It's clear that the broader market appreciated the stability of real estate earnings during reporting season, with the AREIT sector delivering a +4.1% return over February vs +2.3% for the ASX 200. This week we "mopped up" our affairs with a series of management meetings. It was a good reporting season for the Fund, with most of our positions delivering alpha.


The highlight was an update from the Westfield Corporation (WFD) about their residential development plans, which could amount to 10,000 apartments longer term. WFD hold "under-utilised" land in the shape of adjacent parcels, very large car parks or existing big boxes that could be reconfigured. They have so much idle land that they're now formulating a strategy to deliver residential apartments where it compliments an existing centre. In plans yet to be formalised, WFD would contribute the land, others would contribute equity to build them and then the combined investor pool would rent them out to derive a yield of ~4%. Note that they would rent them out (not sell them) in order to retain control of the site, in case of future development. They want to avoid being held up should the residents object to future development plans. The end result is that they would derive income on land that has sat idle. There's a plethora of questions around this, such as how do their partners crystallise their return and how do they ensure their partners don’t stymie future development plans on the site. I have no doubt that WFD will have all the answers.


Other "big cap" stocks like Goodman Group (GMG) and Stockland (SGP) spoke about their operations, with both groups giving us a high degree of confidence about their further earnings growth and how they would handle any shocks to the system. They both have a central mission to maintain their credit ratings and still speak of the GFC. That's good news for investors. We also met with Charter Hall Group (CHC), Charter Hall Long WALE REIT (CLW), Folkstone Education (FET), Growthpoint (GOZ), Investa Office Fund (IOF) and Viva Energy REIT (VVR). We walked away from all of these meetings with confidence in their management teams and strategies.


The REITs are in great shape and we have no concerns about medium-term earnings. That's a big tick. Now it's time to consider the external factors that will impact the share prices, such as the European elections, rising US rates and in theory a weaker AUD, the housing affordability debate and the impact of Amazon on our retail holdings. More on this next week.

Contributed by Pat Barrett Property Analyst. 




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