Real estate investment trusts (REIT) can have stable earnings growth and offer attractive yields. Recently, more attention has been on commercial property opportunities in offices and retail, so investors can benefit from a healthy dividend yield and potential increases in future returns. Here are three that you should know.
Dexus Property Group (ASX: DXS) owns, manages and develops office, industrial and retail properties. The $5.6 billion REIT is in the middle of taking over Commonwealth Property Office Fund (ASX: CPA), which has a market capitalisation of $2.9 billion. Assisted by takeover partner Canada Pension Plan Investment Board, it now has 90% of the trust.
It has a 5.63% dividend yield, and over the past three years has grown earnings per share by a compound average 17.4% annually.
Once the takeover is complete, it will have a major stake in A-grade office property, and has plans to sell some of the takeover related properties to GPT Group (ASX: GPT) to focus on core business opportunities.
Westfield Retail Trust (ASX: WRT) has a principal investment in a joint venture ownership with Westfield Group (ASX: WDC). The Trust has a portfolio containing 46 major shopping centres in Australia and one in New Zealand. It offers a 6.51% dividend yield and has a history of increasing dividends since its 2010 listing.
Westfield Group is proposing a new company called Scentre Group, which will manage, develop and have an ownership interest in Westfield branded shopping centres in Australia and New Zealand.
Under the proposal, Westfield Retail Trust shareholders would hold 51.4% of Scentre Group, and for every 1,000 WRT stapled securities receive 918 Scentre Group securities, as well as a $285 cash payment as a capital return. The offer has the support of the independent directors, but must be approved by shareholder vote.
GPT Group holds high quality retail, office, and logistics & business park properties, and has a market capitalisation of $6.1 billion. Earnings per share have increased from 18.87 cents per share to 32.22 cps over the past three years, and the dividend yield is 5.56%.
Distribution per security was up 5.7% in FY2014, with a full year distribution of 20.4 cents. Distributions have been increasing steadily every year since 2009.
It will absorb five building properties from Commonwealth Property Office Fund through its deal with Dexus Property Group, that saw it withdraw its rival takeover bid of the REIT. They will come under GPT Group’s ownership from 1 July this year and raise its funds under management towards its $10 billion target level.
REITs are one good way an investor can have a steadier portfolio income through distributions and capitalise on the general growth that property experiences over the long-term. With real estate being cyclical in nature, investors should understand where commercial property is in its cycle to estimate short-to-mid-term growth potential.