The Australian real estate investment trust (A-REIT) sector has rebounded strongly over the past 12 to 18 months, the research house stated, with the headline S&P/ASX 200 A-REIT Accumulation Index up 24.2 per cent in the 12 months to 30 June 2013.
Lonsec’s ‘actively managed’ peer group similarly recorded 24.1 per cent in the period, meaning the A-REIT sector outperformed both the global REIT sector and the broader Australian equity market over this time period, Lonsec stated.
The sector has now recovered from the losses experienced during the global financial crisis (GFC), according to the Lonsec Australian Listed Property Securities Sector Review, which covered 22 actively managed funds, five ‘passively managed’ funds and five ‘hybrid’ funds.
Lonsec senior investment analyst Peter Green said the three key factors contributing to the recent performance are the quest for yield, positive earnings outlooks and increased institutional interest.
“The global quest for yield in a low interest rate environment has had quite an impact, with offshore and local investors attracted to the sector by the strong distribution rate,” he said.
“This, coupled with the favourable earnings outlook across the A-REIT sector, has also underpinned recent investor support, with the sector awash with ‘cheap’ debt and equity that has significantly lowered the cost of capital and will allow A-REITs to accelerate their development pipeline.
“Finally, institutional interest has been a strong tail wind for listed fund managers such as Goodman Group and Charter Hall Group.”
The sector continues to repair its balance sheets and “unwind the aggressive capital structures” after prolonged issues coming out of the GFC, the report found. This includes selling non-core assets and exiting offshore property platforms.
“While these exhaustive efforts have led to A-REITs being able to raise their creditworthiness, the past continues to haunt fund managers in longer-dated returns,” Mr Green said.
“For instance, the Lonsec ‘active’ peer group still has a seven-year negative absolute return; therefore, the strong performance of the last 12 to 18 months is coming off a low base and the average long-term investor has underperformed the broader Australian equity market.”
