It has been a busy year for the real estate investment trust sector, amid the long-running battle for control of Investa Office Fund, volatile share market and changing yield market.
With just under a month to the end of the 2017 financial year, investors will be focusing on the performance – not just prices and returns, but the managers of the REITs.
According to Winston Sammut, managing director of Folkestone Maxim Asset Management, the equity markets stayed volatile during the month with a weak first half due to softer United States economic data, diminishing reflation trade and rising geopolitical tensions with North Korea and Syria.
It is expected the REITs will outperform the overall sharemarket for the year, as investors took refuge in brick and mortar.
Office trust is said to be the best performing sub sector with rents rising and vacancy falling. The demand for space is coming from tech groups, and that is tipped to continue.
Retail assets are mixed with the malls going well despite concern about the impact of the internet giant Amazon. This has not stopped the deals, with Charter Hall Retail REIT paying $174.5 million for the Salamander Bay Centre in the Port Stephens, NSW, reflecting a cap rate of 6 per cent.
Conversely, owners of industrial assets are eagerly awaiting the arrival of Amazon. It is said the global group will lease a site at the Goodman and Brickwork's Oakdale South Industrial Estate at Eastern Creek. There are also suggestions Amazon is looking at sites in the Dandenong area of Melbourne.
But most of the past year the market has been watching the battle for Investa Office Fund, which includes a current takeover offer from Cromwell Corporation.
On Wednesday, Investa Office Fund (IOF) unit holders voted not to acquire joint ownership of the Investa office management platform.
Investa Group chief executive Jonathan Callaghan said that Investa had initially committed to offering 50 per cent of the Management Platform to IOF unitholders in 2011, and re-affirmed that commitment in March 2016.
Mr Callaghan said that Investa respected the views of the majority of the voting IOF unit holders, and assured all unitholders that Investa would continue to manage IOF with the same commitment and dedication it has applied since acquiring management in 2011.
"Investa is proud of the performance of IOF under its management, where it has consistently outperformed the ASX A-REIT 200 Index and its peers."
Sholto Maconochie, the head of Australia Real Estate research at CLSA, says the battle for IOF has led to "mudslinging from both sides with more uncertainty for unitholders".
He said it was time for Cromwell to put forward a binding bid to unitholders, but also question the timing of closing access to the data room. "Like investors, we too would like to see a swift resolution," Mr Maconochie said.
"We expect IOF to find support at current levels ... and believe Cromwell has upside potential from both a successful bid for IOF or by walking away and taking profits."
If Cromwell decides to sell, CLSA has estimated it would walk away with a 14 per cent return with total profits of $37 million, being $25 million gain and $12 million in distributions, and reduce its gearing by 590 basis points to 39.2 per cent.
"If Cromwell was successful in a bid for IOF we believe it would have to be priced at $4.90-$5, being a 2.3-4.4 per cent premium to pro-forma net tangible asset of $4.79, which we believe to be full as it incorporates $40 million or 6.5¢ of development profits from 151 Clarence Street," CLA says.
"If Cromwell was successful with a bid of $4.95, we estimate an internal rate of return of only 6.1 per cent, accretion of 2.3 per cent, but reducing gearing by 540bps, assuming Cromwell keep 2 per cent in a fund."