Researchers warn capital growth is drying up quickly across the domestic securitised property market as managers dip into their coffers to underwrite distributions.
Yields are at cyclical lows and underperformance relative to the benchmark is becoming more common, highlighting the importance of increased scrutiny, ratings agency Property Investment Research (PIR) said in a report released yesterday.
"Identifying sources of earnings growth becomes more problematic," PIR said.
"Capital growth is drying up quickly as yield tightening eases...in some limited cases yields are softening."
The ratings agency said managers who have not relied on leveraging off low interest rates, capital rate compression and financial engineering will be more likely to outperform.
"It may thus be those managers with the capacity to carry a quality portfolio and maintain its income quality...who see relative outperformance over the next phase of the cycle."
PIR said the best unit price performer last month in the domestic Real Estate Investment Trust (REIT) market was Macquarie Leisure Trust Group, up 6.18 per cent on September.
The worse performer was the GPT Group, which had a drop in unit price of 9.41 per cent.
Charter Hall Group is still on top of the ratings agency's total return rankings for LPTs with a total return of 91 per cent over the year to October 31, 2007.
It far outstripped APN/UKA European Property Group in second spot, with the group recording a much lower total return of 59.6 per cent for the past year, down from 76.1 as at September 30 reflecting some price depreciation over October.
Last week Charter Hall increased the portfolio value of its diversified property fund to more than $160.5 million following the purchase of a Sydney office-based property for $23.9 million.
PIR forecast the highest long-term growth rates will be seen within Macquarie Leisure Trust Group, Goodman Group and Westfield Group.
Yesterday Macquarie Leisure reported strong September quarter trading with growth across all six portfolios.
The group said the planned expansion of the WhiteWater World theme park and development of new AMF bowling and Goodlife gyms are expected to deliver annual earnings before interest, tax, depreciation and amortisation returns ranging from 20 per cent to 40 per cent.
