Why solid A-REIT returns should continue

Why solid A-REIT returns should continue. Australian Real Estate Investment Trusts (AREITs) performed strongly over 2014. The total return for the AREIT sector, including distributions was 25.8 per cent, compared with the broader sharemarket's return around 5 per cent. Why such a strong performance? First, the AREIT sector started the year at a modest discount to our internal calculation of the sector's fair value - we call it net asset value (NAV) - of around 3 per cent. Second, bond yields rallied considerably over the year, with the 10-year bond yield declining from over 4 per cent to under 3 per cent, helping with AREIT valuations and lowering their borrowing costs, which boosted earnings. This allowed them to increase distributions without making material changes to their payout ratios. The earnings performance was robust in 2014 and defensive, despite difficult property operating conditions with rising vacancies in CBD office markets and tough leasing conditions in the retail sector. Read the full article: (VIEW LINK)