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Income seekers: Is now the time to stock up on REITs?

property

With the recent fall in the value of bank shares, no doubt some investors are thinking of diving back in to the sector to chase the powerful yields on offer.

But there are other shares renowned for their dividend yield, namely Real Estate Investment Trusts, or REITs. With more than a dozen companies to choose from, investors have a better chance of finding great value as well as finding a type of property exposure that they’re comfortable with.

Here are five of the better known Australian REITs (A-REITs), their valuation, and their yield:

Federation Centres Ltd (ASX: FDC) – yields 5.4% unfranked, up 18% for the year

Federation Centres owns a portfolio of 65 shopping centres Australia-wide, with 41% of the portfolio by revenue occupied by supermarkets, 29% by specialty stores, 13% by discount department stores, and the remaining 17% by ‘mini-majors’, ‘department stores’, and ‘other retail’.

FDC recently acquired Novion Property Group (ASX: NVN) and as such could be set to see a meaningful rise in full-year profit next year, in addition to the approximately 4% growth expected this year. Net Tangible Assets (NTA) was $2.44 per share as at 31 December 2014, and Federation shares currently trade at a 19% premium to this value.

Westfield Corp Ltd (ASX: WFD) – yields 4.5% unfranked, up 34% for the year

Westfield has enjoyed a strong rise since reorganising its assets with former partner Scentre Group Ltd (ASX: SCG). Shares are hot property (pun intended) thanks to a strong US dollar and growing Euro and GB Pound exposure.

Shareholders pay a price for this exposure however, with Westfield having Net Tangible Assets of $3.72 per share to its name according to my calculations (net assets attributable to Westfield divided by number of securities – from the Dec 31 report). Westfield is one of the faster growing REITs however and it does have a world-leading stable of assets.

Scentre Group Ltd (ASX: SCG) – yields 5.3% franked to 27%, up 21% for the year

It seems only appropriate to include Scentre Group alongside Westfield; Scentre Group being the domestic equivalent of WFD’s international operations. Strong specialty store growth and a similar focus on major shopping centres is expected to deliver similar returns to Westfield over the long run.

Installation of WiFi and a digital advertising network across a number of centres allows intriguing new ways to engage with shoppers and I’m not betting against Scentre Group in the long run. Without the foreign currency exposure, Scentre Group trades at a 27% premium to its Net Tangible Asset value of $3.04 per share.

Goodman Group (ASX: GMG) – yields 3.5% unfranked, up 18% for the year

Goodman Group shares are habitually among the more expensive of the REITs. While none of the big names are trading at a discount, Goodman is one of the most expensive, trading at twice the value of its $3.14 in Net Tangible Assets.

However, a 10.5% lift in operating profit for the half year has understandably driven considerable investor interest; this makes Goodman Group one of the fastest growing REITs around. Nevertheless I’m not comfortable paying such a premium for the stock and suggest investors check out one of the other companies mentioned for their income fix.

Stockland Corporation Ltd (ASX: SGP) – yields 5.7% unfranked, up 4.5% for the year

Based on its metrics, Stockland is the cheapest company in this article; it’s got a great dividend and its price has barely shifted in the past twelve months. However, this is because the company also invests heavily in property development in addition to shopping centre ownership.

Although Stockland boasts a strong track record of development and builds in residential growth corridors, it is exposed to rising interest rates and weakness in the domestic housing market, hence its subdued price. Despite this, SGP shares trade at a 15% premium to their NTA of $3.60/share, and I believe they are a reasonable long-term bet for income seekers.

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Returns As of 6th October 2020

Motley Fool contributor Sean O'Neill owns shares of Scentre Group. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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