After having raised over $8 billion in capital since October 2008, Australian real estate investment trusts (REITs) will have to tap the public markets again as they have not raised enough to get them through the downturn, ING Clarion Real Estate Securities said.
"In Australia, equity raisings were just enough to get them through 2009 and maybe a little bit of 2010," Philadelphia-based ING Clarion Real Estate Securities director and portfolio manager Chris Reich said yesterday.
But the ongoing decline of REITs' net asset values and the Australian dollar means they need more capital to keep gearing levels down.
"In most cases, it turned out to be not enough," Reich said. "That's why we expect a round two in Australia."
REITs in the US have gone much further in restructuring their balance sheets, Reich said, and that is why the sector has done better there.
In addition to capital raisings, they have sold part of their assets.
"Some of the [US] companies have effectively covered their debt maturities all the way through 2011 and 2012."
Further capital raisings in Australia will have a negative effect on share prices in the sector as investors will need to sell part of their current holdings to participate in new raisings, Reich said.
"Because the Australian market is not as deep as the US market, you will find that as one company raises equity nearly every other company needs to be sold to help fund that deal," he said.
As a result, ING Clarion has a rather grim outlook on the Australian REIT sector.
"We are not as attracted to Australia as to other regions, because of the fact that they will have to go through a second round of equity raisings," Reich said.
