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A-REITS Snapshot – Where to Find Value Right Now
An Australian real estate investment trust (A-REIT) is a company that owns and (generally) operates a portfolio of income-producing real estate. A-REITS meet certain regulatory guidelines, are listed on the Australian stock exchange and acquire the majority of their earnings from rent.
Despite a significant uplift in real estate values since the GFC (The A-Reit Index has surged over 147% since the GFC low on March 6, 2009), there are a few REITS which are trading at a discount to independently assessed net tangible asset value (NTA) per share.
|Name||Symbol||Last Price||Net Tangible Assets/Share||Premium/Discount to NAV|
|Charter Hall Group||CHC||6.41||3.69||+73.71%|
|Charter Hall Long||CLW||4.25||4.02||+5.72%|
|Charter Hall Retail Reit||CQR||4.275||4.19||+2.03%|
|Investa Office Fund||IOF||5.1||4.95||+3.03%|
|OneMarket||OMN||1.32||(listed 31 May 2018)|
|Shopping Centres Australasia||SCP||2.465||2.23||+10.54%|
|Unibail Rodamco Westfield||URW||14.58||(Recent Merger)|
|Viva Energy Reit||VVR||2.04||2.19||-6.85%|
Three REITS in the ASX200 are trading at discounts to NTA/share:
- Vicinity Centre
- Viva Energy
These respectively yield 5.15%, 6.12% and 6.47%, all substantially greater than the RBA cash rate of 1.5%.
If a REIT is not trading at a premium to NTA, this indicates that the market places no value on the asset management business itself. Despite superb past performance for the entire index, there are always opportunities available to investors to take advantage of asset mispricing.
Our top picks
Our current top three A-REIT picks are:
- GGPT Group (GPT)
- Charter Hall Long WALE REIT (CLW)
- Dexus Property (DXS).
GPT Group is one of Australia’s largest diversified property groups and a top 50 ASX listed company by market capitalisation ($9.1 billion). GPT owns and manages a portfolio of offices, logistics, business parks and prime shopping centres across Australia. It has a substantial investor base with more than 35,000 shareholders. It pays a 4.9% dividend yield (CapIQ). We believe that GPT’s diverse portfolio coupled with its practically nil premium to NTA and conservative growth strategy makes it a great long-term investment.
Charter Hall Long WALE REIT
Charter Hall Long WALE REIT invests in high quality Australasian real estate assets that are predominantly leased to corporate and government tenants on long term leases, thus minimising vacancy risk for investors. It has a market capitalisation of $992 million. The REIT is managed by Charter Hall Group, one of Australia’s leading property groups, with over 25 years’ experience managing high quality property on behalf of institutional, wholesale and retail clients (CapIQ). The REIT pays a 2.7% dividend yield. It floated in November 2016 and has appreciated 10.44%. We believe it is a great defensive play for investors looking for a low risk alternative to term deposits.
Dexus is one of Australia’s leading real estate groups, proudly managing a high quality Australian property portfolio valued at $24.9 billion. It has a market capitalisation of $10.1 billion, thus making it a member of the ASX 50 member. Dexus directly owns $12.2 billion of office and industrial properties. It manages a further $12.7 billion of office, retail, industrial and healthcare properties for third party clients. The group’s $4.3 billion development pipeline provides the opportunity to grow both portfolios and enhance future returns (CapIQ). Dexus have a proven track record in capital and risk management, having delivered superior risk-adjusted returns for investors. It pays a 4.9% dividend yield. Similarly to our thesis for the GPT Group, we believe its diverse portfolio and stable earnings growth will continue to deliver strong returns to shareholders.
Disclaimer: This is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.