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10 largest Australian REITs to watch

An overview of what constitutes a Real Estate Investment Trust (REIT), with a rundown of Australia’s ten largest REIT offerings and their strengths.

Real Estate Investment Trusts (REITs): what you need to know

REITs are investment products that give investors exposure to the property market. Australian REITs are listed on the Australian Stock Exchange (ASX) and are known as A-REITs. The S&P/ASX 200 A-REIT index tracks the performance of most of the largest A-REITs and mortgage REITs.

Individual A-REITs often focus on a specific real estate sector, but some maintain a diversified portfolio. The most common A-REIT sectors include retail property, such as grocery stores or shopping centres, industrial property such as warehouses, and office buildings and residential property.

Top 10 largest A-REITs to watch in 2022

1) Goodman Group (ASX: GMG)

By far the largest A-REIT on the ASX, Goodman Group shares have risen in value by almost 200% over the past five years. With a market cap of $42.6 billion, this A-REIT maintains a global presence with an extensive industrial property portfolio that had a 98.1% occupancy rate in fiscal year 2021.

With 3.9 million square meters of property leased out across the world, total assets under management are up 12% year-over-year to $57.9 billion. And last fiscal year, operating profit rose 15% to $1.22 billion, while EPS increased by 14.1% to 65.6 cents compared to fiscal year 2020.

2) Scentre Group (ASX: SCG)

Scentre Group owns and operates the popular Westfield shopping malls both in Australia and across the Tasman. Total assets under management are at around $56 billion.

Despite its $16.14 billion market cap, pandemic lockdowns have hit the group hard. But CEO Peter Allen argues that ‘413 million customer visits and annual sales through our platform were $22.1 billion (in 2021), despite the extended lockdowns…Westfield Living Centres are essential social infrastructure.’

And he highlighted that the group had ‘better results in 2021 than 2020, even with more COVID-19 restrictions.’ Operating profit rose 10.9% to $845.8 million year-over-year, while funds from operations was $862.5 million, up 12.7%. And the company completed 2,497 lease deals, welcoming 267 new brands to its portfolio, and maintained a 98.7% occupancy rate.

3) Dexus Property Group (ASX: DXS)

Dexus is different to other A-REITs as it directly owns $27 billion of assets through its diversified funds management business. CEO Darren Steinberg explains ‘our strategy is to deliver superior risk-adjusted returns from high-quality real estate and seek opportunities that can deliver sustainable income streams while growing and diversifying our funds management business.’

The company’s focus on office and industrial properties underscores its $11.64 billion market cap. 95.1% of its offices and 98.6% of its industrial units are currently occupied. And in H2 results, it ‘raised $1.3 billion of new equity across its funds management business, secured development precommitments at its city-shaping project at Waterfront Brisbane and completed 154,534 square metres of industrial development leasing.’

Moreover, it has $17.8 billion of developments in the pipeline.

4) Stockland (ASX: SGP)

Stockland is one of the most diversified and stable A-REITs available, spanning retail, residential, and industrial interests. Despite a $10 billion market cap, this lower risk comes with less stratospheric growth prospects.

In H1 2022, the REIT delivered statutory profit of $850 million, up from $339 million in H1 2021. The result included ‘$543 million of net commercial property revaluation gains, equating to a 5.5% uplift versus June 2021 book values,’ reflecting ‘improved investor demand for high quality, essentials-based Retail assets.’

However, despite welcoming Ivanhoé Cambridge and Mitsubishi Estate to its third-party capital platform, funds from operations were down 9.3% half-on-half to $350 million.

5) GPT Group (ASX: GPT)

GPT Group owns and manages a $26.9 billion portfolio comprised mostly of offices and retail assets.

With a $10 billion market cap, a key focus for GPT is its ethical credentials. It’s recently ranked second for real estate in the S&P Global Corporate Sustainability Assessment and retains the maximum 5 Star Green Star status by GRESB. CEO Bob Johnston maintains a ‘focus on ESG and delivering on our target to have all our managed assets independently certified as operating carbon neutral by the end of 2024.’

In full-year results, the group delivered net profit after tax of $1.42 billion, up from a net loss of $213 million in 2020. CEO BOB Johnston underscored the impact of the pandemic on the group, saying ‘GPT commenced 2021 with solid momentum however this was disrupted by the Delta outbreak of COVID-19 in the second half of the year… while Omicron has been another recent setback to the recovery, we are optimistic that the worst is behind us.’

6) Mirvac Group (ASX: MGR)

Mirvac Group is another highly diversified A-REIT, owning residential, office, industrial, and retail space. The company argues it’s ‘diversified for good reason. Each property sector goes through different cycles, and by maintaining the right balance of passive and active capital invested in each area, we can manage and make the most of these highs and lows.’

With a $9.8 billion market cap, the company has $26 billion of assets under management across the key cities of Sydney, Melbourne, Brisbane and Perth. It cites its key advantage as a ‘property designer, developer, owner and manager, Mirvac has control over every stage of a development’s lifecycle – and this gives us a significant competitive advantage.’

7) Vicinity Centers (ASX: VCX)

Vicinity Centers operates predominantly in the retail sector, owning and operating some of the most famous retail destinations in Australia, including Chadstone in Melbourne and the Queen Victoria Building in Sydney. With an $8.54 billion market cap, its H1 fiscal year 2022 demonstrated ‘strong operational and financial execution despite continued COVID-19 impact.’

Statutory net profit rose to $650.2 million, up more than $1 billion year-over-year, while funds from operations hit $287.7 million.

As a retail specialist, this REIT’s fortunes are closely tied to the pandemic. But with the worst hopefully over, its retail space should begin to gain in value. And encouragingly, its maintained an occupancy rate of 98.2%, ‘supported by resilient leasing activity.’

8) Charter Hall Group (ASX: CHC)

Charter Hall Group has a ‘reputation for resilience,’ with a ‘focus on quality investments in core sectors- office, industrial, retail and social infrastructure.’

Awarded the ‘Firm of the Year: Australia’ by the Private Equity Real estate 2021 Global Awards, the company’s $61.3 billion portfolio has ‘driven long-term superior performance according to CEO David Harrison.

With a $7.8 billion market cap, its development pipeline stood at an impressive $13.3 billion in H1 2022. As one of the few REITs to swiftly recover from the pandemic, ‘no single asset represents more than 5% of portfolio investments, Government covenants make up 20.1% of net income and the portfolio enjoys 3.3% fixed annual rent reviews while 24% of net-income comes from inflation-linked leases.’

With occupancy at 97.4% and weighted average lease expiry at 8.6 years, this A-REIT could be attractive for cautious investors.

9) Lendlease Group (ASX: LLC)

Lendlease Group’s $7.6 billion market cap underscores its international nature, with ‘operations in Australia, Asia, Europe and the Americas.’

The group’s competitive edge comes from its ‘ability to deliver major urbanisation projects through our integrated business model, together with our financial strength and proven track record.’

While H2 is an ‘expected low point in profitability,’ it has recently been awarded the Women’s and Children’s hospital contract in Adelaide. And it has a $5 billion increase in its planning pipeline, with $28.8 billion of assets currently under management.
Lendlease highlights it’s ‘differentiated from other industry players by our end to end capability across all aspects of real estate – from concept and planning, to design and delivery through to funding and investment management.’

10) Growthpoint Properties Australia (ASX: GRT)

Growthpoint Properties has a market cap of only $3.38 billion. But the company is over a decade old and owns and manages 58 high-quality industrial and office properties worth $5.1 billion.

This A-REIT only invests in Australia, where it has a ‘strong understanding of the market.’ And IT’S income-focussed FOR ‘sustainably growing income returns…by maintaining high-occupancy levels, combined with predominately-fixed annual rent reviews.’ It takes limited development risk, and will ‘only acquire properties under construction when there are material leases in place.’

In H1 2022, it made a statutory profit after tax of $374.3 million, up from $205.8 million compared to H1 2021. Meanwhile, its occupancy rate is at a healthy 97%.

CIO Michael Green has highlighted its recent ‘strategic, accretive acquisitions in 1H22, investing over $300 million in three high-quality office assets in New South Wales, Australian Capital Territory and Victoria and acquiring new securities in DXI.’

How to trade or invest in A-REITs

1. Learn more about A-REITs
2. Find out how to trade or invest in A-REITs
3. Open an account
4. Place your trade

You can open a position on A-REITS either through share trading or derivatives trading. Share trading means that you take direct ownership of the stock. By comparison, derivatives trading – such as CFD trading – allows you to speculate on the price movement of a company’s shares without actually taking ownership of them.

For a complete breakdown of the benefits and drawbacks of each strategy, please click here.

A-REITs: further important information

REITs come with significant advantages as investors can benefit from both capital growth as well as dividend income. Accordingly, they have long been used as a key source of passive income. In 2021 alone, average residential house prices rose by 23.7%, outperforming almost every other asset class.

Moreover, REITs allow investors who wish to diversify their portfolios into real estate to avoid the practical and financial implications of actually owning and renting out property. Taxes, insurance, legal fees, tenant management, and time all add up to a significantly higher burden than many presuppose.

In addition, the trusts allow individual investors to pool capital to benefit from non-residential real estate appreciation that few have the financial capacity to purchase alone. Further, REITs are highly liquid, with investors needing only to sell their stakes to realise gains, while the process of buying and selling physical property is typically time-intensive.

Of course, the impact of the covid-19 pandemic has, and continues to have, a huge influence on Australian property values. The S&P/ASX 200 A-REIT index fell from 1,730 points on 20 February 2020 to 877 points by 23 March 2020. And while the index is up 13.46% over the past year to recover to 1,616 points today, it’s seen significant volatility along the way. Worth 1,789 points at the start of the year, it’s once again below its pre-pandemic value.

And the legacy effects of the pandemic continue to be felt. Soaring residential property prices have prompted fears of a bubble, with Commonwealth Bank believing house prices will fall slightly in 2022, and then correct a further 9% across all of Australia's major cities in 2023.

The drive to remote working could also see the value of office space and retail stores fall. On the other hand, demand for warehouse space could increase as dollar-spend increasingly moves online, and the fallout of the Russia-Ukraine war sees demand surging for Australian-produced commodities.

And over 10 years, the S&P/ASX 200 A-REIT index has made a 6.94% price return, excluding dividends. But of course, some individual A-REITs have outperformed.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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