Modest A-REIT performance reflects stabilising property market

The outlook for A-REITs, or Australian real estate investment trusts, is modest, reflecting a stabilising property market.

The Australian listed real estate sector is currently trading an average discount to net tangible assets of -3.3%, according to Russell Investments.

News of the modest discount comes as a number of trusts report full-year distributions either in line with or slightly exceeding expectations.

Stockland Group, the third biggest A-REIT, will pay out 11.9¢ per ordinary stapled security for the six months to June 30, just above a forecast of 11.8¢.

Charter Hall, currently awaiting a vote on a management change, will pay a distribution of 16.5¢, compared with expectations of 16¢.

A share price at a substantial discount would indicate that “something was clearly going on”, Martin Lamb, director of Asia-Pacific Real Estate Investment, tells Property Observer.

But, he says, the current modest A-REIT discount suggests the market price is fair and reflects the current state of the property market in general.

“Property prices are stabilising,” Lamb says.

“We see future price appreciation driven by increasing incomes, a rise in occupancies followed by a modest rise in rents.

“The fundamentals of the market remain strong. The outlook for the economy is positive, if not exuberant. We are not anticipating price depreciation.”

Lamb says the current discount is a reflection of investor confidence – “noise has been introduced”.

“Forecasting investor sentiment is difficult. REITs trade in sympathy with the financial stocks.

“They can have a negative impact on REIT stocks, but don’t affect the underlying value of the properties held by the REITS,” he says.

Investors generally invest in REITS in expectation of a steady income and are generally not looking to make “deep value” capital appreciation plays, Lamb says.

REITs offer investors returns between 8% and 12%.

The A-REIT market is dominated by Westfield and Stockland, which combined account for more than 50% of its market capitalisation.



Company

Sector

Business Type

Market Capitalisation (US$, million)

Westfield Group

Retail

Investor

21,295

Westfield Retail Tst

Retail

Investor

8,424

Stockland

Diversified

Investor

8,582

Leighton Holdings

Diversified

Developer

6,866

GPT Group

Diversified

Investor

6,075

CFS Retail Tst

Retail

Investor

5,538

Goodman Group

Industrial

Investor

5,334

Lend Lease Group

Diversified

Developer

5,319

Mirvac Group

Diversified

Investor

4,621

Dexus Property Grp

Diversified

Investor

4,568

Commonwealth Office

Office

Investor

2,463

Investa Office Fund

Office

Investor

1,882

Charter Hall Office

Office

Investor

1,875

Australand Property

Diversified

Developer

1,761

Charter Hall Retail

Retail

Investor

1,104

BWP Trust

Retail

Investor

907

FKP Ltd

Diversified

Developer

835

Charter Hall Group

Diversified

Investor

681

Challenger DPG

Diversified

Investor

539

Peet

Residential

Developer

506

Ardent Leisure Group

Diversified

Investor

433

Thakral Holdings

Diversified

Investor

382

Total market cap

74,702

Source: UBS Global Real Estate Weekly Valuation

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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