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A-Reits alright

Finance Markets / Latest Activity

Australia

Mar 20 2017

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Karl Aguilar

A-Reits remain resilient and solid performing according to CLSA’s latest report. Despite retail sales slowing down this year the quality owners are outperforming, the report claims, also highlighting that office fundamentals remain robust in Sydney and Melbourne with strong growth emerging for the remainder of this year. 

In their report, CLSA notes that A-Reits have either maintained, tightened or upgraded their guidance for 2017. Their focus on capital management also remains unchanged as the payout ratios have been adjusted to reflect capex requirements and growth. CLSA favours active A-Reits such as GMG, MGR, SCG, GPT, SGP and WFD in the present conditions.

The report noted in particular that sales slowed down across the board during the period. However, further analysis shows a bifurcation between high quality and low quality retail sales owners with regards to performance. High quality sales owners such as SCG, GPT, and MGR have outperformed in the industry overall as productivity increased at a faster rate. Meanwhile, office owners reported a strong growth at a 3.7% average rate. However, this has yet to translate as meaningful earnings growth. 

Fundamentals remain robust and residential remains resilient, in particular for MGR and SGP, with above-cycle margins being expected to continue in the medium term. Despite macro risks being noted, CLSA remains optimistic for both firms. 

Capital management remains disciplined as most A-Reits pay distributions within or below the adjusted funds from operations (AFFO). It is noted that the payout ratios are being adjusted to accommodate capex and development spend while average gearing remains low at about 27%. CLSA expects trading profits and funds management to support growth for active names and for CHC increase the by PT 18% to $5.47 (from $4.63) while keeping the U-PF rating at the moment.

SOURCE: Editorial

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