A-REITs rally in a year of niche assets

A-REITs rally in a year of niche assetsReturns in Australia’s real estate investment trust sector were up almost four times the broader All Ordinaries Index over the 2015 financial year.The annual A-REIT survey from advisory firm BDO has found that niche property trusts are spearheading sector performance.The survey, now in its 21st year, examines and ranks S&P/ASX 200 A-REIT Index trusts based on key financial and investment indicators in the 12 months to 30 June 2015.ALE Property Group, which owns 86 pub properties across Australia, ranked highest, followed by Brisbane-based self-storage centre owner National Storage REIT and Australia’s largest listed property trust, Westfield Corporation.BDO’s national leader of real estate and construction Sebastian Stevens says earnings growth, asset valuation gains and the low cost of debt environment were key to recent success.”A-REITS delivered a total return of 20.2 per cent in the 12 months to 30 June 2015, up on the 11 per cent returned in FY14 and significantly higher than the 5.7 per cent returned in FY15 by the S&P ASX 200 accumulation index,” Stevens says.The 2015 BDO A-REIT survey again pointed to the dominance of niche A-REITs, with a number of top performers investing in non-traditional asset classes like pubs, storage, healthcare, education and childcare.Stevens says niche A-REITS are “attractive to investors due to their simplification and specialisation, often in sectors with sound growth prospects and less vulnerable to wider market fluctuations.”With continued competition for quality assets from both domestic and offshore markets, Stevens predicts that consolidation will be the favoured strategy of A-REITs looking to strengthen their portfolios, but cautions that trusts must “remain sufficiently conservative”.”In previous periods of stability and high yields, A-REITs have also turned to diversification into non-core activities such as funds management and riskier asset classes, however, trusts need to carefully consider how this strategy might expose them to increased volatility as the market changes,” Stevens says.Download the BDO 2015 A-REIT survey.