Trends and issues in the Australian Real Estate Sector

Lex Mundi Conference | March 2010

© Clayton Utz

Peter McMahon

Welcome | Introduction

Contents

• Foreign investment into Australia

• Australia's increasing Interest Rate

• Growth in Australia's Retail Sector

• Real Estate Investment Trusts (REITS)

• State and Federal Government

• Insolvency

• Green Environment and Green Leasing

Foreign investment into Australia

Demand from Asian market

• Approval from Foreign Investment Review Board

required for all Urban Real Estate

• Exempt acquisitions

Australia's increasing Interest Rate

• Reserve Bank of Australia (RBA) raised interest rate

by 25 basis point to 4% on 2 March 2010

• Accelerating house prices (increase of 11.8% in the year

through January) and credit expansion

• Impact on price of Real Estate properties

• Demographics and immigration

Growth in Australia's Retail Sector

• Global Financial Crisis - sector specific impact

• Retail

• Industrial

• Office

• Attracts international retailers - e.g.

• Diversified market (lifestyles, culture etc)

• Barriers: planning system

Australian Real Estate Investment Trusts (A-REITS)

A-REIT - form of Fund structured as a unit trust and listed on the

Australian Stock Exchange

• Pressure to reduce gearing

• Simpler regime for listed and unlisted property

vehicles

• Goal: "Australia to become the leading funds

management hub in the region"

• Larger funds likely to grow through M&A transactions

State and Federal Government

• Federal Budget 2009-2010

• $22 billion overall

• $8.5 billion for urban infrastructure

• restructuring without immediate capital gains tax

• Reform proposals:

• fair property management system

• 'seamless national economy' - uniform approach to property law

• Elections and the impact of change of Government

Insolvency

• Global Financial Crisis

• fall of property values

• asset write-downs

• debt rollovers

• Consequences indebtedness

• Response trading halts, debt extensions and restructuring

• Case Study: Centro Properties Groups

Case Study

Centro Properties Group (CNP)

Centro Properties Group (CNP) - About

• Fully integrated retail property ownership and

services organisation

• Areas include

• retail property ownership

• leasing

• redevelopment

• funds management

Centro Properties Group (CNP) - About

• Properties under management are located

• Australia

• United States

• New Zealand

• Properties under management - $22.6 billion as at 30

June 081

• Funds under management - $25.6 billion as at 31

December 082

Centro Properties Group (CNP) - Problems

• 20063

• $5.5 billion market capitalisation

• one of the top 100 companies listed on the ASX

• 2007 + - Global Financial Crisis

• 20084

• Lost more than $2 billion due to a fall in property

values and asset write-downs

Centro Properties Group (CNP) - Loss

Centro completed FY09 with a loss of

$3.5 billion5

Centro completed the first half of FY10

with a loss of $63.2 million6

Centro Properties Group (CNP) - Loss

Centro Properties Group (CNP) - Problems 2008

• Banks and shareholders gave Centro to September

2008 to prove they can trade out of it debt crisis

• $4 billion debt due in December 2008

Centro Properties Group (CNP) - Problems

• Five trading halts in 20087

:

• 11 January - 15 January

• 3 April - 4 April

• 30 April - 2 May

• 7 May - 9 May

• 30 May - 3 June

• 15 December - 17 December

Centro Properties Group (CNP) - Today

• 3 year debt extension was given in December 20088

• Centro Term Loans of $3.9 billion extended to 15 December

2011

• $1.05 billion Hybrid Securities with maturity date 15 January

2016

• Super LLC facilities extended to 31 December 2010

• $9.5 billion of debt moved from current to non-current on

16 January 09

• Group was restructured on 16 January 2009

Green Environment and Green Leases

• Sustainability - Ecological Sustainable Development (ESD)

Core principle:

“development that meets the

needs of the present without

compromising the ability of

future generations to meet

their own needs”

Green Environment and Green Leases

• Green Buildings

"buildings which incorporate design, construction and operational

practices that significantly reduce or eliminate the negative impact

of development on the environment and occupants"

• Green Leases

• obligations of landlord and tenants

• environmental benchmarks

• penalties

• proposed mandatory disclosure scheme- the national Greenhouse

and Energy Reporting Act

Green Environment and Green Leases

• Issues remaining:

• rating tools costly

• lack of conformity and green banding

recognition

Dexus - 1 Bligh Street

Sydney Australia

Questions / Answers

www.claytonutz.com