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UPDATE 2-Australian property listing sunk as investors lose faith in sector
October 18, 2016 / 11:46 PM / a year ago

UPDATE 2-Australian property listing sunk as investors lose faith in sector

* Charter Hall pulls IPO on expected listing date

* Cites lack of institutional buyers

* Investors “nervous”, deal too expensive - fund managers

* Australia central bank warning on property supply glut (Recasts, adds fund manager quotes, context)

By Tom Westbrook

SYDNEY, Oct 19 (Reuters) - A projected A$1.12 billion ($859 million) Australian property trust listing was priced too high to attract big investors, fund managers said on Wednesday, as confidence drains out of a sector that Australia’s central bank has warned faces a supply glut.

Parent company Charter Hall Group said it abandoned the initial public offering because of a lack of institutional support. The move comes less than a week after the Reserve Bank of Australia said a booming supply of new apartments supply could raise risks for banks lending to the sector.

“Investors are feeling a bit more nervous towards the sector,” said Hugh Dive, a senior portfolio manager at Aurora Funds Management. “I’ll have a look at it again if it comes out more attractively priced.”

Charter Hall, one of Australia’s smaller listed property companies, said it would now consider alternative options for the properties that were to be in its Long WALE real estate investment trust (REIT) portfolio. The firm owns 296 properties altogether, valuing them at a total of A$17.5 bln.

Australia’s real estate market has been on a tear since mid-2012, with house prices across capital cities increasing 41 percent since then and surging office-tower prices in Sydney and Melbourne delivering record profits to listed developers.

But since Charter Hall began marketing the trust - comprising 66 retail, commercial and industrial properties - to fund managers in August, Australia’s REIT index has tumbled 10 percent. At the same time bond yields, seen as an alternative asset class, have surged 21.1 percent.

Viva Energy Reit, a similar property trust which owns a portfolio of 425 petrol stations, listed on the Australian Securities Exchange in August and its share price has since fallen 7 percent since.

“It was not a favourable backdrop,” Tim Church, head of real estate investment banking at UBS and the lead manager for the float’s bookbuild. “We’re just being very judicious about not wanting to issue this thing so it trades soggily, if we’re not happy with levels of support.”

Church said the REIT would likely be repriced, boosting its yield from the promised 5.3 percent, and then brought back to the market, but he did not say when.

The REIT’s portfolio is mostly located on Australia’s east coast, but also in state capitals Adelaide and Perth, with properties leased to government and corporate tenants. ($1 = 1.3045 Australian dollars) (Reporting by Tom Westbrook; Editing by Stephen Coates and Kenneth Maxwell)

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