Globalisation boosts trusts

LISTED Property Trusts will continue to grow through amalgamations and consolidations as a result of pressures of globalisation, according to Australian Property Institute national president Ian Dalgarno.

This was the view he expressed at the recent Pan Pacific Congress in Auckland and outlined in the latest API Australian Property Journal.

As Mr Dlagano sees it, the trend over the past decade is that, whereas demand initially was for sector specific trusts such as commercial, retail or industrial, the preference now is for greater diversification and liquidity.

“It is debatable how big LPTs need to be but the market appears to be aiming for a minimum size of $1 billion as soon as possible,” Mr Dalgarno said.

Australian LPTs have a market capitalisation of about $27 billion shared by approximately forty-three listed trusts with an average market capitalisation of around $600 million.

These figures represent only 5 per cent of stock market capitalisation but around 25 per cent of the institutional property market in Australia.

In the US, where the market has grown to more than $180 billion with 240 trusts, property analysts indicate a minimum size of $15 billion will be the norm and only twenty-five or thirty-five mammoth trusts will emerge after several years.

“Although there were a number of mergers in 1999, the opportunity for ‘friendly’ mergers is now limited,” Mr Dalgarno said.

“There are few property acquisition opportunities and a difficult capital raising environment compared with 1999, when $700 million was raised in the June to September quarter alone,” he said.

Gearing was also a problem because of rising interest rates.

“Stock analysts are generally of the view that the LPT sector is at or near its low, though global market changes, particularly in America, are exerting substantial influence on the local market.”

“It is clear that institutional investors want large cap stocks even if this means lower yields. They want to be able to move in and out of LPTs on a regular basis without affecting the price too significantly,” he said.

Mr Dalgano commented that a major impediment to the growth in international property investment was the wide range of regulations, taxation, foreign investment rules and political systems.

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