Australia property trusts ripe for shake-up

By Eriko Amaham - Analysis

SINGAPORE (Reuters) - Australia's property sector looks set for another shake-up as cheap share prices attract investors who believe the market is still healthy despite a slowing economy and high interest rates.

"For the first time in 15 years, it's becoming arguably an opportunistic market," said Simon Treacy, Asia chief executive for MGPA, a property fund management firm partly owned by Australia's Macquarie Group (MQG.AX: Quote, Profile, Research, Stock Buzz).

"There's a window at the moment to support some of the companies that need cash."

The stock market value of Australia's real estate investment trust market has fallen 27 percent in the last six months to $75 billion, as debt refinancing problems at shopping mall operator Centro Properties Group (CNP.AX: Quote, Profile, Research, Stock Buzz) fuelled fears for other highly geared firms.

Babcock & Brown Ltd (BNB.AX: Quote, Profile, Research, Stock Buzz), which manages about $72 billion in global infrastructure assets, lost half its market value this month and some media reports say private equity firm Kohlberg Kravis Roberts KKR.UL is planning a bid for the company.

Many property trusts are trading at big discounts to their net asset value (NAV), making them potential takeover targets.

They are also badly in need of money. In the year to June 2009, Australian REITs will require up to A$4.2 billion of external capital to fund development pipelines and distribution payouts, according to Citigroup analysts.

For companies such as AMP Capital Investors, a unit of Australia's pension fund manager AMP Ltd (AMP.AX: Quote, Profile, Research, Stock Buzz) which hopes to expand its investments globally, it is time to buy.

"We've got capabilities. We have a lot of people on the ground," said AMP Capital's Chief Investment Officer Andrew Bird. "We know that market very well, so if there are opportunities in Australia, we will definitely look at them."

AMP has made an offer for MacarthurCook Ltd. (MCK.AX: Quote, Profile, Research, Stock Buzz), which holds listed and unlisted property vehicles in Asia and the United States. Meanwhile, Lend Lease corp (LLC.AX: Quote, Profile, Research, Stock Buzz) made a $1.2 billion bid this month bid for FKP Property Group

(FKP.AX: Quote, Profile, Research, Stock Buzz).

Other potential targets include GPT Group (GPT.AX: Quote, Profile, Research, Stock Buzz), whose shares trade at more than 20 percent below its NAV.

"We view GPT as a deep value buy," Merrill Lynch said in a note to clients last month, citing a potential takeover as a share-price driver.

PREDATORS WITH MONEY

Although there are some signs of a slowdown, the physical property market in Australia still looks relatively healthy.  Continued...