A-REITs take a hit due to debt fears
Deteriorating global credit markets are feared to have an adverse impact on earnings in the Australian real estate investment trust sector, according to research from Goldman Sachs and Morgan Stanley.
The listed property trust sector took a hit immediately after research was released yesterday, given concerns especially surrounding the debt due for refinancing within the current financial year.
The ASX 200 Property index closed down 2.1% against a 0.92% rise in the general market on Monday, October 10.
Close to $7 billion, or about 12% of the sector, is due for refinancing, of which about $4.2 billion is due before June 30, 2012.
A further $2.8 billion is drawn down but also to be refinanced this financial year.
Goldman Sachs property analysts warned there was a significant amount of listed corporate debt due for maturity in 2012, including: Westfield Retail Trust ($1.3 billion), Mirvac ($581 million), Dexus ($464 million) and Goodman Group ($406 million).
Since the initial media reports of the research Mirvac Group has advised the share market it had a strong capital position, with current funding headroom of greater than $600 million.
Mirvac managing director Nick Collishaw says Mirvac’s balance sheet remains in a robust position.
The company notes the report of the $581 million of corporate debt due for maturity in 2012 but stresses $505 million relates to a bond facility for which Mirvac has cash set aside sufficient to repay 100% of the facility; and $47.5 million relates to a bank debt that Mirvac repaid after June 30, 2011 from available cash.
“Our treasury team has worked hard to ensure that Mirvac's capital needs are able to be met by our existing facilities and cash flow.
“We believe that this activity is likely to significantly reduce the impact for Mirvac of any uncertainty that might be created by disruption in overseas financial markets,” Nick Collishaw advised the ASX.
Goldman Sachs executive director for real estate investment research Simon Wheatley suggests the debt crisis in Europe could force local companies to confront alternatives to refinancing their debt, according to a report by SMH commercial property editor Carolyn Cummins.
Most analysts say many REIT balance sheets are in better shape than they were during the last recapitalisation wave of 2008-09, but any debt concerns were unhelpful.
Two years ago REITs secured close to $14 billion from investors to boost balance sheets collapsing under high debts and falling asset values.
Morgan Stanley research notes global uncertainty is putting pressure on credit markets, resulting in an increase in collateralised debt security spreads for the sector.
''All, of course, will however depend on the macro environment, and if we do see the European sovereign crisis worsen, this will put pressure on the sector,'' the analysts say.
The A-REIT market closed Tuesday at 774, which was down 0.58% on the day.
