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
Clime Investment Management has faced shareholder backlash around “unsatisfactory” financial results and is enacting cost reductions to return the business to profitability by Q1 2025.
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
