Andrew Scott on Australian REITs and overseas investing

By Lynn Novelli

Since 1997, Andrew Scott has been the director and CEO of Centro Properties Group, an Australian property trust with an extensive portfolio of shopping centers across Australia, New Zealand and the United States. Scott joined Centro in March 1997 after 15 years with Coles Myer in various senior property, finance and strategy positions. Scott is a founding member and currently chairman of the Shopping Centre Council of Australia.

What is the current status of the Australian real estate investment market?
Currently, 65 percent to 80 percent of all Australian investment-grade property is securitized, most of it by Listed Property Trusts (LPTs), Australia’s REIT. This means there is a lack of new property investment opportunity, but there are still excellent opportunities in already securitized vehicles. The Australian real estate market is very transparent with extreme amounts of analysis and information available.

Australians are required by law to save 9 percent of their income for retirement in private investments, which forced more than $1 trillion to accumulate for Australia’s 20 million people.

Since 1971, the LPT sector is one of the most established REIT-like markets around the world, and makes a significant contribution to the stock market and the overall property industry in Australia and New Zealand. The Australian real estate market is also tightly regulated and well-managed, so volatility in price and value is low.

Why are LPTs so popular with Australian investors?
Australians like to invest in property because it is viewed as a stable investment that provides good cash flow. As the population ages, there is a shift toward less risky investment, so property is more attractive. Adding to the attraction of LPTs is the fact that 15 percent to 100 percent of dividends that shareholders receive are tax-deferred.

What role do U.S. investors play in Australian LPTs?
U.S. investors are assuming an increasing role in LPTs. North American investors represent between 6 percent and 12 percent interest in all LPTs. U.S. institutional investors represent 9 percent of Centro shareholdings.

How do Australians view international investing?
Overall, about 26 percent of capital flowing into the LPTs that make up the Australian listed property index is now invested overseas, and 43 percent of property assets owned by Australian LPTs are offshore.

What is the main driver for overseas investment?
The investment demand in Australia is significant and the availability of investment-grade property investment opportunities is low, so we have had to seek offshore retail property investments.

How does the New Zealand real estate market compare to Australia?
It’s much smaller, with a significant portion of property assets held by Australian LPTs. New Zealand has a higher interest rate environment than Australia. With property yields compressing, accretive acquisitions in the New Zealand market are difficult to achieve.

Why do Australian LPTs favor the United States over other countries?
The United States is attractive to Australian investors for several reasons. It is the largest property market in the world, with stable returns, low volatility and strong diversification benefits. It possesses a deep property pool with greater access to quality retail investment opportunities, lower property acquisition costs (such as transfer taxes) and a lower inflation and interest rate environment.