Quality is key as ‘oversold’ A-REITs offer good opportunities

Amy Pham

Pengana Capital Group

Quality is key for listed property trusts as the A-REIT sector rebounds from a selldown in early 2022 while navigating high inflation and potential interest rate rises later this year, which has opened up some good buying opportunities. We think the A-REIT sector has been oversold given the underlying strengths in the sector.

Valuations have remained buoyant and there are growing expectations rental collections will rise, and we will see improved visibility of earnings. Balance sheets generally look good, with the sector’s average gearing levels at 28%, supporting further growth through acquisitions and development. 

Earnings forecasts are also positive amid an improving economic backdrop.

The selldown provided a good opportunity to consider quality A-REITs, many of which improved their position across the pandemic. “There are currently some outstanding quality
stocks such as Charter Hall, Goodman, and Centuria, which recently upgraded their guidance and have the highest earnings growth in the sector.” 

Adding alternative real estate investments can provide additional opportunities to negotiate inflation and rate rises. The alternative sector is mainly driven by secular trends and is less cyclical, providing a potential hedge against inflation. Some of these assets are considered necessities, such as healthcare, childcare, and even data centers, which are all relatively well insulated against the cycle. 

If interest rates were to increase later this year, some investors may become more tempted to follow ‘yield traps’. We often see investors rush to higher-yielding stocks during high inflation and higher interest rates. But chasing the yield could backfire if the quality is not there.

We think the best way to protect property portfolios from inflation, interest rates, and volatility is via high-quality stocks and alternatives.

Learn more

More information about Amy's fund can be found here. Register for the fund's upcoming webinar here, or contact us to learn more about the Pengana High Conviction Property Securities Fund.

Pengana Capital Ltd (ABN 30 103 800 568, Australian financial services license number 226566) is the issuer of units in the Pengana High Conviction Property Securities Fund (ARSN 639 011 180) (the “Fund”). A product disclosure statement for the Fund is available and can be obtained from our distribution team. A person should obtain a copy of the product disclosure statement and should consider the product disclosure statement carefully before deciding whether to acquire, or to continue to hold, or making any other decision in respect of, the units in the Fund. This report was prepared by Pengana Capital Ltd and does not contain any investment recommendation or investment advice. This report has been prepared without taking account of any person’s objectives, financial situation or needs. Therefore, before acting on any information contained within this report a person should consider the appropriateness of the information, having regard to their objectives, financial situation and needs. Neither Pengana Capital Ltd nor its related entities, directors or officers guarantees the performance of, or the repayment of capital or income invested in, the Fund.

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Amy Pham
Fund Manager - Pengana High Conviction Property Securities Fund
Pengana Capital Group

Amy is portfolio manager of the Pengana High Conviction Property Securities Fund, and has over 20 years of property funds management experience. Previously, Amy has worked at Charter Hall/Folkestone for 6 years, managing a high conviction...

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