Housing is not the only industry being spurred on by some of the lowest interest rates since the 1960s, but real estate investment trusts also are seeing this as an opportunity to list particular funds to raise capital and improve liquidity for fund investors.
While the property market lay dormant during the GFC, trusts had to bide their time, and just like in a spring thaw, they are about to sprout into the IPO scene. They will have different kinds of investment vehicles, some office property, retail or industrial, and each will offer different opportunities.
Pubs and hotels
For example, the Hotel Property Fund, due to list in December, owns 41 pubs that are leased to Coles, owned by Wesfarmers (ASX: WES), and seven bottle shops. Another, called the Australian Pub Fund, will have at least 12 pub properties to start out with, and plans to even hold marina assets.
By looking at ALE Property Group (ASX: LEP), owner of 87 pubs in five different states, you can see how a specialised REIT for pubs operates and performs. Earnings have been growing over the past two years, returning to the profit levels of 2009. Since 2007, annual combined rental and investment income has been stable, between $51 million and $59 million.
Its earning power is shown by its 22.5% average annual total security holder return since 2003, made up of the security price appreciation, distributions paid and reinvested value of distributions.
Office and self-storage
APN Property Group (ASX: APD) will be listing its Industria REIT, which will own 18 workspace office assets. In addition, it is planning to float its National Storage Property Trust, which has investments in the property connected with the self-storage company National Storage.
GDI Property Group is listing in December as a $567 million IPO. It manages about $700 million in office property, and will use some of the proceeds of the float to make two new acquisitions. It specialises in multi-leased office property that can be refurbished for value improvement, as well as strata subdivision and sale.
Foolish takeaway
When considering REITs as investments, you want to see that their occupancy rates are very high for optimal rental income, and that the quality and geographical location of its properties are in strong earning areas which have good capital appreciation prospects.
Lease durations are also important because the longer they are, the more secure the current and future income flows are. The quality of the management team adds value to the properties in the trust, and good teams are able to identify and purchase future properties that will give good returns.
