Price Gap Has Widened Between Listed And Unlisted Australian REITs: S&P

March 11, 2023 – Investors have begun to cash out of wholesale Australian funds at favourable prices, rotating capital into discounted public markets. This rotation will weigh on credit quality as wholesale funds seek to divest assets or use debt to fund redemptions, according to S&P.

Asset sales are likely to be struck below net tangible asset values, depressing asset prices across the Australasian real estate sector. Higher transaction volumes however should help to close the valuation gap between listed and unlisted markets. We expect that market participants will focus on rent security and cash flow generation to differentiate the stronger players in this dislocated market, the rating agency said.

S&P recently downgraded APPF Retail and QIC Property Fund on redemption-related credit pressures, and expect others to face similar challenges in the coming months. While redemptions have centered on retail property funds, they will spill to the office space, in our view. A tougher macroeconomic outlook and structural challenges from hybrid working will start to weigh. We anticipate the August reporting season will show weakening asset valuations, it said.