The year ahead for A-REITS
Australian real estate investment trusts (A-REITs) may provide better opportunities than their overseas counterparts, according to recent research.
A report from corporate advisory firm BDO Kendalls found the poor performance of overseas property assets was a major contributor to the negative returns experienced by A-REITs during the 2008-09 financial year.
The BDO Kendalls report found that trusts that focused primarily on domestic properties outperformed their international counterparts over the past year.
Meanwhile, funds management group Legg Mason said it also sees greater opportunities in the Australian REIT market compared to offshore. Legg Mason property securities portfolio manager Ashton Reid said: “despite more opportunities in global markets, active management is rewarded most at the domestic level”.
Furthermore, domestically focused investments “avoid the potential macro and currency pitfalls of going into offshore property,” Reid’s report stated.
He also points to suspended distributions in many global REIT investments, saying this “raises ongoing questions about how well global REITs can fulfil their role of providing stable yield”.
A recent review of 62 Australian property securities funds by research house Standard & Poor’s awarded no five-star ratings. The sector remains highly concentrated with just 16 stocks in the S&P/ASX 200 A-REIT Index and 22 in the S&P/ASX 300 A-REIT Index, S&P said.
Ward said A-REITs are now “adopting a more conservative footing, with less reliance on equity-like cash flow sources and a greater reliance on rental cash flows”.
“Gearing levels are more appropriate and dividends are better aligned with underlying free cash flow,” Ward said.
According to Ward, “the sector is expected to be driven more by real estate fundamentals than balance sheet, liquidity, and credit-related issues” over the coming year.
Ward also pointed to further changes in the A-REIT sector over the coming year, including initial public offerings and merger and acquisition activity.
Recommended for you
Several wealth management companies have been shortlisted in the second annual Australian AI Awards program, which champions individuals and organisations pioneering Australian AI innovation.
Women are expected to inherit US$124 trillion through the intergenerational wealth transfer, but Capital Group has found they are twice as likely to rely on social media for advice over a financial adviser.
Challenger Investment Management has raised $350 million during the offer period for its new ASX-listed investment structure.
A week after Lonsec downgraded multiple funds from Metrics Credit Partners, rival research house Zenith Investment Partners has opted to retain its ratings for the same funds.
