Property sector plays

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Director of Research, Senior Analyst
Date posted:
30 March 2015, 12:46 PM
Sectors Covered:
Property

After a stellar run in 2014, the property sector continues to perform as it delivers a total return of around 7.5% over the past quarter (versus the broader market total return of around 8.3%). Key drivers of the performance remain in place with the ongoing low interest rate environment, the search for yield and Mergers & Acquisition (M&A) activity which we expect to continue in 2015.

Our preferred REIT exposures

  • Industrial exposure - 360 Capital Industrial Fund (TIX) - the lease expiry profile is strong at 5.8 years and the distribution yield is around 8% paid quarterly (FY15 and FY16 DPS guidance provided).
  • Office exposure - Cromwell Property Group (CMW) - a five year weighted average lease expiry and a track record of managing cycles (net seller of assets over the past 12 months) which we believe will help buffer against near term challenging office markets (the yield remains attractive at around 7% paid quarterly). CWM now has exposure to offshore funds management via its recent acquisition of Valad Europe (increasing funds management earnings to around 14% this year).

In addition, we continue to prefer REITs with exposure to niche sectors with high barriers to entry:

  • Data Centres - APDC Group (AJD)
  • Healthcare - Generation Healthcare REIT (GHC)
  • Self-Storage - National Storage REIT (NSR)

Our preferred retail exposure remains Federation Centres (FDC) which we recently added to our High Conviction list following the announcement that it proposes to merge with Novion Property Group. The new merged entity will be a top 30 stock with a market cap of around $11 billion and the third largest REIT with $22 billion of assets under management. Given the increased size and scale we expect the merged group will become meaningful for both offshore and domestic investors. The deal is expected to be highly accretive and we expect it will deliver a yield of around 6%.

For diversified exposure we continue to prefer Stockland Group (SGP) which has good leverage to the residential markets.

For global exposure we highlight Westfield Corporation (although we note WFD not for pure yield investors).

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(s): Analyst may own shares in some or all of the companies discussed.

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.

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