Quality is key in an ‘oversold’ A-REIT sector
The sell-off in property has opened up some good buying opportunities in quality and alternate Australian Real Estate Investment Trusts (AREITs) investments, according to a Pengana portfolio manager.
Amy Pham, portfolio manager for the Pengana High Conviction Property Securities fund, Australia’s only high conviction A-REIT fund with an environmental, social and governance focus, said the A-REIT sector had been oversold despite the sector selling down -8% compared to -5% in the broader market.
“Valuations have remained buoyant and there are growing expectations rental collections will rise, and we will see improved visibility of earnings.” Pham said.
“Balance sheets generally look good, with the sector’s average gearing levels at 28%, supporting further growth through acquisitions and development.
“Earnings forecasts are also positive amid an improving economic backdrop.”
Pham said there were currently some outstanding quality Australian property stocks out there, including Charter Hall, Goodman, and Centuria, which recently upgraded their guidance and have the highest earnings growth in the sector.
Adding alternative real estate investments to portfolios provided additional opportunity to negotiate inflation and rate rises, according to Pham.
“The alternative sector is mainly driven by secular trends and is less cyclical, providing a potential hedge against inflation,” she said.
“Some of these assets are considered necessities, such as healthcare, childcare, and even data centres, which are all relatively well insulated against the cycle.”
If interest rates were to increase later this year, Pham said some investors might become more tempted to follow ‘yield traps’.
“We often see investors rush to higher yielding stocks during high inflation and higher interest rates. But chasing the yield could backfire if the quality is not there.
“The best way to protect property portfolios from inflation, interest rates, and volatility, is via high quality stocks and alternatives.”
AUTHOR
Liam Cormican
Recommended for you
Outflows from an Australian private markets fund manager have caused FUM at Pacific Current to decline by $1 billion in the last quarter.
Former RIAA chief executive Simon O’Connor has joined the ethical advisory panel at U Ethical Investors.
Financial services leaders are “all cashed up with nowhere to grow” when it comes to M&A activity, according to Deloitte, with 90 per cent saying they have strong balance sheets ready for an acquisition.
As fund managers are urged to diversify their product ranges, they are finding a faster way to do this is via an acquisition of existing firms but experts say it is not without potential culture clashes.
