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.

Source: UBS Global Real Estate Weekly Valuation