly 28% of the Property Index as at 30 June 2011. However, we note that this is a substantial reduction from 30 June 2009 when Westfield Group represented almost 46% of the Property Index. The reduction in Westfield Group’s weighting over the past two years is due to the divestment by Westfield Group of various assets into the Westfield Retail Trust, as well as the strong recovery in the security prices of other Property Index members.

Set out opposite is the proportion of the Sector’s total market capitalisation that each sub-sector makes up.

OTHER

DEXUS PROPERTY GROUP

DIVERSIFIED

OFFICE

TRUST GROUP

INDUSTRIAL

RETAIL


SURVEY FINDINGS

27

PERCENTAGE OF ENTITIES BY VALUATION INCREMENTS

PROPERTY VALUATIONS In our 2010 Survey we noted that, following two years of downward pressure on property valuations, there was increasing evidence to suggest that capitalisation rates had stabilised.

2011

2010

The findings from our 2011 Survey indicate that this period of stabilisation has continued with values increasing on average by 0.6% during the 12 months to 30 June 2011. The graph opposite illustrates the distribution of valuation movements of the entities surveyed. Of the 40 entities surveyed, 24 entities recorded valuation increases with 16 experiencing valuation decreases. Brookfield Prime Property Fund recorded a $42 million increase in valuations, reflecting improved conditions in the office sub-sector. Trinity Group recorded a 9% increase in valuations on the back of increased leasing activity. We note that Commonwealth Property Office Fund’s (CPA) sale of 259 George Street, Sydney on 28 July 2011 puts an interesting perspective on current valuations. The sale was negotiated at a price of $395 million, a 15.3% premium to the asset’s 30 June 2011 independent valuation of $342.5 million, and reflecting an implied capitalisation rate of 6.3%. CPA believes that this sale will provide valuable transactional evidence for independent valuers in assessing relative asset values.

2%

8%

LESS THAN -10%

4%

7%

-10% > -5%

10%

24%

-5% > 0%

17%

8%

0% > 5%

7%

2% > 5%

-0.6% 2.3% -0.3% 3.9% RETAIL

OFFICE

DIVERSIFIED

INDUSTRIAL A-REIT SURVEY 2011


28

SURVEY FINDINGS

PROPERTY TRANSACTION ACTIVITY After an absence of property transactions during and immediately following the financial crisis, asset transaction activity increased significantly during 2010 and into 2011. Substantial transactions over the past 12 months have included: Commonwealth Property Office Fund acquired three A-grade office buildings in the Melbourne CBD for $581 million in November 2010. These were acquired on a 7.6% weighted average capitalisation rate. CFS Retail Property Trust acquired a portfolio of four Direct Factory Outlet (DFO) retail outlet centres for $498 million in October and December 2010. Bunnings Warehouse Property Trust purchased 10 Bunnings tenanted properties in February 2011 for $241 million. Many offshore pension funds, sovereign funds and private equity firms have played a key role as buyers in these recent transactions as well as assisting in the recapitalisation of various listed, unlisted and wholesale funds in the Sector. Examples of active offshore investors include K-REIT Asia (a Singaporean based REIT that purchased two Sydney office buildings in 2010), NPS (National Pension Service of Korea that acquired 88 Phillip Street, Sydney for $685 million in 2010) and RREEF (a global property fund that acquired 737 Bourke Street, Melbourne for $113 million).

MERGER AND ACQUISITION ACTIVITY The large discounts to NTA experienced by the small and mid-cap REITs have contributed to an increase in acquisition activity and consolidation among the Sector. In particular, those REITs that continued to have difficulty accessing liquidity and securing re-financing have been attractive targets. Buyers have included both overseas financial investors and locally based REITs that have recapitalised and have the balance sheet strength to undertake acquisitions without significantly impacting gearing ratios. Major Sector mergers and acquisitions during FY11 are detailed below.

TARGET

ACQUIRER

Westpac Office Mirvac Group Trust ING Industrial Fund

Goodman Group + other investors

EDT Retail Trust EPN GP LLC

LOCATION DATE DATE OF ACQUIRER ANNOUNCED COMPLETED

PREMIUM (DISCOUNT) OF OFFER PRICE TO LAST REPORTED NTA

Australia

April 2010

August 2010

(5)%

Australia

August 2010

April 2011

(2)%

June 2011

(18)%

United States October 2010

Challenger Wine Trust

CK Life Sciences Hong Kong International Holdings Inc

November 2010 February 2011

Rabinov Property Trust

Growthpoint Properties Australia

April 2011

August 2011

1%

Valad Property Group

Blackstone Group LP

United States April 2011

August 2011

(22)%

A-REIT SURVEY 2011

Australia

(41)%


SURVEY FINDINGS

29

SECTOR GEARING Gearing across all 2011 Survey participants has decreased slightly during FY11 with the average gearing decreasing to 47% from the FY10 level of 49%. The decrease has been caused by an average increase in property valuations, and decreased borrowing by 2011 Survey participants. There is a clear distinction between the gearing levels of the larger and smaller REITs. Through a combination of capital raisings, asset sales and other capital management initiatives, a number of the more established entities in the Sector took the opportunity to repair their balance sheets during 2009 and 2010 and reduce gearing levels. REITs with market capitalisations of over $1 billion have average gearing levels of 28%. Gearing is defined as net debt (interest bearing liabilities less cash) divided by total assets. However, smaller entities in the Sector found accessing liquidity (both equity and debt) more difficult and a number of these entities continue to have very leveraged balance sheet positions. A-REITs with market capitalisations of less than $1 billion have average gearing levels of 55%. Many of these balance sheets have become over extended as a result of debt-funded overseas acquisitions at the top of the valuation cycle while subsequent declining asset values expanded gearing ratios further. The smaller entities have not been able to raise sufficient equity capital, or had lower quality assets that were not easily able to be offloaded (or were sold at a large discount to valuation), to offset the effect of declining asset values on gearing. SECTOR GEARING HISTORY (AVERAGE OF PARTICIPANTS) AVERAGE GEARING

50%

40%

30%

20%

0% 1998

2004

2011

AVERAGE GEARING BY SUB-SECTOR WITH PRIOR YEAR COMPARISON 2011

54%

53%

RETAIL

48%

52%

OFFICE

43%

44%

DIVERSIFIED

2010

45%

54%

INDUSTRIAL

A-REIT SURVEY 2011


30

SURVEY FINDINGS

LOCATION OF PROPERTY ASSETS Following a strong period of global expansion up to 2007, the global financial crisis has resulted in a retreat from abroad by the Sector, as many REITs suffered large declines in the values of their overseas investments.

LOCATION OF PROPERTY ASSETS US 13%

EUROPE 5% ASIA 2% NZ 1%

AUSTRALIA 79%

Two large-cap REITs however, Westfield Group and Goodman Group, have retained a global model and continue to have significant exposures in America, Europe and Asia. Detailed opposite is a breakdown of property assets by location over the five years to 30 June 2011. The proportion of property assets located in Australia has increased significantly in recent years to 79% at 30 June 2011. This compares with only 64% of assets being located in Australia at 30 June 2007. There was a decline in the proportion of international assets during FY11, reflecting the scaling back of international operations (and in particular US assets) and a re-focus towards Australian portfolios. Notwithstanding this decline, approximately 13% of property assets remain located in the US. Twelve entities continue to own property assets in the US totalling almost $13 billion.

AUSTRALIA

US

EUROPE

ASIA

NZ

100

We note that subsequent to year end Charter Hall Office REIT announced the proposed sale of its entire US portfolio for a gross price of US$1.7 billion. As REITs continue to focus on a back-to basics strategy which involves selling non-core assets, we expect to see further sales of offshore assets and the proportion of assets held in Australia continue to increase.

0 FY11

A-REIT SURVEY 2011

FY10

FY09

FY08

FY07


SURVEY FINDINGS

31

COST OF BORROWINGS

WEIGHTED AVERAGE LEASE EXPIRY

The cost of an entity’s borrowings reflects a number of factors including the lender’s assessment of the borrower’s risk and of the quality and location of assets securing the borrowings, and the borrower’s gearing and interest coverage. Overall during FY11 the Sector’s average weighted average interest rate (being a weighted average of the cost of all finance facilities of an entity) rose from 5.7% to 6.1%, reflecting the post GFC higher funding cost environment.

The weighted average term to expiry for leases is a measure of the security and stability of future tenure and income; however a shorter term to expiry in some situations may be viewed as a positive as it allows for earlier rental re-negotiations to take advantage of any market movements.

Entities with operations in the United States and Japan continue to access borrowing facilities at a far cheaper cost than Australian based A-REITs. The retail sub-sector recorded the highest weighted average interest rate of 6.7%.

Average WALE increased in FY11 to 5.6, from 4.7 in FY10. The diversified sub-sector had the highest average lease expiry of 6.8 years, as a result of trusts such as ALE Property Group (17 years), the Generation Healthcare REIT (11.6 years) and Galileo Japan Trust (11 years) having WALEs significantly above the Sector average. The sub-sector with the shortest WALE is industrial at 4.4 years.

The industrial sub-sector had the lowest result of 5%. WEIGHTED AVERAGE INTEREST RATE BY SUB-SECTOR WITH PRIOR YEAR COMPARISON

2011

6.7%

5.8%

RETAIL

6.3%

6.6%

OFFICE

6.1%

5.1%

DIVERSIFIED

5.7%

WEIGHTED AVERAGE LEASE EXPIRY BY SUB-SECTOR WITH PRIOR YEAR COMPARISON

2011

2010

6.5%

INDUSTRIAL

4.5

4.5

RETAIL

4.7

3.9

OFFICE

6.8

5.1

DIVERSIFIED

2010

4.4

4.6

INDUSTRIAL A-REIT SURVEY 2011


32

TOP 10 RANKINGS

5. FULL RANKINGS

OFFICE

Sector strongly represented among Top 10 rankings

CQO

Charter Hall OfďŹ ce REIT ranked number one overall


TOP 10 RANKINGS

33

FULL RANKINGS RANK ENTITY 1

Charter Hall Office REIT

2

GPT Group

3

Investa Office Fund

4

Multiplex European Property Fund

5

Westfield Group

6

ALE Property Group

7

Australian Education Trust

8

CFS Retail Property Trust

9

Commonwealth Property Office Fund

10

Charter Hall Group

11

Thakral Holdings Group

12

Charter Hall Retail REIT

13

Generation Healthcare REIT

14

Dexus Property Group

15

Growthpoint Properties Australia

16

Stockland Corporation Limited

17

Cromwell Property Group

18

Astro Japan Property Group

19

Trinity Group

20

Trafalgar Corporate Group

21

Mirvac Group

22

Bunnings Warehouse Property Trust

23

Westfield Retail Trust

24

Goodman Limited

25

Abacus Property Group

26

Centro Retail Group

27

Australand Property Group

28

Challenger Diversified Property Group

29

ING Real Estate Community Living Group

30

Aspen Group

31

EDT Retail Trust

32

Brookfield Prime Property Fund

33

Tishman Speyer Office Fund

34

RNY Property Trust

35

Mirvac Industrial Trust

36

ING Real Estate Entertainment Fund

37

Real Estate Capital Partners USA Property Trust

38

Centro Properties Group

39

Galileo Japan Trust

40

APN European Retail Property Group A-REIT SURVEY 2011


34

DETAILED SURVEY FINDINGS

6. DETAILED SURVEY RESULTS

233%

Highest one year return achieved by Trinity Group

16%

Highest three year return achieved by Australian Education Trust

FIVE

Entities traded at a premium to NTA

CPA

Commonwealth Property OfďŹ ce Fund was the most liquid stock over the year


DETAILED SURVEY FINDINGS

35

OPERATING CASH YIELD RANK ENTITY

-20%

-10%

0%

10%

1

Multiplex European Property Fund

2

Astro Japan Property Group

11.3%

3

Abacus Property Group

11.2%

4

Thakral Holdings Group

11.0%

5

Cromwell Property Group

10.7%

6

ING Real Estate Entertainment Fund

10.5%

7

ALE Property Group

9.7%

8

Stockland Corporation Limited

9.7%

9

Aspen Group

9.5%

10

Growthpoint Properties Australia

9.5%

11

Charter Hall Retail REIT

8.6%

12

Investa Office Fund

8.4%

13

ING Real Estate Community Living Group

7.7%

14

Challenger Diversified Property Group

7.6%

15

Charter Hall Group

7.4%

16

EDT Retail Trust

7.3%

17

Westfield Group

6.9%

18

Galileo Japan Trust

6.8%

19

Commonwealth Property Office Fund

6.7%

20

APN European Retail Property Group

6.7%

21

Centro Properties Group

6.7%

22

Bunnings Warehouse Property Trust

6.6%

23

RNY Property Trust

6.5%

24

CFS Retail Property Trust

6.3%

25

Westfield Retail Trust

6.2%

26

Goodman Limited

6.0%

27

GPT Group

5.7%

28

Dexus Property Group

4.6%

29

Mirvac Group

4.5%

30

Generation Healthcare REIT

3.8%

31

Charter Hall Office REIT

3.5%

32

Mirvac Industrial Trust

33

Australand Property Group

2.1%

34

Trinity Group

1.8%

35

Trafalgar Corporate Group

1.2%

36

Australian Education Trust

1.0%

37

Centro Retail Group

38

Real Estate Capital Partners USA Property Trust

39

Brookfield Prime Property Fund

40

Tishman Speyer Office Fund

20% 19.3%

2.6%

-1.6% -3.7% -5.2% -19.7% A-REIT SURVEY 2011


36

DETAILED SURVEY FINDINGS

DISTRIBUTION RETURN ON INVESTMENT RANK ENTITY

0%

5%

10%

1

Thakral Holdings Group

2

Astro Japan Property Group

3

Multiplex European Property Fund

4

ALE Property Group

5

Cromwell Property Group

6

Aspen Group

9.0%

7

Growthpoint Properties Australia

8.9%

8

Generation Healthcare REIT

8.4%

9

Charter Hall Retail REIT

8.1%

10

Challenger Diversified Property Group

11

Abacus Property Group

12

Australand Property Group

7.3%

13

Charter Hall Group

6.9%

14

CFS Retail Property Trust

6.8%

15

Charter Hall Office REIT

6.8%

16

Bunnings Warehouse Property Trust

6.6%

17

Investa Office Fund

6.4%

18

Mirvac Group

6.3%

19

Stockland Corporation Limited

6.3%

20

Dexus Property Group

6.1%

21

Westfield Retail Trust

6.1%

22

Commonwealth Property Office Fund

6.1%

23

Australian Education Trust

5.8%

24

GPT Group

5.7%

25

Goodman Limited

26

Westfield Group

27

Brookfield Prime Property Fund

0.4%

28

APN European Retail Property Group

0.0%

29

Trinity Group

0.0%

30

Trafalgar Corporate Group

0.0%

31

Tishman Speyer Office Fund

0.0%

32

RNY Property Trust

0.0%

33

Real Estate Capital Partners USA Property Trust

0.0%

34

Mirvac Industrial Trust

0.0%

35

ING Real Estate Entertainment Fund

0.0%

36

ING Real Estate Community Living Group

0.0%

37

Galileo Japan Trust

0.0%

38

EDT Retail Trust

0.0%

39

Centro Retail Group

0.0%

40

Centro Properties Group

0.0%

15%

20% 20.3%

13.3% 13.1% 10.0% 9.7%

7.8% 7.5%

5.2% 4.2%


DETAILED SURVEY FINDINGS

37

TAX ADVANTAGED DISTRIBUTION RANK ENTITY

0%

20%

40%

60%

80%

100%

1

ALE Property Group

100.0%

2

Australian Education Trust

100.0%

3

Brookfield Prime Property Fund

100.0%

4

Charter Hall Office REIT

100.0%

5

GPT Group

100.0%

6

Trafalgar Corporate Group

100.0%

7

Growthpoint Properties Australia

100.0%

8

Generation Healthcare REIT

9

Charter Hall Group

79.3%

10

Multiplex European Property Fund

77.2%

11

Westfield Group

12

Astro Japan Property Group

13

Investa Office Fund

14

Cromwell Property Group

15

Abacus Property Group

16

CFS Retail Property Trust

17

Australand Property Group

33.7%

18

Westfield Retail Trust

32.8%

19

Thakral Holdings Group

20

Charter Hall Retail REIT

21

Commonwealth Property Office Fund

24.0%

22

Bunnings Warehouse Property Trust

22.6%

23

Stockland Corporation Limited

24

Dexus Property Group

25

Challenger Diversified Property Group

26

Mirvac Group

11.3%

27

Aspen Group

0.5%

28

APN European Retail Property Group

0.00%

29

Centro Properties Group

0.00%

30

Centro Retail Group

0.00%

31

EDT Retail Trust

0.00%

32

Galileo Japan Trust

0.00%

33

Goodman Limited

0.00%

34

ING Real Estate Community Living Group

0.00%

35

ING Real Estate Entertainment Fund

0.00%

36

Mirvac Industrial Trust

0.00%

37

Real Estate Capital Partners USA Property Trust

0.00%

38

RNY Property Trust

0.00%

39

Tishman Speyer Office Fund

0.00%

40

Trinity Group

0.00%

85.%

72.1% 68.3% 61.2% 53.5% 42.0% 37.2%

31.1% 29.1%

22.0% 20.3% 14.1%

A-REIT SURVEY 2011


38

DETAILED SURVEY FINDINGS


DETAILED SURVEY FINDINGS

39

MOVEMENT IN NTA PER SECURITY RANK ENTITY

-250%

-200%

-150%

-100%

-50%

0%

50%

1

Trinity Group

2

Mirvac Industrial Trust

3

Centro Retail Group

4

Brookfield Prime Property Fund

5

Multiplex European Property Fund

12.9%

6

Generation Healthcare REIT

7.1%

7

Dexus Property Group

6.3%

8

Westfield Retail Trust

5.9%

9

Growthpoint Properties Australia

5.7%

10

GPT Group

5.5%

11

Tishman Speyer Office Fund

5.4%

12

ING Real Estate Community Living Group

4.0%

13

EDT Retail Trust

3.7%

14

Australand Property Group

3.2%

15

Cromwell Property Group

2.8%

16

Goodman Limited

2.0%

17

Stockland Corporation Limited

1.6%

18

Challenger Diversified Property Group

1.5%

19

CFS Retail Property Trust

1.4%

20

Bunnings Warehouse Property Trust

1.0%

21

Charter Hall Group

0.0%

22

Growthpoint Properties Australia

-0.9%

23

Investa Office Fund

-1.3%

24

Commonwealth Property Office Fund

-1.7%

25

Trafalgar Corporate Group

-2.3%

26

Mirvac Group

-2.4%

27

Aspen Group

-2.9%

28

Charter Hall Retail REIT

-4.0%

29

Thakral Holdings Group

-4.1%

30

Abacus Property Group

-5.1%

31

Charter Hall Office REIT

32

Australian Education Trust

33

Astro Japan Property Group

-27.3%

34

RNY Property Trust

-28.8%

35

Westfield Group

36

Galileo Japan Trust

37

ING Real Estate Entertainment Fund

-65.3%

38

Real Estate Capital Partners USA Property Trust

-69.8%

39

Centro Properties Group

40

APN European Retail Property Group

45.9% 42.8% 33.3% 25.1%

-11.3% -13.2%

-32.6% -35.8%

-100.0% -209.6% A-REIT SURVEY 2011


40

DETAILED SURVEY FINDINGS

PREMIUM / (DISCOUNT) TO NTA RANK RANK ENTITY

-120%

-100%

-80%

-60%

-40%

-20%

0%

20%

1

Goodman Limited

2

Westfield Group

8.8%

3

Charter Hall Group

7.6%

4

Stockland Corporation Limited

5

Cromwell Property Group

6

Bunnings Warehouse Property Trust

-4.7%

7

Growthpoint Properties Australia

-5.7%

8

ALE Property Group

-8.5%

9

CFS Retail Property Trust

-8.6%

10

Dexus Property Group

-14.4%

11

Westfield Retail Trust

-15.4%

12

GPT Group

-15.8%

13

Charter Hall Retail REIT

-16.1%

14

Trafalgar Corporate Group

-16.1%

15

Generation Healthcare REIT

-17.3%

16

Investa Office Fund

-17.5%

17

Australand Property Group

-18.0%

18

Commonwealth Property Office Fund

-19.6%

19

Mirvac Group

-21.6%

20

Challenger Diversified Property Group

-23.2%

21

Abacus Property Group

-23.2%

22

Charter Hall Office REIT

-25.7%

23

Brookfield Prime Property Fund

-26.3%

24

Aspen Group

25

EDT Retail Trust

-33.0%

26

Centro Retail Group

-33.7%

27

Tishman Speyer Office Fund

28

Multiplex European Property Fund

-42.2%

29

Australian Education Trust

-42.4%

30

Astro Japan Property Group

-42.4%

31

Thakral Holdings Group

32

Trinity Group

33

Real Estate Capital Partners USA Property Trust

-65.7%

34

ING Real Estate Community Living Group

-66.5%

35

ING Real Estate Entertainment Fund

36

RNY Property Trust

37

Mirvac Industrial Trust

38

Galileo Japan Trust

39

APN European Retail Property Group

40

Centro Properties Group

40% 37.8%

2.9% 0.2%

-31.8%

-36.0%

-48.2% -55.1%

-69.9% -70.1% -81.9% -91.8% -102.8% -108.1%


DETAILED SURVEY FINDINGS

41

1 YEAR RETURN RANK RANK ENTITY

-100%

-50%

0%

50%

1

Trinity Group

2

ING Real Estate Community Living Group

3

Centro Retail Group

4

Thakral Holdings Group

5

EDT Retail Trust

73.0%

6

Tishman Speyer Office Fund

63.1%

7

Australian Education Trust

8

Multiplex European Property Fund

9

Charter Hall Office REIT

10

Trafalgar Corporate Group

11

Australand Property Group

26.9%

12

Charter Hall Retail REIT

25.7%

13

Abacus Property Group

21.8%

14

Dexus Property Group

21.3%

15

GPT Group

19.0%

16

Investa Office Fund

18.7%

17

Goodman Limited

16.8%

18

Growthpoint Properties Australia

15.6%

19

Challenger Diversified Property Group

14.2%

20

Generation Healthcare REIT

13.8%

21

Westfield Retail Trust

11.2%

22

Cromwell Property Group

9.3%

23

Commonwealth Property Office Fund

7.6%

24

Aspen Group

6.9%

25

Bunnings Warehouse Property Trust

4.8%

26

CFS Retail Property Trust

2.9%

27

Mirvac Industrial Trust

2.7%

28

ALE Property Group

1.6%

29

Mirvac Group

1.3%

30

RNY Property Trust

0.0%

31

Astro Japan Property Group

-0.2%

32

Brookfield Prime Property Fund

-1.1%

33

Stockland Corporation Limited

-2.1%

34

Charter Hall Group

-3.8%

35

Westfield Group

-3.8%

36

ING Real Estate Entertainment Fund

37

Galileo Japan Trust

38

Real Estate Capital Partners USA Property Trust

39

Centro Properties Group

-72.5%

40

APN European Retail Property Group

-73.0%

100%

150%

200% 233.3%

130.0% 109.3% 74.6%

61.5% 51.2% 42.7% 33.1%

-27.6% -40.0% -60.8%

250%


42

DETAILED SURVEY FINDINGS

3 YEAR RETURN RANK RANK ENTITY

-100%

-80%

-60%

-40%

-20%

0%

20%

1

Australian Education Trust

16.1%

2

Generation Healthcare REIT

16.0%

3

Bunnings Warehouse Property Trust

4

Cromwell Property Group

8.0%

5

Trafalgar Corporate Group

7.3%

6

CFS Retail Property Trust

6.3%

7

Challenger Diversified Property Group

4.9%

8

Centro Retail Group

3.3%

9

ALE Property Group

2.2%

10

Charter Hall Retail REIT

1.7%

11

Commonwealth Property Office Fund

-2.2%

12

Australand Property Group

-3.4%

13

Dexus Property Group

-5.2%

14

Stockland Corporation Limited

-5.8%

15

Westfield Group

-5.9%

16

Investa Office Fund

-7.2%

17

Thakral Holdings Group

-8.0%

18

Westfield Retail Trust

-8.1%

19

Growthpoint Properties Australia

-9.2%

20

Multiplex European Property Fund

-9.6%

21

Charter Hall Group

-10.8%

22

Astro Japan Property Group

-14.6%

23

Mirvac Group

-17.8%

24

Charter Hall Office REIT

-17.9%

25

Abacus Property Group

-18.1%

26

Aspen Group

-18.3%

27

RNY Property Trust

-20.8%

28

Tishman Speyer Office Fund

-23.2%

29

GPT Group

30

Goodman Limited

31

ING Real Estate Community Living Group

32

EDT Retail Trust

33

Real Estate Capital Partners USA Property Trust

-40.8%

34

Mirvac Industrial Trust

-42.4%

35

Trinity Group

36

Centro Properties Group

37

ING Real Estate Entertainment Fund

38

Galileo Japan Trust

39

APN European Retail Property Group

40

Brookfield Prime Property Fund

10.8%

-24.8% -31.2% -35.5% -39.2%

-43.5% -46.7% -51.4% -64.4% -69.8% -74.9%

40%

60%


DETAILED SURVEY FINDINGS

43

LIQUIDITY RANK RANK ENTITY

0%

30%

60%

90%

1

Commonwealth Property Office Fund

2

Mirvac Group

3

Charter Hall Office REIT

4

GPT Group

5

Dexus Property Group

6

Investa Office Fund

7

Westfield Group

8

CFS Retail Property Trust

9

Stockland Corporation Limited

10

Goodman Limited

11

Charter Hall Retail REIT

88.9%

12

Centro Properties Group

87.7%

13

Charter Hall Group

14

Westfield Retail Trust

15

Real Estate Capital Partners USA Property Trust

16

Bunnings Warehouse Property Trust

17

Astro Japan Property Group

18

Centro Retail Group

19

Abacus Property Group

45.2%

20

APN European Retail Property Group

43.8%

21

Aspen Group

42.7%

22

Trinity Group

23

ING Real Estate Community Living Group

36.9%

24

Tishman Speyer Office Fund

36.5%

25

Australand Property Group

36.5%

26

Galileo Japan Trust

33.7%

27

EDT Retail Trust

30.3%

28

Mirvac Industrial Trust

29.8%

29

Australian Education Trust

26.3%

30

ALE Property Group

26.1%

31

Challenger Diversified Property Group

25.7%

32

ING Real Estate Entertainment Fund

33

RNY Property Trust

20.0%

34

Generation Healthcare REIT

18.3%

35

Trafalgar Corporate Group

14.78%

36

Cromwell Property Group

14.24%

37

Multiplex European Property Fund

14.20%

38

Thakral Holdings Group

39

Growthpoint Properties Australia

40

Brookfield Prime Property Fund

120%

150% 148.8% 145.2%

136.1% 133.7% 127.3% 124.0% 123.5% 113.3% 106.0% 102.0%

77.1% 68.6% 63.8% 57.1% 56.8% 48.7%

37.1%

22.2%

7.36% 3.69% 2.76% A-REIT SURVEY 2011


44

EXPLANATION OF CRITERIA AND RANKINGS

7. EXPLANATION OF CRITERIA AND RANKINGS A brief explanation of the criteria used in the 2011 Survey is provided below.

FINANCIAL CRITERIA Cash yield on weighted average net assets Calculated by dividing operating cashflow by the total of weighted average shareholders’/unitholders’ funds and the simple average of reserves and any undistributed income. The financial year end of the entity has been used in all cases, except for 31 December entities where 30 June 2011 figures have been sourced from half year reports. Distribution yield Calculated by dividing the distribution per ordinary share/unit paid for the entity’s financial year by the average of the market price of ordinary shares/ units in the Entity. The average market price calculated on a daily closing price basis with prices sourced from Bloomberg. Capital distributions have been excluded from this calculation. Where accounts have been prepared for a period of less than one year, the distribution has been annualised. Tax advantaged distributions The total percentage of the distribution from each entity which is tax deferred. Where this information was not disclosed in the annual report, BDO attempted to obtain the detail required from other sources.

A-REIT SURVEY 2011

Movement in NTA Calculated by assessing the percentage increase (or decrease) in Net Tangible Assets (NTA) per security over the entities’ financial year by using the opening and closing figures for NTA per security. Where an entity was listed during the year, BDO has assessed the opening NTA as being equal to the issue price. In all cases the financial year end of the entity has been used, except for 31 December year ends where we have used NTA from the 30 June 2010 and 2011 half year reports. Premium/(Discount) to NTA Calculated by subtracting the average net tangible assets per security from the average market price per security, and dividing this by the average net tangible assets per security. We have ranked this criteria with entities trading at a premium to NTA as the highest ranking.

INVESTMENT CRITERIA Total return This measure, over both the one year and three years ended 30 June 2011, records both the income return (i.e. distributions) and capital appreciation (i.e. movement in market price). Information sourced from UBS and Bloomberg has been used to compile this criteria. Entities which have traded for less than three years have been awarded a result based on a weighting of one third its one year return and two thirds the median Sector three year return for this measure, and subsequently ranked accordingly.


EXPLANATION OF CRITERIA AND RANKINGS

Volume of trading on ASX This liquidity measure is expressed as a percentage, and is calculated by dividing the total volume of units/shares traded in each entity for the year ended 30 June 2011 by the weighted average total units/shares on issue. This provides an indication of relative liquidity, irrespective of entity size.

METHOD OF RANKING A total score of 200 (maximum) has been used, comprising 100 points for all financial criteria and 100 points for all investment criteria. In determining the final rankings the scores on each component were aggregated (not the rankings) such that the relative performance within each criteria are maintained in determining the overall rankings.

WEIGHTED SCORE 20

Distribution yield

20

Tax advantaged distributions

20

Movement in NTA

20

PERFECT SCORE

INVESTMENT CRITERIA

WEIGHTED SCORE

Total return (one year)

50

Total return (three year)

25

Volume of trading on ASX

25 100

The above tests have been ranked using a variable points system for each test, based on the number and importance of aspects taken into account. In each of the tests the scores were scaled so that the top performer in each test received the maximum available score for the relevant criteria. Ranks were then assigned based on the scaled scores.

Cash yield on weighted average net assets

Premium/(Discount) to NTA

Investment criteria The tests used in the investment criteria and assigned weightings are as follows:

PERFECT SCORE

Financial criteria The tests used in the financial criteria and assigned weightings are as follows: FINANCIAL CRITERIA

45

20 100

In each of the above tests the scores were scaled so that the top performer in each test received the maximum available score for the relevant criteria. Ranks were then assigned based on the scaled scores.

Median results For an entity which could not be scored equitably in a particular criteria, due to its recent listing, the unique nature of an entity’s activities, or lack of available information for the relevant criteria, that entity was allocated a median result for the purpose of ranking. This ranking was then weighted and scored as usual. For all such instances ‘N/A’ appears in the result column for the individual criteria tables. For those entities in which a three year investment return is not available, we have estimated a three year return based on the following: one third weighting to the one year investment return, and two thirds weighting to the median three year return.

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46

CORPORATE FINANCE AT BDO

8. CORPORATE FINANCE AT BDO


CORPORATE FINANCE AT BDO

47

KEY CONTACTS The BDO Corporate Finance team consists of over 70 professionals, servicing the corporate and investment sectors. Our dedicated team can assist you in making strategic business decisions through specialist transaction advice, commercially sound valuations, due diligence, effective merger and acquisition strategies, and financial modelling advice. Our international presence gives our Corporate Finance team representation in the world’s main commercial and financial centres. This extensive reach enables our clients to take advantage of global opportunities as well as draw on BDO experience and resources worldwide. This is of significant benefit in identifying and facilitating opportunities across the globe.

Sebastian Stevens National Corporate Finance Leader, Sydney Tel: +61 2 9286 5555 sebastian.stevens@bdo.com.au

Gregory Wiese Managing Partner, Adelaide Tel: +61 8 8223 1066 gregory.wiese@bdo.com.au

Steven Sorbello Partner, Brisbane Tel: +61 7 3237 5999 steven.sorbello@bdo.com.au

Chris MCTye Partner, Hobart Tel: +61 3 6234 2499 chris.mctye@bdo.com.au

John Blight Partner, Melbourne Tel: +61 3 8320 2222 john.blight@bdo.com.au

Sherif Andrawes Partner, Perth Tel: +61 8 9360 4200 sherif.andrawes@bdo.com.au

ACHIEVEMENTS • Australia’s number one provider of Independent Expert’s Reports (2005 – 2010) • Australia’s leading accounting adviser for IPOs (2007 – 2010) * *Based on number of transactions. Source: CONNECT 4, wholly owned business of Thomson Reuters (Professional) Australia Limited.

A-REIT SURVEY 2011


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CORPORATE FINANCE AT BDO

The BDO Corporate Finance team has provided advisory services in the following property transactions.

LISTED PROPERTY EXPERIENCE CLIENT

SERVICES PROVIDED

Growthpoint Properties Australia

Independent Financial Model Review

Growthpoint Properties Australia

Due Diligence

Growthpoint Properties Australia

Independent Accountant’s Report

Macquarie DDR Trust

Restructure

Multiplex Prime Property Fund

Corporate Advisory

MacarthurCook Limited

Valuation

Pelorus Property Group

Independent Expert Report

Becton Investment Management Limited

Valuation

Valad Funds Management Group

Valuation

MacarthurCook Limited

Valuation

Valad Funds Management Group

Valuation

Becton Investment Management Limited

Valuation

MacarthuCook Industrial Property Fund

Initial Public Offer

WRF Securities

Acquisition

MacarthurCook Limited

Valuation

MacarthurCook Asian Real Estate Property Trust

Initial Public Offer

SAI Capital

Initial Public Offer

Australian Unity

Due Diligence

Pelorus Property Investments Limited

Capital Raising

Lachlan Diversified Property Fund

Restructure

JF Meridian Management Limited

Management Fee Restructure

McLaughlins Financial Services

Acquisition of Unlisted Trusts by MFS Diversified

Telstra Stadium

Valuation

Austcorp TOWERS Trust

Hybrid Security Offering

MacarthuCook Property Securities Fund

Rights Issue

Pelorus Pipes – Bakehouse Fund

Restructure

MFS Diversified Trust

Preferred Equity Raising

Australand Property Group

Further Stapling

Australand Wholesale Property Trust #3, #4

Takeover

Macquarie Bank/Medallist Joint Venture

Valuation

Over 50’s Group

Due Diligence

MacarthurCook Property Securities Fund

Initial Public Offer

Charter Hall Property Trust

Stapling/Internalisation/Listing

Macquarie Leisure Trust Group

Management Fee Restructure

McLaughlins Financial Services Limited

Group Restructure

GPT Management Ltd

Takeover Offer

FKP Limited

Stapling/Restructure

Macquarie Goodman Funds Management Limited Valuation – All FUM Rights Becton Property Group

Initial Public Offer

Australand Holdings Group

Acquisition

MFS Hotel Property Trust

Restructure

Australian Value Funds Management

Acquisition


BDO CORPORATE FINANCE TEAM

UNLISTED PROPERTY EXPERIENCE CLIENT

SERVICES PROVIDED

Brookfield Multiplex Capital Management Limited

Independent Expert Report

Eureka Funds Management Limited

Financial Modelling

CorVal Partners

Due Diligence

360 Capital Limited

Financial Modelling

Aspen Development Fund No.1 Limited

Independent Expert Report

Ipswich City Properties

Financial Advisor

Opus Capital Group

Valuation

AMP Capital Investors

Due Diligence

Investec Property Limited

Independent Accountant’s Report

Colonial First State Global Asset Management

Expert Advice

Macquarie DDR Trust

Restructure

Eureka Funds Management

Valuations

Mirvac Investment Management

Management Fee Review

Becton Investment Management

Independent Accountant’s Report

Orchards Funds Management

Due Diligence / Independent Accountant’s Report

Austock Property Funds Management

Acquisition of Ceramic Funds Management Group

Key Capital Property Trust No 2

Independent Accountant’s Report

WRF Southern River Syndicate

Independent Accountant’s Report and Tax Advice

Pelorus Storage Fund

Capital Raising

Lachlan Office Property Fund

Capital Raising

Key Capital Property Trust

Independent Accountant’s Report

Trilogy Funds Management

Capital Raising

Hyperion Property Syndicate Limited

Capital Raising

MFS Diversified Trust – Acquisition of 3 Trusts

Acquisition

WRF X-One Syndicate

Independent Accountant’s Report and Tax Advice

Toga Accommodation Fund

Capital Raising

Lachlan Office Property Fund

Capital Raising

Abacus Storage Funds Management Limited

Capital Raising

Macquarie Direct Property –

Stapling of seven Unlisted Trusts

WRF Henley Brook Syndicate

Independent Accountant’s Report and Tax Advice

MacarthuCook Office Property Trust

Independent Accountant’s Report

Mariner Property Trust – Miller Street Trust

Capital Raising

Flowers Group

Valuation

Grant Samuel – Wholesale Funds

Capital Raising

WRF 9 to 5 Syndicate

Independent Accountant’s Report and Tax Advice

Becton Property Group

Restructure

Eureka Funds Management – Wholesale Funds

Restructure

Trilogy Capital Services Pty Limited

Capital Raising

Hyperion Property Syndicate

Capital Raising

Century Funds Management – Merger with Bankminister

Acquisition

Mariner Property Group – Sydney Opera House Car Park

Capital Raising

James Fielding Group – 4 Way Trust Merger

Merger

Lachlan Office Property Fund

Capital Raising

Tankstream Capital – Tankstream Property Investment Fund

Capital Raising

Investa Property Group – Collins Property Trust

Capital Raising

WRF VII Property Syndicate

Independent Accountant’s Report and Tax Advice

Mariner Property Group – Mariner Property Trust #1

Capital Raising

Domaine Property Group

Capital Raising

49


50

ABOUT BDO

ABOUT BDO As the fifth largest full service accounting and advisory network nationally and internationally, our deep expertise spans multiple specialist services. We work with many leading brands and companies ranging in size from large corporate organisations, private businesses, families, entrepreneurs and individuals across a wide range of industry sectors. We excel at creating strong relationships with clients who are seeking a combination of technical excellence with a specialised range of services and a desire for outstanding client relationships. Our ability to create and maintain outstanding relationships is based on our understanding that each of our clients is distinctively different, and it is their unique needs that drive our distinctively different approach. Our clients tell us it is the way we listen to them, work with them and how we see them that makes our approach distinctively different. We enjoy outstanding relationships with our clients. We focus on what is important to them; adopting a partnership style approach, being responsive and reliable, keeping our promises and maintaining open and frank communication.

Fifth 1,118 48,767 135

The BDO network is the world’s fifth largest accountancy network

Offices everywhere you need them

Partners and staff worldwide

Present in over 135 countries

A-REIT SURVEY 2011

We are committed to delivering value for our clients, so we do what it takes to get to know their businesses and the sector they operate in. This is why we have dedicated teams who have specialist industry knowledge and a deep understanding and appreciation of risks, issues and opportunities in a wide range of sectors, including Property & Construction, and Funds Management. BDO delivers a wide range of services to the Property & Construction, and Funds Management sectors including financial audits, trust audits, compliance audits, control audits and outgoing audits. We also advise on real estate investment trusts, fund structuring and corporate governance for funds.


DISCLAIMER

51

9. DISCLAIMER This 2011 Survey has been prepared by BDO Securities (NSW-VIC) Pty Limited AFS Licence 222438 (“BDO”). Although BDO has taken due care to ensure the accuracy of this 2011 Survey, no warranties are given in relation to the statements and information contained herein.

GLOSSARY All Ordinaries ASX A-REIT Distribution

SOURCES OF INFORMATION • A-REIT Annual Reports and Half-year Reports • Australian Securities Exchange • UBS’ S&P/ASX Property 200 Index data and S&P/ASX Property 300 Index data • Bloomberg • Other public data. BDO disclaims all liability arising from any person acting on information and statements made herein. The contents of this 2011 Survey should not be treated as advice to acquire, hold or dispose of securities and readers are advised to obtain professional advice before making any investment decision based on information contained in this 2011 Survey. From time to time BDO partners and staff may hold relevant interests in securities issued by the Entities reported upon. BDO has not received any commission, brokerage or other undisclosed benefit as a result of any statements made. Liability limited by a scheme approved under Professional Standards Legislation. At all times, BDO is committed to protecting the privacy of our clients, contacts, and that of their staff. Any personal information held by BDO for financial or accounting purposes will only be used by BDO to support your relationship with us and to ensure you receive the most appropriate range of information and services. (BDO’s Privacy Statement is available upon request).

Index containing the largest 500 ASX companies by market capitalisation Australian Securities Exchange Australian real estate investment trust Either a distribution from a trust or dividend from a company

DPS

Distribution per Security

FY11

Financial year-ending 30 June 2011

FY10

Financial year-ending 30 June 2010

the Sector Property Index NTA p.a. REIT Security

A-REIT (Australian listed property) sector S&P/ASX Property 200 Index Net tangible assets Per annum Real estate investment trust Either an ordinary share in a company or unit in a trust

Security Price

The price of an ordinary share in a company or unit in a trust

the 2011 Survey

BDO A-REIT survey covering the year-ending 30 June 2011

the 2010 Survey

BDO A-REIT survey covering the year-ending 30 June 2010

Total return US WALE

Change in Security Price (capital) plus Distributions United States Weighted average lease expiry

A-REIT SURVEY 2011


52

DISCLAIMER

Distinctively different – it’s how we see you AUDIT • TAX • ADVISORY

1300 138 991 www.bdo.com.au

ADELAIDE BRISBANE CAIRNS DARWIN HOBART MELBOURNE PERTH SYDNEY

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO (Australia) Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO Corporate Finance (NSW-VIC) Pty Limited ABN 83 130 172 333 AFS Licence 222438 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (NSW-VIC) Pty Limited and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. BDO is the brand name for the BDO network and for each of the BDO member firms. © 2011 BDO Corporate Finance (NSW-VIC) Pty Limited. All rights reserved.

BDO A-REIT 2011  

BDO A-REIT 2011

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