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Brookfield Prime Property and ALE Property take out BDO AREIT honours

by December 13, 2016 General

Office towers, pubs, agriculture and healthcare investments took out line honours in the 22nd BDO Australian real estate investment trust survey.

The survey says AREITs delivered another strong 2016 financial year, with the S&P/ASX 200 AREIT index returning 24.6 per cent, following a 20.2 per cent total return in 2015 and an 11 per cent total return in 2014.

In the survey, Brookfield Prime Property Fund came in at number one with a net profit of $149.8 million followed by freehold pub property trust ALE Property Group. agricultural trust Rural Funds Group and Arena REIT.

Brookfield Prime Property Fund has a $644.5 million portfolio which includes a half share of 680 George Street and 50 Goulburn Street, Sydney and all of American Express House, 12 Shelley Street, Sydney.

Sebastian Stevens, the national leader, Real Estate & Construction at BDO, said compared to other sectors such as banking, where returns decreased by 10.4 per cent for the big four, and metals and mining returns decreased by 14.4 per cent, AREITs have again outperformed significant sectors in the past financial year.

The survey, now in its 22nd year, ranks the AREITs based on key financial and investment indicators in the 12 months to 30 June 2016. The low Australian interest rate environment continued to provide a significant boost to the sector as the market-enduring yields and solid returns proved attractive to investors.

“Although recent increases in global bond yields have seen a significant sell-down of AREITs and REIT markets in the US, UK, Singapore and Hong Kong, and despite the ongoing risk that increases in bond yields will continue to put pressure on the value of listed property stocks, AREITs should still be popular with investors because of strong underlying fundamentals,” Mr Stevens said.

This correlates with the Folkestone Maxim Asset AREIT Securities Fund which, over the 12-month period ended November 30 2016, returned 11.87 per cent, (after fees, before tax), outperforming the benchmark return of 10.31 per cent by 1.56 per cent.

Folkestone Maxim’s managing director Winston Sammut said overall, the AREIT sector remains in good shape.

“Balance sheets remain strong, with many AREITs using non-core asset sale proceeds to either pay down debt or to fund higher-yielding acquisitions or developments,” Mr Sammut said.

“Whilst the operational environment is mixed across the different sub-sectors, earnings certainty remains strong with the September quarter updates reiterating most AREITs to be on track to deliver earnings guidance for 2017 financial year.”

Mr Stevens said the current short-term market volatility did not stop AREITs being an attractive investment and continued low interest rates means there was likely to be ongoing success for the sector.

“Despite share price reactions to trends in other low-yield, low-risk investments, these foundations of AREIT investments are likely to remain stable; 2014 and 2015 saw the rise of the niche REITs, and this year four of the top 10 performing AREITs were again representing non-traditional asset classes, but the ‘traditional’ commercial property REITs have made a comeback with REITs such as Brookfield, GPT, Cromwell and Goodman making this year’s top 10.”