'Land grab' in property sector

Size matters, particularly in listed property. Takeovers worth $997 million have shaken the foundations of the sector, steadily chipping away at investor opportunity to buy into listed real estate.

Property trusts or companies are being devoured by predators of either the same size or slightly larger.

Those hunters see benefits in expanding through buying listed entities trading on the NZX at a discount to net tangible assets.

This means the predators get the quarry - entities owning large office blocks, hospitals and shopping malls - much cheaper than buying the properties outright.

It makes sense for the predators. Those conquests certainly make good headlines but the moves are ultimately detrimental to the listed market as they diminish the number of stand-alone listed vehicles institutional and retail investors can buy into.

Urbus Properties was delisted from the NZX last July. Capital Properties and Calan Healthcare Properties Trust could follow suit if they are taken over.

The predators argue investors keen to get real estate exposure can still buy into the post-merger entities via the consolidated entity.

But some takeover players are unlisted so the seizure results in a permanent loss to a sector with just 10 listed entities and only one new entrant in the last few years: Residential investor and minnow Blue Chip whose main activities are a series of related party transactions. The company has also been under the thumb of founder Mark Bryers and is not a stock widely held.

Since last winter, four takeovers worth $997 million have been staged in the listed property sector.

ING Property Trust is by far the most acquisitive, involved in deals worth $625 million.

It bought and de-listed the $453 million Urbus and has gone after the $172 million Calan Healthcare Properties Trust.

Next biggest was the unlisted AMP Property Portfolio which has almost 90 per cent of Capital Properties, arguably the market's best property entity with big growth opportunities, a bluechip list of Government tenants and internal management meaning the landlord controls its own destiny.

Wellington financier St Laurence wanted a big say in the $275 million National Property Trust, taking over its management late last year for about $15 million, although no figures were declared.

St Laurence also took a cornerstone 12 per cent holding in the trust and ushered in its own new board shortly before Christmas.

Do not mistake this activity as mergers, even if that is the language it is couched in. Pure and simple, this is hunting.

Core drivers for this unprecedented level of takeover activity are size, scale and large Australian institutions' desire to get buy into New Zealand's high-performing commercial property sector.

"The merger and acquisition story is a global one," said analyst Mark Lister, of ABN Amro Craigs.

"Everyone is trying to get scale, property assets are being securitised in countries that they haven't been previously and superannuation money is growing - Australians now pay 9 per cent of their income into super funds and the New Zealand one is growing too, with 10 per cent of these total funds allocated to property.

"So globally, a huge amount of cash is floating around that is supposed to be invested in property and there's not enough property assets.

"There's almost a land grab happening." 
 

Predatory moves

Listed property sector takeover activity:
* June 1: Listed ING Property Trust takes over the $453 million listed Urbus Properties, formerly the Waltus syndicated group. Deal completed.
* September 30: Unlisted AMP Property Portfolio launches a $357.6 million takeover of listed Capital Properties. Deal yet to complete.
* December 1: Unlisted St Laurence Group buys management of listed National Property Trust for about $15 million and takes a 12 per cent holding. Deal completed.
* January 31: ING Property Trust launches a $172 million takeover of listed Calan Healthcare Properties Trust. Deal yet to complete.

Listed property sector

Property trust - Assets ($)
* Kiwi Income 1.2b
* AMP NZ Office 880m
* ING 800m
* Capital Properties 582.7m
* Macquarie Goodman 536m
* Property For Industry 333.5m
* National 275m
* Calan Healthcare 204m
* Trans Tasman Properties 117m
* Blue Chip 68m