Australian real estate investment trusts (AREITs) have benefitted from volatile equity markets, however investors should understand risks, according to SG Hiscock & Company’s director and portfolio manager, Grant Berry.
At the same time, he stressed investors should understand the sources of income for REITs, particularly as the property cycle reached its later stages.
“Investors should be aware that many AREITs undertake other activities such as development and third-party management, which create additional sources of income, but which may be vulnerable in the late stage of the cycle,” Berry said.
“At the moment, there is considerable pricing dispersion within AREITs and, on our analysis, this is at the widest level since the global financial crisis. Investors therefore need to ensure they fully understand the current risks as well as the opportunities within the sector.”
Since AREITs represented the real nature of real estate and if gearing was low they offered real assets supporting value, they became an attractive option for investors who both sought stable income as well as capital growth.
According to Berry, across the property sector, some trusts had more investment support than others – in particular, industrial and office-focused REITs. Rental growth, however, was more short-term than long-term which would lead to increased supply.
“At the other end of the spectrum, we are also observing high quality and lower risk groups trading at discounts to their asset backing, which we believe provides a real opportunity,” Berry said.
The chart below showed the performance of the SG Hiscock Property Opportunities fund against the ACS Property – Australia Listed sector average and S&P ASX 300 A-REIT (Sector) index since inception.