Australand’s development on Australis Drive in Derrimut in Melbourne. Australand is one of Citi’s top A-REIT picks. Photo: Erin Jonasson
For equity investments meant to be boring and safe, Australian real estate investment trusts (A-REITs) have taken their supporters for a real roller-coaster ride over the past few years.
First there was the early-2000s shift into riskier territory as the A-REITs – for years content to be passive landlords – fought for attention with frothier parts of the market.
As investors learnt from bitter experience, strategic moves into the lucrative business of property management and development – not to mention loading up on debt and buying office towers in fly-over states of the US – were beyond the skill-set of most A-REIT boards.
The sector has rebuilt itself from the ashes of the global financial crisis and won back something of its reputation for steady-yielding reliability.
The sector has rebuilt itself from the ashes of the global financial crisis and won back something of its reputation for steady-yielding reliability, and although major volatility in the sector this year may give some investors pause, a consensus among analysts is emerging that A-REITs
remain a good bet.
The sector enjoyed an all-time record month in April, up 8.2 per cent. Even though the sector has given back more than $8 billion in the last couple of weeks as it fell 10 per cent, the listed landlords are still up 30.8 per cent over the past 12 months.
The reasons for the rally haven’t gone away – global investors hungry for yield will still find plenty to like among stocks like Colonial First State Retail Property Trust and Westfield Retail Trust, both yielding in the neighbourhood of 7 per cent.
The price drop has prompted analysts like those from Citi to upgrade their outlook for A-REITs, with the added bonus that a recent spate of capital raisings has come and gone – diluting existing investors but providing an ideal entry point.
Citi’s top A-REIT picks include Australand (once its major Singaporean investor has sold out), turnaround story Federation Centres, industrial developer and manager Goodman Group, and Stockland, its top pick with a forecast 28 per cent total return over the next year as the developer benefits from a recovery in new housing markets across Australia as lower interest rates progressively lift demand.