US REITs expanding their horizons
In the latest deal, retail REIT Mills Corporation and a joint-venture partner agreed to acquire the 70,000m2 St Enoch’s shopping centre in Glasgow, Scotland from Deka for around £270m (e383m).
Mills’ acquisition follows its success winning the right to develop the site of the former Mercati Generali in Rome into a retail, entertainment and cultural centre, and its opening in November of the first enclosed regional shopping mall built in Canada in 14 years.
Last year, Mills developed the 1.4mft2 Madrid Xanadu mall in Spain, which analysts generally regard as a success.
The Glasgow deal follows more moves from REITs to establish or expand their presence in Europe, Asia, and Latin America, despite the weaker dollar. The move has been driven partly by the desire for higher returns (especially if the dollar continues to weaken), but also in the effort to become more global to serve the needs of multinational tenants.
Also this year AMB Property, a San Francisco-based industrial REIT, has announced five new developments in Asia and made three acquisitions in Asia, Europe and Mexico.
Chicago-based retail REIT General Growth Properties has made investments in Brazil and Costa Rica this year – its first overseas plays. And Simon Property Group, an Indianapolis-based retail REIT, has created a joint venture to own, manage and develop shopping centres in Italy, as well as buying a REIT which owns shopping centres in Japan.
Morgan Stanley REIT analyst Gregory Whyte argued for caution from REIT managers. “Management teams have to think about the risks of going abroad and the returns they could get to compensate for those risks,” he said.
Dennis Yeskey, national director of Deloitte & Touche real estate capital markets said many countries where REITs were investing, such as the UK, France and Spain, had lower growth prospects than the US.
n Investors in UK real estate will have to wait until at least 2006 for a REIT to be introduced. The news, which came in the government’s pre-budget report, disappointed some in the UK market, but most appeared sanguine about the delay.
Notably, the UK real estate sector index still rose overall (by 5.1%) last month, and major stock prices were largely unmoved on the day of the report.
In the report, the UK Treasury gave no news on what structure it favoured, but said: “The government continues to believe that tax reform in this area has the potential to improve the efficiency of the property market. While the government will not legislate in 2005, it will report back with a discussion paper by budget 2005, for further dialogue with industry representatives.”
With a UK general election planned for 2005, most observers considered it unlikely that the government would find legislative time for a REIT bill.
CSFB’s John Gellatly, who has been closely involved with the UK REIT campaign, said: “We believe HMT is delaying to allow a proper digestion of the volume and complexity of the responses to the consultation process (which numbered over 200) alongside the issue of integrating the REIT initiative with other vehicles, rather than due to core concerns as to the concept itself. Indeed, since the publication of the PBR, HMT officials have been in contact stressing their commitment to the concept.”
In private, Treasury officials also confirmed that the new vehicles will be called REITs, rather than the rather unpopular term property investment funds (PIFs) earlier suggested.
Elsewhere, the REIT movement continues apace. Germany looks likely to have its Immoinvest vehicle in place by 2006. In Finland the ministry of finance is expected to publish its interim report on the matter soon, with a final report due in May 2005.