REIT reporting season wrap

About the author:

Author name:

By Fiona Buchanan

Job title:

Co-Head of Research, Senior Analyst

Date posted:

02 September 2014, 11:20 AM

Sectors Covered:

Property, AREITS

The sector has performed well year-to-date delivering a total return of c20% buoyed by M&A activity and investor demand for yield as interest rates remain low. In August, the sector also outperformed returning +4.6% (vs +1.7% for the ASX 200).

Reporting season: guidance well flagged

There weren't too many negative surprises with guidance well flagged. Residential players reported very strong results with improved margins and volumes. Groups with Funds Management operations also reported good growth. Rental growth was modest and cap rates for assets with good covenants generally compressed leading to NTA increases.

Outlook: increasing FY15 distributions

REITs continue to benefit from low interest costs, balance sheets are in good shape and most have guided for higher FY15 distributions:

Management however, remain cautious on the operating environment. Most groups expect cap rates to tighten further in the next 6-12 months for assets with long leases.

Preferred REIT exposures

• TIX, BWP and IDR - good quality industrial property has a favourable near-term outlook with ongoing tenant demand driven by internet retailers and businesses looking to upgrade their logistics infrastructure.
• CMW - a 5 year WALE and a track record of managing cycles which we believe will help buffer against near term challenging office markets.
• AJD (data centres), GHC (healthcare) and NSR (self-storage) - REITs with exposure to niche sectors/high barriers to entry.
• FDC - our preferred retail exposure.
• SGP - our preferred diversified exposure with good leverage to residential markets.
• WFD - offers global exposure to the US and UK but does lack yield.

More information

Morgans clients can access our detailed research on REITs under coverage. If you are interested in finding out more, please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.