Real estate investment trusts have had a curious year, broking house Morgans says, with occupancy rates strong but share prices on the wane.
In a recent research note to clients, Morgans said the A-REIT index had fallen 15.5% over 12 months despite occupancy being at or near full across the industrial and convenience retail sectors.
Morgans has put the cause down to the swing in the interest rate cycle, with three increases so far this calendar year.
Morgans said:
Weighted average cost of debt rose for most names and FY27 assumptions are higher again.
The broker has identified five companies they rate as buys in the sector. Let's see who they like.
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Qualitas Ltd (ASX: QAL)
This company is a real estate private credit manager, rather than a real estate investment trust, but Morgans believes they are looking cheap at the moment.
They said Qualitas is growing market share as the major banks retreat from the sector.
They added:
Fee-earning funds under management is growing strongly, with a high proportion of repeat borrowers underpinning deployment quality. Near-term re-rating is constrained by broader private credit sector sentiment, though we do not view QAL's loan book as subject to the same uncertainties as others in the space.
Morgans has a $3.90 share price target on Qualitas.
DigiCo Infrastructure REIT (ASX: DGT)
This company owns the SYD1 data centre, which Morgans describes as "a scarce Tier 1 CBD carrier hotel with secured power in a power constrained market''.
The data centre has an expansion plan on the cards, with Morgans saying the roadmap to full occupancy is well defined.
Morgans said the stock is trading at a significant discount to its net asset value.
Morgans has a price target of $3.60 on DigiCo.
GPT Group Ltd (ASX: GPT)
This company is well diversified across office, retail, and industrial assets, Morgans said, "complemented by a growing funds management platform that the market continues to undervalue''.
They added:
GPT's scale and liquidity make it one of the most accessible ways to gain exposure to Australian commercial property, and one of the names best positioned to re-rate as the interest rate outlook moderates.
Morgans has a price target of $5.65 on GPT.
HMC Capital Ltd (ASX: HMC)
This alternative asset manager has "a growing, diversified platform spanning energy transition, healthcare infrastructure and daily needs real estate'', Morgans said.
The company's recurring revenue stream is growing, "with the business progressively transitioning toward a more predictable, fee-based earnings profile''.
Morgans has a price target of $4 on HMC.
Garda Property Group Ltd (ASX: GDF)
Morgans said Garda operates a two-pronged business, generating revenue from both its industrial property portfolio and its private credit lending book.
Morgans has a price target of $1.30 on Garda.
