Differences in AREITs’ structure bring varied results
The differences in the way Australian real estate investment trusts (AREITs) are structured were one of the main reasons for large dispersions in fund outcomes, according to Zenith Investment Partners.
Zenith’s 2019 Property Sector Report found that the Australian REIT market had a more relaxed approach of how AREITs could generate earnings by allowing them to hold some exposure to development and funds management.
Additionally, due to their defining characteristics the AREIT market could result in some unexpected outcomes at various points of both the property and economic cycles.
“The differences across AREIT structures, fund objectives and manager’s risk appetite for more volatile/non-property earnings can and has resulted in large dispersions in fund outcomes at certain points in the market cycle,” Zenith’s head of property and listed strategies, Dugald Higgins, said.
“As a result, amongst Zenith’s rated AREIT funds, median performance dispersion relative to the market benchmark reached its highest level in 20 years.
“Given the differences in approaches and objectives, some funds are less able to participate fully in the momentum being generated in the index by stocks which are viewed as being less property-like.”
Although the 12 months to 31 May 2019 were positive for AREITs, with the S&P/ASX 300 AREIT Accumulation Index returning 14.3 per cent and the FTSE EPRA/NAREIT Developed $A (Hedged) Index returning 10.6 per cent, the last two years were challenging for some of Zenith’s rate AREITs, the firm said.
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