Distribution payout practices and the collapse of A-REITs

Publication Type:
Journal Article
Pacific Rim Property Research Journal, 2011, 17 (4), pp. 598 - 613
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In the lead up to the Global Financial Crisis, A-REITS pursued aggressive distribution practices. Payout ratios significantly in excess of 100% of underlying earnings became common place, funded largely from increased borrowings. The GFC painfully exposed the unsustainability of this practice. A-REITs were punished when the global debt markets froze and property values crashed, leading to massive equity destruction for over geared A- REITs.This research explores the pre-GFC distributions practices of A- REITs. Annual report financial data analysis and semi-structured interviews with five industry experts were conducted to examine A-REIT distribution practices. The results reveal a clear systematic decline in the relationship between underlying earnings and distributions. It is further discovered that the since abandoned practice of distributing un-realised profits was designed to boost share prices. Paradoxically, it eventually led to their decline and the A-REIT sector's demise.
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