23 October 2012
A combination of earnings uncertainty in the broader market, lower interest rates and increasing acceptance of the secure income streams they provide is creating a positive environment for the A-REIT sector, according to Phoenix Portfolios Managing Director Stuart Cartledge.
In his latest quarterly report to investors in Cromwell Phoenix Property Securities Fund, Mr. Cartledge said recent events were putting the A-REIT sector back on investors’ radars.
"In an environment where many companies across the broader share market are revising earnings forecasts downwards, A-REIT income streams look relatively secure," he said. "When this is combined with the strong balance sheets that now dominate the investment universe, it is not surprising to see renewed investor enthusiasm in the sector."
He said declines in the cash rate were also likely to drive investor demand for alternative sources of income.
"We expect that property valuations are likely to rise over the next 12-18 months as the relative spread between capitalisation rates and interest rates compresses from historically wide levels," he said.
"Despite the recent strong rally, the A-REIT sector trades on an earnings yield in excess of 7% for the fiscal year ending June 2013. Post the dramatic rally in Australian government bonds this still represents a premium to the ten year government bond yield of approximately 4%.
"With the exception of Westfield Group and Goodman Group, both of which have substantial development and funds management activities embedded within their structures, the majority of A-REITs continue to trade at small discounts to book value."
The Cromwell Phoenix Property Securities Fund is an unlisted fund that gives investors exposure to a diversified portfolio of predominantly ASX listed property securities (A-REITs) selected by its investment manager Phoenix Portfolios Pty Ltd. It aims to provide a total return (after management fees) in excess of the S&P/ASX 300 A-REIT Accumulation Index while delivering lower total risk (as measured by volatility of returns) over the medium to long term.