Although global real estate investment trusts (REITs) have grown in popularity among property investors over the past decade, Amy Pham, fund manager at Pengana Capital Group, has highlighted several compelling reasons to refocus on Australian options.
During a recent webinar, Pham, who is portfolio manager of Pengana High Conviction Property Securities Fund, said it comes down to quality rather than quantity.
“The reason people have chosen to go with G-REITs over the last 10 years is the concentration of the A-REIT benchmark. It only has 30 stocks and Goodman contributes more than 35 percent to the benchmark index,” she said.
However, looking at performance over the past 5, 10 and 15 years, A-REITs have consistently outperformed G-REITs, Pham noted.
“There are several reasons for this. First, it comes down to quality. I believe the assets in A-REITs are of higher quality than in G-REITs. If you look at, for example, the office sector, the office assets that make up the A-REIT portfolio are primarily A-grade and premium. Whereas if you compare that to the US, they tend to be broader and invest in secondary markets, like B and C,” she said.
In the event of sector weakness, as has been the case in recent years post-pandemic when the office sector faced significant pressures, Pham emphasized that quality assets still outperform.
She also noted a discrepancy between the dividend yield of the two offers.
“People invest in real estate for the dividend yield and the dividend yield of A-REITs is much higher than that of G-REITs, at 6 percent versus 4 percent. The reason is that over the last 10 years, G-REITs have expanded into more operational sectors such as development, hospitality and storage,” she said.
Additionally, macroeconomic factors, such as interest rates, have played a role, making A-REITs more attractive than their global counterparts.
“The debt ratio of A-REITs, on average, is much lower, at 27 percent, compared to 40 percent for G-REITs. Particularly over the last couple of years, where we’ve had this sharp rise in interest rates, which has resulted in a doubling of the cost of debt, it’s had less of an impact on A-REITs because they’re less leveraged.” , Pham said.
Other factors for those looking for a global REIT portfolio, she said, include managing foreign exchange risks as well as geopolitical risks.
Earlier this month, new research from Preqin suggested that real estate in the Asia-Pacific region, including Australia, was poised for a rebound. It forecasts a return of 7.1 percent between 2023 and 2029, compared to 3.5 percent over the period 2020 to 2024.
Amid uncertainties in China’s real estate market, investors are increasingly turning to core, core plus and value-added strategies in markets like Japan, Australia and South Korea, Preqin observed , looking for greater stability and better performance.
“In addition, global diversified funds that are not tied to an APAC-only mandate are also increasingly involved, helping to support deal flow and liquidity in the market,” the report said.
