The Australian REIT sector has experienced a stellar month of April to date, up 5.3% so far, driven by strength across leading securities. Over April, Westfield Group is up 6.3%, Westfield Retail up 6.4% and General Property Trust up 6.8%. We attribute market strength to falling bond yields on the back of weak inflation data which implies interest rates are on hold in the short term. We expect some catch up in lagging names such as Growthpoint Australia and Australian Industrial REIT, both which have delivered flat performance for the month. Both of these REITs own industrial assets and are yielding 7.5% and 8.5% respectively, well above that of the broader AREIT sector. Disclosure: Freehold Funds own interests in the securities mentioned. (VIEW LINK)
Thanks James. The two chief reasons for the higher yield is that REITs generally do not have franking, and they are generally lower growth than the broader equities market, so investors are compensated for that via a higher yield. That said, the yield from a REIT is generally much safer than an equity given it is backed by in place leases.
Tim, I have a question on the yield with these REIT's. In your view is there an explanation for the higher yield often seen with REIT's compared to other dividend paying stocks? I.E. Does the market discount the reliability/safety of their distributions? If so is this justified? Thanks, James