Q2 FY15. A-REIT HIGHLIGHTS A snapshot of the strategic activity of Australian Real Estate Investment Trusts

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1 Q2 FY15 A-REIT HIGHLIGHTS A snapshot of the strategic activity of Australian Real Estate Investment Trusts

2 A-REIT HIGHLIGHTS A snapshot of the activity of Australian Real Estate Investment Trusts 1 BDO s A-REIT highlights, aims to provide a concise summary of Australian Real Estate Investment Trusts (A-REITs) activity in the sector on a quarterly basis. The report focuses on Capital raisings, Mergers and acquisitions and Initial Public Offerings (IPO). On the back of improving economic conditions and well structured balance sheets, the A-REIT sector performed strongly in FY14. While, FY14 was a period in which firms explored growth opportunities, activity so far in FY15 has appeared sluggish in comparison. The level of activity in Q2 15 in terms of Capital raisings, M&A transactions and IPOs was an improvement on Q1 15. Capital raisings both in terms of number of transactions and total transaction value increased considerably on the previous quarter. M&A buy side activity followed a similar trend, however, sell side activity was subdued in terms of total transaction value - falling in Q2 15. There was a surge in IPO activity, with three IPOs occurring this quarter. Although the level of activity in Q2 15 has increased with respect to Q1 15, it should be noted that Q2 15 levels are fairly moderate when compared to the corresponding period in FY14. CAPITAL RAISING With a total of 6 transactions, capital raising activity improved slightly in Q2 15 after a relatively quiet Q1 15. Several A-REITs including Charter Hall Retail Group (CHC) and Ingenia Communities Group (INA) looked to raise funds to fuel growth via acquisitions. M&A Mergers and acquisition activity in the A-REIT sector for Q2 15 remained strong with the total number of sell side transactions (19) equalling that of the preceding quarter, while buy side transactions increased from 9 to 23. Notable transactions included Charter Hall Group s (CHC) acquisition of a portfolio of properties worth $63 million while Goodman Group s (GMG) sale of a residential site in Erskineville figured at more than $35 million. Further M&A activity in the A-REIT sector is expected in FY15 with several A-REITs including Westfield Corporation (WFD) and Investa Office Fund (IOF) rumoured to be active participators in the forthcoming quarters. IPOs In stark contrast to the previous quarter in which there were no IPOs, Q2 15 saw three IPOs with Mustera Property Group Ltd (MPX) and Centuria Metropolitan REIT (CMA) listed in November and December respectively. The expected launch of a GPT metro fund as mentioned in the previous bulletin occurred successfully with the GPT Metro Office Fund (GMF) listing in October 214.

3 CAPITAL RAISINGS 2 The amount raised in Q2 15 surged to $372 million. TOTAL TRANSACTION VALUE ($ MILLION) Q2-214 Q3-214 Q4-214 Q1-215 Q In Q2 15 the number of transactions rose to a total of six, an increase of two on Q1 15. The total amount of equity raised increased by $26 million (124%). However, in comparison to the corresponding quarter in FY14, the amount of equity raised was $348 million less which represents a fall of 48%. NO. OF TRANSACTIONS AVERAGE ($ MILLION) Q3-214 Q2-214 Q3-214 Q4-214 Q1-215 Q2-215! Capital raising activity rose considerably in Q2 15, with 6 transactions totalling $372 million, however it should be noted that when compared to Q2 14, this level of activity is fairly moderate QUARTER 2 HIGHLIGHTS CHARTER HALL RETAIL GROUP In December 214, Charter Hall Retail Group (CHC) raised $235 million in equity following a private placement. The capital is expected to be invested in high quality, long WALE assets in a bid to fuel growth. INGENIA COMMUNITIES GROUP In October 214, Ingenia Communities Group (INA) raised $89 million following a placement and rights issue. It is expected that the proceeds will pay for three lifestyle parks across NSW, Canberra and Brisbane. HOTEL PROPERTY INVESTMENTS In October 214, Hotel Property Investments (HPI) raised $25 million via an institutional placement of ordinary shares. Proceeds from the offering will be used to fund the acquisition of Beenleigh Tavern, rebalance capital and to provide financial flexibility.

4 MERGERS & ACQUISITIONS The sector bounced back as the number of transactions increased by 5% in Q2 15. TOTAL TRANSACTION VALUE ($ MILLION) NO. OF TRANSACTIONS Q2-214 Q3-214 Q4-214 Q1-215 Q ,5 6, 5,5 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, Buy side activity in Q2 15 rebounded strongly; with the number of transactions more than doubling from 9 to 23. The total transaction value on the buy side increased by $1.5 billion (295%) on the previous quarter, and almost matches the total transaction value seen in Q2 14. Sell side activity in Q2 15 remained strong with the number of transactions (19) matching the level seen in the prior quarter. However, total transaction value did decrease by more than $5 billion in Q2 15. Though, it should be noted that Frasers Centrepoint s takeover of Australand Holdings for $4.26 billion would have inflated the total transaction value for Q1 15. Westfield Corporation s (WFD) divestment of UK based interests worth $1.58 billion would also have had a similar effect on total transaction value in Q1 15. In light of these factors, sell side activity in Q2 15 was not substantially lower than expected, particularly as total transaction value was only 13.2% lower than that of the corresponding quarter last year where total transaction value was recorded at $1.23 billion. 3 AVERAGE ($ MILLION) M&A BUYERS M&A SELLERS Q2-214 Q3-214 Q4-214 Q1-215 Q2-215 With 23 buy side transactions Q2 15 represents the most active quarter since Q2 14. The 19 sell side transactions seen in Q2 15 matched the previous quarter, however total transaction value fell to $1.7 billion. QUARTER 2 HIGHLIGHTS CHARTER HALL RETAIL GROUP Charter Hall Retail Group (CHC) in partnership with Hostplus completed the $63 million acquisition of a portfolio of hotels from ALH Group, which is wholly owned by Woolworths (WOW). The acquisition of the portfolio which consists of 54 properties will subsequently increase CHC s exposure to the hospitality sector. FEDERATION CENTRES Federation Centres (FDC) purchase of Mt Ommaney Shopping Centre in Brisbane from AMP Capital for $ million was the second largest buy-side transaction for the quarter. The transaction increases Federation Centres management GOODMAN GROUP Goodman Group s (GMG) sale of a residential site in Erskineville for $35 million was the largest sale by an A-REIT for the quarter. The sale of the business park is part of GMG s strategy to sell off a range of its assets for well above book value.

5 IPOs IPO activity in the A-REIT sector the highest since Q Quarter Company Name Date Listed Sector Q2 14 Australian Industrial REIT 21/1/213 Industrial Q2 14 Industria REIT Fund 3/12/213 Industrial Q2 14 Hotel Property Investments 1/12/213 Specialised Q2 14 GDI Property Group 17/12/213 Office Q2 14 National Storage REIT 19/12/213 Specialised Q3 14 Rural Funds Group 11/2/214 Specialised Q3 14 CFX Co Limited 12/3/214 Retail Q Capital Office Fund 23/4/214 Office Q4 14 Scentre Group 24/6/214 Retail Q4 14 Westfield Corporation 24/6/214 Retail Q2 15 Centuria Metropolitan REIT 1/12/214 Diversified Q2 15 GPT Metro Office Fund 24/1/214 Office Q2 15 Mustera Property Group Ltd 28/11/214 Diversified Q1 15 began without a single IPO. The sluggish start has not continued into Q2 15 with 3 companies listed on the ASX this quarter. The GPT Metro Office Fund (GMF), Mustera Property Group Ltd (MPX) and Centuria Metropolitan REIT (CMA) all underwent successful IPOs. GMF was listed in October 214 with a market capitalisation of $255 million. GPT hopes that the formation of GMF will further diversify the Group s sources of capital while also providing additional variety to the products it provides. CMA was listed in December 214 with a market capitalisation of $143 million. CMA will own industrial and commercial properties across Australia. MPX, the smallest of the IPOs, was listed on the ASX in November 214 with a market capitalisation of $17 million. NUMBER OF IPOs Q2 14 Q3 14 Q4 14 Q1 15 Q2 15

6 Distinctively different it s how we see you AUDIT TAX ADVISORY NEW SOUTH WALES NORTHERN TERRITORY QUEENSLAND SOUTH AUSTRALIA TASMANIA VICTORIA WESTERN AUSTRALIA This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. Each BDO member firm in Australia is a separate legal entity and has no liability for another entity s acts and omissions. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. BDO is the brand name for the BDO network and for each of the BDO member firms. 215 BDO Australia Ltd. All rights reserved. CF 15-1