- Australian REIT's are down by as much as 8% this year
- Amy Pham argues these have been 'oversold'
- With interest rate rises expected this year, she warns against the 'yield trap'
While navigating high inflation and interest rate rises expected to rise later this year, many Australian real estate investment trusts (REIT) are recovering from a sell-down in the earlier part of this year.
The broader Australian market is down by about 5%, Australian REIT’s are still down by as much as 8%. There are 49 listed A-REIT companies.
However, this sell-off has opened up some good buying opportunities, according to Amy Pham, Portfolio Manager for the Pengana High Conviction Property Securities Fund, Australia’s only high conviction property securities fund.
Ms Pham said the A-REIT sector has been oversold given the underlying strengths of the sector.
“Valuations have remained buoyant and there are growing expectations rental collections will rise, and we will see improved visibility of earnings.
“Balance sheets generally look good, with the sector’s average gearing levels at 28%, supporting further growth through acquisitions and development.
Amy Pham, Pengana High Conviction Property Securities Fund, Portfolio Manager
“Earnings forecasts are also positive amid an improving economic backdrop.”
In particular, Ms Pham noticed that many have improved their position across the pandemic.
“There are currently some outstanding quality stocks such as Charter Hall, Goodman, and Centuria, which recently upgraded their guidance and have the highest earnings growth in the sector.”
Indeed Centuria recorded very strong HY22 results, as did Charter Hall’s Long WALE REIT.
She added that investing in alternative real estate investments provides ample opportunity to negotiate inflation and rate rises.
“The alternative sector is mainly driven by secular trends and is less cyclical, providing a potential hedge against inflation.”
“Some of these assets are considered necessities, such as healthcare, childcare, and even data centres, which are all relatively well insulated against the cycle.”
Interest rates to rise
Almost agreed on universally, the Reserve Bank (RBA) is expected to raise interest rates several times over by the middle of the year. While some investors may follow ‘yield traps’ and rush to higher yielding stocks during periods of higher inflation and interest rates.
“But chasing the yield could backfire if the quality is not there.
“The best way to protect property portfolios from inflation, interest rates, and volatility, is via high quality stocks and alternatives.”
