It’s that time of the year when investors everywhere brace for earnings reports from companies in their portfolios. For those investors holding companies invested in Australian retail, residential and office property, the current earnings period was expected to be a little rocky. While residential property prices and construction activity has been solid, retail conditions have been soft and office vacancies have apparently been rising as more supply comes on in most major cities.
But the valuation of the properties themselves is of little consequence for most investors in Australia’s Real Estate Investment Trusts (REITs). The prime reason many invest in REITs is exposure to strong dividend yields that tend to grow with inflation.
So how have some of the major REITs fared this earnings season?
Owner, manager and developer of office, industrial and retail properties; Dexus Property Group (ASX: DXS) delivered solid results for the six months ending 31 December. The group’s profit rose 3.8%, while net tangible assets rose 2.9%, allowing the company to increase its dividend by 6.2% to 3.07 cents per share for the half. This corresponds to a yield of 5.9% for the year.
GPT Group (ASX: GPT) owns a range of high quality properties in the office, retail and logistics sectors. It delivered a somewhat disappointing 3.9% fall in net profit for the six months to 31 December, however operating income rose by 3.4% and earnings per share rose 6.1%. The company was therefore able to declare that the distribution for the year would be 20.4 cents per share, 5.7% higher than the previous year, which corresponds to a yield of 5.6%.
Finally, Australia’s largest listed property developer, Stockland Corporation Ltd (ASX: SGP) delivered a best-in-class 5% rise in profit primarily due to a huge 39% jump in profit from its residential division. The dividend payout of 24 cents is expected to remain the same this year, delivering a yield of nearly 6.2% based on the current price.
Australia’s real estate investment trusts are well known for providing reliable income to shareholders that tends to increase at or above the rate of inflation. For investors searching for stable income at a time when term deposits are returning between 2.5% and 3%, REITs are an appealing alternative while property prices and rental returns are rising. Investors should note that all three of these companies suffered heavily during the GFC and are yet to return to their share prices around a decade ago.
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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.
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