Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 216

Listed property report card for August 2017

We're midway through the August 2017 reporting season with Australian Real Estate Investment Trusts (AREITS) up 2% month to date. Most stocks have recorded strong capital gains (higher valuations), low debt costs and reasonable outlooks. There's been a 15% spread between the best and worst performers month to date with Charter Hall Group (CHC) up +11% and Charter Hall Retail (CQR) down -4%. The highlights are:

Ardent (AAD) – forced initiative

Management outlined their strategic initiatives to improve the customer offer plus evaluating excess land opportunities, which is in response to Ariadne's (ARA) proposals. There'll be more news flow about this name as we approach a vote to appoint new directors on September 4.

Abacus Property Group (ABP) – record result

ABP’s record was driven by higher rental income, fee income and profits from asset sales and developments. It could have been even stronger had local council elections and state agencies not delayed the timing of approvals at some sites, especially at Camellia in Sydney's west. ABP provided FY18 DPS guidance (the first time they have guided) of 18.0 cents per share (cps) or +3% growth.

Australian Unity Office (AOF) – office of suburbia

AOF exceeded its IPO forecasts, with outperformance driven by better leasing outcomes and borrowing costs. It offers a solid 6.8% distribution yield, with no significant single lease expiry until FY22 and conservative gearing of 27%.

Aveo Group (AOG) – money back guarantee

Aveo shares jumped 11% post their result, with a buyback announced and further enhancements to its Aveo Way Contract in response to recent media reports. Management is pro-active and have developed eight resolutions to improve customer experience, via improved buyback periods and money back guarantees, plus actively encouraging residents to get independent legal advice (or sign an acknowledgement they were advised to), financial advice and consult with their families.

Aventus (AVN) – bulky's good

Management is best of breed in this asset class, having lifted occupancy to 98% and converting more leases from CPI reviews to fixed growth. Tenants enjoy lower rental expenses in these bulky goods and super centres with occupancy costs (cost of rent divided by sales) around 9-10% versus up to 20% in larger shopping centres. Gearing is relatively high at 39% but some smaller asset sales should reduce this.

Bunnings (BWP) – won’t you stay with me

After many years of outperformance, BWP has been impacted by the upcoming and potential departure of the tenant (Bunnings) from 13 properties. They have an excellent core portfolio and strong balance sheet but these expiries will negatively impact underlying growth. Management is committed to maintaining the distribution at FY17 levels, even if they have to use capital profits from asset sales.

Charter Hall Group (CHC) – stepped off the Cbus

They don’t formally announce until next week but they did issue a statement saying that they have "determined not to proceed with further due diligence on the acquisition of Hastings Management Proprietary Limited". The stock rallied +4% on the news. The AFR reported that some investors in Hastings, including Cbus, were not happy with Westpac about the prolonged sale and some had questioned CHC's lack of experience in the infrastructure space.

Centuria Industrial REIT (CIP) – be careful what you wish for

The new management team is earning its keep, with occupancy down to 92% and gearing at 43%. The debt book was completely refinanced during FY17, with further asset sales likely. The stock is appealing because of the near 8% yield with a lot of leasing work required in FY18.

Charter Hall Long WALE (CLW) – long and strong

The result was as expected given the long-term nature of leases with no material vacancy until FY21. Higher income was offset by higher costs linked to debt and the simplification of its legal structure.

Charter Hall Retail (CQR) – tough times don’t last

The supermarket wars and soft retail conditions have resulted in low growth out of this stock, with investors rewarded via a relatively high yield. FY18 will see further repositioning (additional sales and developments) that will assist future growth. The price will be supported by a buyback, but this can only be used sparingly given their relatively high gearing.

Dexus (DXS) – blister in the sun

The market is excited about the strength of the Sydney and Melbourne office markets, with effective rents growing +32% in Sydney and +20% in Melbourne. Given the long-term leases in place it's hard to capture all of this at once, with the rental growth across the portfolio +2.6% during FY17. With the pressure on retail stocks, Dexus is enjoying its time in the sun.

Folkestone Education (FET) – kids are alright

Another strong result from management, with nearly 9% EPS growth in FY17 driven by rental growth, new development and lower interest costs. The portfolio WALE (or weighted average lease expiry) has increased to 9.1 years, due to new centre completions and lease extensions. The development pipeline continues to look healthy, with returns from new centres far superior to that achieved by acquiring existing centres on market.

GPT Group (GPT) – in Bob we trust

FY17 FFO guidance was upgraded to 3%, supported by lower costs and stronger than expected retail income. This stock is the ‘proxy’ for Australian real estate with exposure to all commercial sectors and the CEO (Bob Johnston) has done well to steady the ship. There's a few developments that could add a lot of value in the medium term.

ALE Property Group (LEP) – it's Woolies’ shout

The underlying portfolio is rock solid, 100% leased to a tenant 75% owned by Woolworths on 25-year leases (plus options) with annual CPI rent uplifts. Given broader market uncertainty, this portfolio is highly desirable and trades accordingly. They're nearing their first rent review in November 2018, which is capped/collared at +10/-10% and should lead to a substantial lift in dividends.

Mirvac (MGR) – Mirva-lous effort

This was the best result thus far, with all businesses delivering strong numbers. MGR has benefitted from a strong residential market to recycle and reposition its investment portfolio. They’ve taken profits from their residential business and redeployed into high quality commercial assets. Management has done a great job implementing the strategy. The retail portfolio performed well, focused on urban locations with higher densities. Not all retail is created equal.

Shopping Centres Australia (SCP) – CQR with a twist

As per CQR but they’ve boosted earnings by selling assets into retail funds (syndicates) that they control, and deriving fees from these.

Stockland Group (SGP) – better than expected

The FY17 result was stronger than expected, with record residential settlements coupled with strong margins boosting the overall return, and their gearing is down to 22%. Importantly their FY18 guidance was above consensus so look for upgrades to occur.

Vicinity (VCX) – the hard work’s done

VCX unveiled a solid underlying result that was overshadowed by a change in the distribution policy, targeting a payout ratio of 95-100% of AFFO for FY18. It's been a busy year for the management team, with divestments, developments, remixing of tenants and distribution changes. A new CEO was announced last week, with Grant Kelley returning to Australia after spending many years abroad, most recently as CEO of City Development Limited in Singapore.

Westfield Corporation (WFD) – been there, done that

Westfield delivered a solid half year result (they're a calendar year firm) and maintained FY17 guidance. Operationally, their better malls (Flagship) continue to outperform Regional assets. They have relatively high gearing of 38%, and will rely on partial asset sales to lower this. WFD referred to their extensive experience to see them through volatile trading conditions, referring to themselves as "industry leaders" and at the "cutting edge". However, the negative sentiment towards the sector shows no signs of abating and earnings growth has been lacklustre.

 

Pat Barrett is Property Analyst at UBS Asset Management. This article is not specific financial product advice and it does not take into account any individual investor’s investment objectives, tax and financial situation or particular needs. 


 

Leave a Comment:

RELATED ARTICLES

Why 'boring' Big Four banks remain attractive

Who gets the gold stars this bank reporting season?

The standout winners from February reporting season

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.