Owning property in any form is perhaps a dream of every Australian, just like it is for a majority of us. Investment in the most secured asset comes with a hoard of advantages, like giving a sense of freedom (than having a rented place), hedge against inflation and tax benefits.
In this backdrop, we would discuss A-REITs (Australian real estate investment trusts) today, which provides the access to property assets for interested investors and have a look at five popular ASX-listed REITs. But before diving into these examples, let us break down the ASX REIT concept:
What are REITs?
A listed company, rather a real estate investment trust that owns land and further rents it out to gain profit is referred to as REIT. A-REITS usually are in diversified sectors, and fall into one of the following categories:
- Hotel and leisure trusts (invest in hotels, cinemas and theme parks)
- Diversified trusts (invest in industrial, offices, hotels and retail property)
- Industrial trusts (invest in warehouses, factories, and industrial parks)
- Retail trusts (invest in shopping centres)
- Office trusts (include medium- to large- scale office buildings)
They come with multiple benefits, such as:
- They provide access to assets that are otherwise beyond the reach of individual investors (like large-scale commercial properties).
- They are a great way to diversify an investors’ portfolio into property and provide a regular and consistent income stream.
- They disclose the true value of the real estate assets owned by the trust and depict the rental income and capital growth.
- REITs have a stable base of assets that need little ongoing expenses and are able to pass on their rental profits to shareholders (as dividends).
Are REITs A Good Investment Option?
This question has left Australians and foreign investors interested in the Australian market with dilemma since the past few months, due to the protracted property plummet and downturn of property prices. However, recent times have signaled better times ahead, as property prices seem to be in a rebound phase after the slump.
The market trend urges investors to believe that many of the A-REITs have seen strong returns over the last decade or so. In Australia, the retail sector has shown signs of slowing, there are record-low interest rates which have lowered the cost of borrowing and increased property prices higher. Considering this, experts believe that A-REITs bear the potential to deliver a strong dividend income in the months to come.
However, one should be wary of the fact that even though investment in A-REITs are a great mode to generate dividend income and diversify one’s portfolio, it is never risk-free, as with more leverage comes higher risk (and returns!).
Now that we are aware of the basics and stance of A-REITs in Australia, let us look at the 5 most popular REITs listed on the ASX:
Goodman Group (ASX: GMG)
One of the largest REIT in Australia and a favourite of listed property enthusiasts globally, GMG operates across ANZ, Asia, Europe, Brazil, North America and the UK.
The Group has had a phenomenal 2019 and recently produced a strong first quarter (for the three months to 30 September 2019), continuing its capital deployment in prime urban areas.
- With the overall consumer market subdued, GMG’s online sales continue to grow, reaching ~14% of total global retail sales (as at June 2019).
- The online share of the market has almost doubled over the last five years and projected to grow to 22% by 2023.
- For Q1 FY20, GMG had $48.2 billion total AUM and $4.2 billion of development work in progress. AUM increased on the back of demand-driven development workbook, strong underlying rental growth, continued high occupancy and tightening cap rates in most markets.
- In its operational update, the Group reaffirmed the forecast for FY20 operating earnings per security of 56.3 cents, up 9% on FY19.
(Source: GMG’s Operational Update)
Scentre Group (ASX: SCG)
With interests in over 41 centres, encompassing ~11,500 outlets and total AUM of $54.6 billion (as notified on 31 October 2019), SCG has been an attractive option to dividend investors, given its enticing annual dividend yield of 5.8%, and robust dividend payment history in the past five years. Experts state that the Group pays out over half its income as dividends, though its earnings growth has been mediocre.
In its Q3 FY19 (for the period ended on 30 September 2019) operational update, CEO Mr Peter Allen stated that the Group had witnessed continued growth in customer visitation demonstrating SCG’s focus on delivering what customers want. An average specialty store in its portfolio generates an annual in-store sales of over $1.52 million and remains on a growth trajectory.
Dexus (ASX: DXS)
One of Australia’s leading real estate groups, Dexus manages a high-quality Australian property portfolio valued at ~$31.8 billion, and invests exclusively in Australia, where it owns ~$15.6 billion of office and industrial properties. It is the largest owner and manager of office buildings in the country with $13.2 billion invested in its portfolio.
The Group has been gaining investor attention as its $8.7 billion development and concept pipeline provides the opportunity to grow portfolios and enhance future returns. Moreover, it has an enticing annual dividend yield of 4.33% (as on 14 November 2019), and a rock-solid payment history of a decade, even though few experts highlight that DXS has a meaningful amount of debt.
In October, the Group opened Dexus Place in Perth. It announced the FY19 full year distribution of 50.2 cps (in line with guidance and up by 5% on pcp) and delivered AFFO (Adjusted Funds from Operations) per security growth of 5.5% and a Return on Contributed Equity of 10.1%. In the year, the Group transacted $3.9 billion of properties and increased its office exposure in core markets.
GPT Group (ASX: GPT)
GPT is one of the major diversified group of Australia and is rated in one of the top 50 ASX listed company through market capitalisation. The Group delivered strong leasing outcomes across the Office and Logistics portfolio and continues to progress on its strategy to grow its Logistics portfolio, as per the September 2019 quarter update. The Retail portfolio remains highly productive with specialty MAT sales of $11,546 psqm, depicting a growth of 0.5%.
Recent recovery in Melbourne and Sydney house prices, along with the personal income tax cuts and lower interest rates are likely to support retail conditions, which would be beneficial for GPT.
Vicinity Centres (ASX: VCX)
VCX is amongst Australia’s leading retail property groups with a fully integrated asset management platform. It has ~$26 billion in retail AUM across 66 shopping centres, which make it the second largest listed manager of Australian retail property. In FY19, VCX delivered a net profit of $346 million, driven by steady underlying growth and development completions, and gearing was 27.1% (as at June 2019), within the target of 25-35%.
The Company is well-positioned for growth and to create long term sustainable value for securityholders as:
- Chadstone remains Australia’s #1 retail asset for the 18th consecutive year (over $2.2 billion in sales, and 24 million visitors yearly).
- VCX has a highly sought-after portfolio of premium CBD centres in Melbourne, Sydney and Brisbane.
- The Company owns Australia’s #1 Outlet Centre portfolio.
- Regarded as the #1 shopping centre landlord in Australia for luxury.
We leave with a check list to help tap REIT investments:
- Compare returns
- Know the management
- Understand associated risks
- Liquidity of trade
- Franking credits and distributions
- Volatility of the share price
- Valuations and how often are they undertaken
- Gearing and how heavily geared is the investment
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