Disclosure and reporting concerns in AREIT market: researcher

Some Australian real estate investment trusts (AREITs) are refusing to mark their assets to market to avoid having to face new stricter terms from their creditors, according to research house Adviser Edge.

Adviser Edge believes that the rolling over of debt remains a key concern for many AREITs in the coming year. But while there are concerns about financing, “the reality is that loans are being rolled over — albeit with a considerable expansion in the cost of lending”. However, the research house said “a question still remains on whether some of the smaller AREITs will be treated as generously with regard to debt refinancing”.

Adviser Edge has been concerned for some time about the level and accuracy of disclosure and financial reporting by some AREITs, resulting in distortion or misrepresentation of information provided to markets.

For example, the research house said some senior managers of AREITs have been promoting trusts as “conservatively geared” at the same time as “desperately renegotiating with the bankers to roll over their debt”.

“At the same time, many were wondering exactly how managers of AREITs presenting aggressive sales plans to satisfy banking covenants were going to sell assets at a time when there appeared to be no fair market for them,” the report stated.

And while the AREIT market has rallied over recent months, no such movement has occurred in the direct property market, which has fallen in value by around 15 per cent to 35 per cent across different locations and asset classes.