Investment Trust

<html><body>
<div>Moody's Investors Service says that its outlook for the Australian real estate investment trust (A-REIT) industry is stable, except for the retail segment, which faces a challenging operating environment.</div>
<div> </div>
<div>The growth in operating income will remain strong, and they expect aggregate comparable net operating income growth of 3% to 4% for their 16 rated A-REITs during the next 12-18 months</div>
<div> </div>
<div>Moody's Investors Service expect the office segment will see the strongest income growth, followed by industrial and retail.</div>
<div> </div>
<div>Low office vacancy rates in Sydney and Melbourne make these cities "a landlord's market."</div>
<div> </div>
<div>Moody's forecast for operating income growth of 3%-4% will be driven by low vacancy rates and strong demand on the back of favourable economic conditions.</div>
<div> </div>
<div>GPT Group, Mirvac Group and Dexus have the highest exposure in this segment and will likely record the highest growth over the next 12-18 months.</div>
<div> </div>
<div>Strong demand underpins solid growth in the industrial segment, and Moody's expects operating income growth of about 3%, with Sydney being the strongest market.</div>
<div> </div>
<div>Dexus, Goodman Group, Mirvac, Goodman Australia Industrial Partnership and Stockland Group will be the main beneficiaries according to Moody's analysis.</div>
<div> </div>
<div>Moody's Investors Service stated the retail segment is facing structural challenges on sluggish consumption and online sales growth.</div>
<div> </div>
<div>"Nevertheless, higher quality retail space remains resilient, and Moody's expects operating income growth of 2.0%-2.5%," it noted.</div>
<div> </div>
<div><img src="https://www.urban.com.au/images/2018/9/26/Moodys%20chart.JPG" alt=""></div>
<div> </div>
<div>"Well-located shopping centers that attract a deep pool of potential tenants and are underpinned by non-discretionary spending, or that are destination hubs, will continue to perform well," they added.</div>
<div> </div>
<div>Scentre Group, GPT, Mirvac and Vicinity Centres will benefit from these factors, while other centers, with a high level of discretionary spending exposure, will underperform, based on their latest data.</div>
</body></html>

j.ballantyne1990-6AQqhLzZaK

Moody's suggest outlook for A-REITs is stable, but retail face challenges

<html><body>
<p>Rating agency Moody's Investors Service says earnings reported by 13 Australian real estate investment trusts (A-REITs) rated by it suggest their credit quality will remain strong throughout FY2017.</p>
<p>It also expects the rated A-REITs' liquidity to remain strong because of their moderate level of debt maturities over the next 12 months.</p>
<p>Eleven trusts reported results for the first halves of their 2017 fiscal years, while the other two reported for all of calendar 2016.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/08/Screen%20Shot%202017-03-08%20at%201.29.13%20PM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/03/08/Screen%20Shot%202017-03-08%20at%201.29.13%20PM.png" alt=""></p>
<p>"We expect the A-REITs' financial leverage -- as measured by adjusted net debt/EBITDA -- to increase slightly during their respective fiscal years as the trusts take on modest amounts of debt to fund developments and acquisitions," said Kirsten Lee, analyst at Moody's Investor Service.</p>
<p>"Nonetheless, modest net operating income (NOI) and funds from operations (FFO) growth of around 2.0%-3.0% will partially offset the increase in debt, while the NOI and FFO growth will be driven by a continued high level of contracted rental income from relatively long-weighted lease expiries," adds Lee.</p>
<p>Moody's conclusions were contained in its latest report, "Financial Results Indicate Credit Quality Will Remain Strong Through Fiscal 2017". </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/08/Screen%20Shot%202017-03-08%20at%201.31.37%20PM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/03/08/Screen%20Shot%202017-03-08%20at%201.31.37%20PM.png" alt=""></p>
<p>The report said that because of a lack of immediate suitable investment opportunities, with assets seen as being priced at the peak of the cycle, the majority of the A-REITs are likely to continue operating at the lower end of their internal target gearing ranges to retain balance-sheet flexibility. </p>
<p>They will also operate with sufficient cushions within their rating tolerance levels to manage a potential turn in the property cycle.</p>
<p>In contrast to the larger A-REITS, Moody's expects the smaller A-REITs to remain acquisitive, as they seek to expand their asset bases.</p>
<p>The rating agency expects that retail trusts will continue to see solid comparable NOI growth, owing to broadly steady vacancy rates and fixed rent increases, and despite slowing sales growth.</p>
<p>The underlying operating environment for super regional and regional malls is likely to remain supportive, with a strong pipeline of demand from international retailers keeping occupancies at high levels.</p>
<p>However, Moody's expects re-leasing spreads and comparable NOI growth will be negatively affected if significant retailer bankruptcies continue because rental rates on new leases are typically lower than those on renewed leases.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/08/Screen%20Shot%202017-03-08%20at%201.33.23%20PM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/03/08/Screen%20Shot%202017-03-08%20at%201.33.23%20PM.png" alt=""></p>
<p>The comparable NOI growth of sub-regional malls will be the most negatively affected, should this occur, due to weaker International retailer demand.</p>
<p>Moody's said it expects the rated office and industrial A-REITs with high exposure to Sydney will continue to see moderate NOI growth, driven by fixed rent increases, higher occupancies and lower incentives.</p>
<p>It also expects the rated A-REITs' liquidity to remain strong because they have a moderate level of debt maturities over the next 12 months.</p>
<p>Of the 13 A-REITs that have reported, six demonstrated credit neutral results, while four were credit positive and three negative, it said.</p>
<p>The results reflect a modest reduction in average financial leverage as most A-REITs have paid down debt from the proceeds of their non-core asset sales. This, coupled with a modest development pipeline -- will see the rated A-REITs maintaining strong balance sheets and good headroom within their ratings over the next 12 to 18 months, concludes the report. </p>
</body></html>

jonathanchancellor-7SQnKwU6yx

Rated A-REITs to show strong credit quality in 2017: Moody's

<html><body>
<p>Treasurer Scott Morrison has slammed critics of the government’s recent move to restrict managed investment trusts to buying affordable residential property.</p>
<p>Reacting to Labor’s criticism and the property industry’s negative reactions,  Morrison said they are effectively demanding for developers a tax concession that is out of reach for most other Australian investors.</p>
<p>"You cannot currently put residential properties in a MIT," Morrison told The Australian Financial Review.</p>
<p>"The sector is asking for a tax concession not available for Australian investors,” he added, while speaking from China.</p>
<p><a href="https://www.urban.com.au/news/76023-scott-morrison-announces-limits-on-managed-investment-trusts" target="_blank">Morrison's decision</a> was announced on September 14 with immediate effect.</p>
<p>It triggered a strong reaction from the property industry which sees opportunity in the build-to-rent sector.</p>
<p>According to them, the federal government’s recent move risks killing off build-to-rent development before it even starts, and will affect the industry's ability to deliver more low-cost rental accommodation.</p>
<p>Managed investment trusts are defined by the Australian Tax Office as a type of unit trust that invests in passive income assets such as shares, property or fixed-interest. Tax on the income from the trusts is paid directly by individual beneficiaries at their top marginal tax rates.</p>
<p>Property Council of Australia chief executive Ken Morrison said until the government’s  announcement, property companies have been able to lodge applications to the ATO for tax rulings that build-to-rent would satisfy MIT arrangements as they are primarily about income and not capital gains.</p>
<p>"We have seen the ATO issue individual rulings" to that effect, he added.</p>
<p>"We look forward to working with the government on this issue as we believe build-to-rent offers enormous possibilities for Australia.</p>
<p>Earlier, Shadow treasury spokesman Chris Bowen slammed the move to restrict MITs, saying the Treasurer's announcement had ambushed the property and construction sector over a potential billion dollar addition to the real estate market.</p>
<p>The treasurer hit back over the weekend, criticising Labor's approach to housing affordability, which he said amounted to increasing taxes "on mum and dads investing in real estate while giving foreign investors a new 50 per cent tax cut."</p>
<p>The government said last week the MIT restriction was an "integrity measure" that would prevent trusts from investing in houses, units and apartments to hold for long-term rent.</p>
<p>"This change provides legislative clarification of the long-standing convention that the primary purpose of the MIT concessional tax treatment is to apply to passive investment income," the Treasurer said in a statement on Thursday.</p>
<p>"This change is crucial to maintaining the integrity of the tax base and will help direct foreign investment to where it's needed most."</p>
<p>Meanwhile, developers such as Mirvac are already planning big build-to-rent projects.</p>
<p>Earlier this year, <a href="https://www.urban.com.au/expert-insights/buying/75157-sydney-s-olympic-park-to-kick-off-mirvac-s-rent-to-build-venture" target="_blank">Mirvac appointed investment bank UBS</a> to seek off-market expressions of interest from institutional groups to form a club to develop and own build-to-rent housing in Australia.</p>
<p>The model has been successful in the US. </p>
<p>While the model promises to help address one of the greatest complaints of renters – the lack of stable long-term professional landlords and too many "cottage-industry" players – the build-to-rent model is uncertain due to the collapse in rental yields in cities around the nation, especially Sydney.</p>
<p>But declining commercial property yields has made the prospect of build-to-rent more attractive. </p>
</body></html>

Morrison hits back at critics of move to restrict managed investment trusts

<html><body>
<p>Following on its budget promises to tackle the housing affordability issue, the Turnbull government plans further steps which are directed towards investors and managed investment trusts. </p>
<p>Last week, the federal government released draft legislation to implement its plan, which includes:</p>
<ul>
<li>enabling investors to obtain a 60 per cent capital gains discount in affordable rental housing;</li>
<li>enabling managed investment trusts (MITs) to invest in affordable housing; and</li>
<li>MITs cannot acquire residential property, other than affordable housing.</li>
</ul>
<p>The media release by Treasurer Scott Morrison’s office said from January 1, 2018, there could be a capital gains discount of up to 60 per cent if investors hold their eligible affordable housing property for at least three years, rather than the standard 50 per cent discount.</p>
<p>“From 1 July 2017, MITs can hold affordable housing for the purpose of deriving long-term rent. The same MIT will also be permitted to derive other eligible investment business income from investments including shares or commercial property,” it added.</p>
<p>MITs will be able to construct or develop the affordable housing property within the MIT which is expected to act as an incentive for MITs to invest in affordable housing projects, according to the draft legislation.</p>
<p>“Consistent with current MIT withholding tax rules, eligible foreign residents will generally be able to take advantage of a reduced withholding tax of 15 per cent on investment returns, including income from capital gains,” said the media release.</p>
<p>“This concessional rate will not apply to capital gains income derived from selling affordable housing held for less than 10 years.”</p>
<p>To be eligible for the higher CGT discount and MIT concessions, the affordable housing tenancy will need to be managed by a registered Community Housing Provider, it says. As part of this, housing providers will determine the tenant eligibility criteria, including the rent charged, consistent with state and territory affordable housing policies.</p>
<p>The draft legislation also includes an integrity measure which said that “MITs cannot acquire investments in residential property, except where it is affordable housing. This will prevent MITs from investing in houses, units and apartments to hold for long term rent (other than affordable housing)”.</p>
<p>“This change provides legislative clarification of the long-standing convention that the primary purpose of the MIT concessional tax treatment is to apply to passive investment income. This change is crucial to maintaining the integrity of the tax base and will help direct foreign investment to where it’s needed most.”</p>
<p>Trusts that currently hold residential property have been given a transitional period until October 1, 2027, for their existing property assets.</p>
<p>The federal government has invited submissions on the draft legislation.</p>
</body></html>

Scott Morrison announces limits on managed investment trusts

<html><body>
<p>Clarence Property is seeking to raise $20 million capital for its Westlawn Property Trust (WPT).</p>
<p>Its previous offering returned 22.1% last financial year and closed oversubscribed at $22 million.</p>
<p>Clarence is forecasting a gross distribution of 8.8% per annum for new investors, backed by the Trust's average annual return of 14.5% over the past three years and 13.8% since its inception in 1994.</p>
<p>WPT recently acquired a 136-lot Yamba Quays development for $70 million.</p>
<p>It is the last canal-front community in New South Wales, following the 1996 State Government legislation to ban further canal development.</p>
<p>WPT portfolio now exceeds $300 million with assets from Yamba to Brisbane.</p>
<p>These include master-planned communities, shopping centres and industrial and commercial buildings.</p>
<p>Clarence Property Managing Director Peter Fahey says the new capital raising will allow WPT to maintain its low loan to value ratio (LVR).</p>
<p>"This past year has been one of our most active yet, with the acquisition of a total $60 million of new assets for WPT, and the continued development of existing projects including our 500-lot Epiq Lennox masterplanned community, which is now home to dozens of families," he said.</p>
<p>"Part of our strategy with WPT is to maintain close to a 50% LVR, so we don't over-borrow to acquire new assets.</p>
<p>"We have just commenced a $5 million renovation program to improve yields and WALE at a number of our regional shopping centres, which have become the backbone of WPT.</p>
<p>"Looking ahead, 2019 should be a fruitful year for WPT as we build on our 1,000-strong investor base and our excellent track record of delivering returns above our forecast distribution."</p>
</body></html>

Investment Trust

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Investment Trust

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News