A-REITs (or Australian Real Estate Investment Trusts) have seen a huge uptick in investor interest over 2019 so far. The S&P/ASX 200 A-REIT Index (INDEXASX: XPJ) has even outperformed the broader share market S&P/ASX 200 Index (INDEXASX: XJO) over the twelve months ending 30 June 2019. This is likely a result of the yield hunt that the Reserve Bank of Australia (RBA) has set off by reducing interest rates to record lows this year.
But according the Australian Financial Review, not all REITS are worthy of the money that is flowing into them.
REITs can be further divided into residential, retail, industrial and commercial property interests. Investor (and institutional) sentiment is varied across these subsections, with commercial and industrial REITs being favoured over retail REITs in particular.
Charter Hall Group (ASX: CHC) is one REIT that investment bank Goldman Sachs feels may be up to 38% overvalued, following its 52% rise this year so far.
However, Scentre Group (ASX: SCG) is one that both Goldman and property expert and fund manager Damian Diamantopoulos feel is undervalued at the current time, likely due to investors’ misgiving about the retail sector. Goldman sees upsides of up to 34% over the next year and Mr Diamantopoulos is particularly impressed with Scentre’s recent office sales in Sydney’s CBD.
In terms of the industrial space, Centuria Industrial REIT (ASX: CIP) is named as a favourite, especially considering the go-to industrial REIT Goodman Group (ASX: GMG) isn’t a pure industrial play. Some of Centuria Industrial’s ‘tenants’ include Woolworths Group Ltd (ASX: WOW) distribution centres, Australia Post and Holden.
Residential REITs like Mirvac Group (ASX: MGR) and Stockland Corporation Ltd (ASX: SGP) are also listed as potential winners. According to Diamantopoulos, the housing market recovery as well as low interest rates should provide healthy tailwinds for this sector going forward.
I think that the ASX REITs are a good place to lock in some high yields in the near term before further interest rate cuts push up prices even more. I also agree that Scentre is a good pick today, as it is offering a 5.5% yield on current prices, but Centuria Industrial is also looking appealing with a 5.52% yield.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. 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 Scott Phillips.