Real Estate Investment Trusts (REITs) is a diversified and professionally managed portfolio of real estate assets which allows investors to gain access to a property portfolio including commercial, industrial, retail or a mix of real estate assets which would otherwise be unavailable to an individual investor. With interest rates still at historic lows, investors are always on the look-out for income alternatives other than more traditional and direct assets such as cash, term deposits and bonds. One alternative is REITs, that are now a days looking more favourable than they were.
REITs offer liquidity, a stable yield, the potential for capital growth over time, and access to a wide range of different asset types.
Let’s take a look at the following three Australian Real Estate Investment Trust with market capitalisations of more than AU$ 2 billion.
Abacus Property Group
Abacus Property Group (ASX: ABP) is a diversified property investment group providing exposure to a portfolio of commercial, retail, and industrial properties. The Group also offers mortgage investments, development syndicates and property funds management services. Through ongoing investments, it is focussed on delivering strong income and capital growth.
Today on 6 June 2019 (AEST 12:42 PM), the ABP stock last traded at AU $ 4.120, climbing up 3.258% by AU$ 0.130 with ~ 1,191,925 shares traded. Besides, ABP stock has generated a positive YTD return of 22.39%. Abacus Property Group has a market cap of ~ AU$ 2.32 billion and approximately 580.55 million outstanding shares. The Group’s annual dividend yield also stands at 4.57%.
The Group announced on 4 June 2019, that the consortium comprising Abacus Property Group and Charter Hall Group (ASX: CHC) had purchased a 19.9% strategic interest in Australian Unity Office Fund (ASX: AOF) for a consideration of $ 95.6 million (reflecting a value of $ 2.95 per AOF unit). The consortium has also proposed to Australian Unity Investment Real Estate Limited (AUIREL), the Responsible Entity of AOF, to acquire all of the issued units in AOF that it does not already hold for $ 2.95 each, via a trust scheme. The Board of AUIREL would create an independent committee to consider the above indicative Proposal.
According to Abacus Property Group’s half-year results for the six months ended 31 December 2018, the Group recorded a statutory profit of AU$ 127.8 million, up 9% on AU$ 117.5 million in the prior corresponding period. A snapshot of key financial metrics for the first half of 2019 is given below:
Source: HY19 results presentation
As of the end of the concerned period, the Group’s commercial portfolio was valued at around AU$ 1.365 billion (AU$ 33.8 million FFO contribution) while the self-storage portfolio was valued at around AU$ 835 million (AU$ 23.6 million FFO contribution)
Charter Hall Group
Charter Hall Group (ASX: CHC) is one of Australia’s leading fully integrated property groups, with around $ 28.4 billion high quality, long leased property across the office, retail, industrial and social infrastructure sectors. The Group has offices in Sydney, Melbourne, Brisbane, Adelaide and Perth as well as overseas. The Group has a $ 5.3-billion of development pipeline that would create new assets for the investors, improving future returns, while creating opportunities for its tenant partners.
With a market capitalisation of around AU$ 4.86 billion and approximately 465.78 million outstanding shares, the CHC stock last traded today (6 June 2019) at AU$ 10.960, edging up 5.081% by AU$ 0.530 with ~ 2,266,527 shares traded.
Recently, Commonwealth Bank of Australia and its related bodies became a substantial shareholder in Charter Hall Group upon purchase of 23,318,055 fully paid stapled securities, representing a voting power of 5.01%.
The Group released its half-yearly results for the six months ended 31 December 2019, whereby its funds management portfolio looks as depicted below:
Source: Annual Presentation to Macquarie Conference
The operating earnings of AU$ 107.5 million and OEPS post-tax of 23.1 cps were recorded for the period, both up 13.0% on prior corresponding period (pcp). The statutory profit after tax amounted to AU$ 133.5 million, also up 10.7% on pcp.
Given the strong performance and level of transactions in the first half and based on no material change in current market conditions, the Group’s FY19 guidance has been increased to 14%-17% growth in post-tax operating earnings per security over FY18. Besides, the distribution payout ratio is expected to be between 70% and 95% of operating earnings per security post-tax.
Goodman Group (ASX: GMG) is an integrated property group with operations across New Zealand, Australia, Europe, Asia, the UK, North America and Brazil in South America. Goodman holds an extensive global property expertise. Its integrated (own+ develop+ manage) customer service offering along with an investment management platform helps in delivering innovative property solutions for clients.
With a market capitalisation of around AU$ 24.58 billion and approximately 1.81 billion outstanding shares, the GMG stock last traded today (6 June 2019) at AU$ 14, edging up 3.321% by AU$ 0.450, with ~ 3,614,820 shares traded.
Recently, the Group released its operational update for the third quarter ended 31 March 2019 (Q3 FY19), whereby it has delivered a strong operating performance.
As of the given quarter, the Group’s total assets under management amounted to $ 44.1 billion with a 3.3% like-for-like NPI growth in its managed Partnerships. The occupancy rate was around 98% across the Group and Partnerships. Of the $ 3.7 billion worth of total development work in progress, about $ 2.4 billion of development work began during the quarter with 83% undertaken in Partnerships.
Goodman Group’s strategic focus on infill markets where demand is ever increasing, has propelled the work in progress (WIP) to increase to $ 3.7 billion across 69 projects with a forecast yield on cost of 7.1% at 31 March 2019. Going forth, there are multiple high-value projects in the pipeline, and Goodman Group estimated that the WIP would grow more than $ 4 billion by the end of June 2019 quarter.
Source: Annual Goodman Q3 FY19 Operational Update
Given the positive outlook for development completions and portfolio returns, the AUMs are estimated to grow over $ 45 billion in June 2019 with continued trend in the coming few years. This is expected to support substantial revenue growth combined with the Group’s underlying Partnership performance.