REITs focus on efficiency
Thursday 24 October 2013 - Real Estate Investment Trusts (REITs) are increasingly moving from an entrepreneurial style of managing their business to a more mature, efficient approach according to an EY report ‘Global perspectives: 2013 REIT report’.
EY Oceania Real Estate Leader Doug Bain said this is consistent with the Australian market and there are three main trends contributing to better platform effectiveness:
- Operational effectiveness – creating a clearly defined and effective organisational structure and implementing processes that result in better quality outputs as well as providing a platform to leverage for the next wave of growth.
- Efficiency and cost reduction – improving processes, often through automation, streamlining and/or centralisation, so that operations are run in a better and more cost-effective way.
- Risk management – managing risks throughout the business to mitigate the possibility of unexpected problems or to better position an organisation for the unexpected.
Mr Bain said US REIT debt levels have been slowly rising since 2010 however issues such as refinancing debt, pushing out maturities, laddering profiles, fixing the cost, diversifying sources, and improving credit ratings remain evident.
“Debt diversity will remain a focus for Australian REITs in the next 12 months with a lack of long-term debt financing locally.”
Mr Bain said decisions around capital allocation and how to best use finite capital resources would be crucial for Australian REITs considering the capital-intensive nature of real estate and the illiquidity of individual assets.
“Acquisitions will remain the primary focus of capital allocation for many in the REIT industry, whereas joint ventures remain a debated area. For some, they form a core part of the capital structure, but for many others they are rarely used and are low on the priority list.”
Mr Bain said the decision making process would continue to be important with more finance specialists having joined REIT teams in Australia in the past three to four years.
“This has brought greater sophistication around both financing and capital allocation, which we see as a very positive move when allied to the strong core of existing real estate competencies,” Mr Bain said.
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