Although global real estate investment trusts (REIT) have gained popularity among real estate investors over the past decade, Amy Pham, fund manager at Pengana Capital Group, has highlighted several compelling reasons to refocus on Australian options.
Appearing in a recent webinar, Pham, who serves as portfolio manager of the Pengana High Conviction Property Securities Fund, said it boils down to quality over quantity.
“The reason why people have chosen to go with G-REITs in the last 10 years or so has been the concentration of the A-REIT benchmark. It’s got only 30 stocks and Goodman contributes more than 35 per cent of the benchmark,” she said.
However, when examining performance over the past 5, 10, and 15 years, A-REITs have consistently outperformed G-REITs, Pham noted.
“There’s a number of reasons for this. Firstly, it goes back to quality. I think the assets that sit in A-REITs are higher quality than G-REITs. If you look at, for example, the office sector, the office assets that sit in the A-REIT portfolio is predominantly A grade and premium grade. Whereas if you compare this to the US, they tend to be broader, and invest in secondary markets, like the B and C grade,” she said.
In the event of sector weakness, as seen in recent years following the pandemic when the office sector faced significant pressure, Pham emphasised that quality assets still outperformed.
She also noted a divergence between the dividend yield of both offerings.
“People invest in real estate for dividend yield and the dividend yield of A-REITs is a lot higher than G-REITs, at 6 per cent versus 4 per cent. The reason for this is that in the last 10 years, G-REITs have expanded to more operational-based sectors such as development, hotels, and storage,” she said.
Moreover, macroeconomic factors, like interest rates, have played a role, making A-REITs more appealing than their global counterparts.
“The gearing of A-REITs, on average, is a lot lower, at 27 per cent versus G-REITs at 40 per cent. Particularly in the last two years where you have this sharp rise in interest rates, causing the cost of debt to double, it has less of an impact for A-REITs because it’s lower geared,” Pham said.
Additional factors for those seeking a global REIT portfolio, she said, include managing currency as well as geopolitical risk.
Earlier this month, new research from Preqin suggested real estate in the Asia-Pacific region, including Australia, is set for a rebound. It forecast a return of 7.1 per cent between 2023 and 2029, compared to 3.5 per cent in the 2020 to 2024 period.
Amid uncertainties in China’s property market, investors are increasingly shifting their focus towards core, core plus, and value-added strategies in markets like Japan, Australia, and South Korea, Preqin observed, in the hunt for greater stability and yield.
“Furthermore, global diversified funds not bound to an APAC-only mandate are also increasingly chiming in, which helps support deal flow and liquidity in the market,” the report said.
