The Real Estate Investment Trust sector reported “strong” half and full year results, according to UBS Asset Management property analyst Pat Barrett.
In his weekly wrap of the results, Mr Barrett said the results has been characterised by improving balance sheets, with less debt, good cost control, improved asset quality with the sale of non-core assets, and capital growth seen in rising Net Tangible Asset (NTA) backing.
“That said, the sector needed to deliver strong numbers given the recent share price performance,” he wrote.
Mr Barrett said the best results had come from those stocks with residential exposure, particularly as none suffered any rise in apartment settlement defaults, and from stocks with funds management earnings.
The sector actually dipped, marginally by 0.5 per cent, in the two weeks-plus since the first results.
Mirvac’s result was “a fantastic affair” says UBS Asset Management property analyst Pat Barrett. Photo: Supplied
But Mirvac is up near 8 per cent, Charter Hall Group by nearly 6 per cent, the Goodman Group over 5 per cent and the Folkestone Education Trust and the GDI Property Group better than 4 per cent.
Mr Barrett wrote that Mirvac’s result was “a fantastic affair, underpinned by an unexpected 8-11 per cent FY17 EPS growth target,” due to strong residential pre-sales on elevated margins, solid rental growth across the commercial portfolio, and strong demand for their office developments.
“They’ve also made their accounts more transparent, have low gearing of 22 per cent, and Mirvac experienced defaults on their pre-sold apartments of less than 1 per cent.”
Charter Hall Group is rapidly becoming, according to Mr Barrett, “one of Australia’s leading providers of real estate exposure”.
“The only problem is that given the massive growth in earnings, their tax bill in FY17 also lifts considerably, such that on an underlying basis they’ve guided to 7-9 per cent earnings growth but post-tax it’s around 2 per cent (domestic investors will be entitled to a franking credit).”
At the negative end were the Cromwell Property Group, down 5 per cent, and the BWP Trust, down 11 per cent.
Mr Barrett wrote that the Cromwell result was disappointing with the $207 million write down of the Valad Europe business taking the total write-down to 42 per cent since the early 2015 acquisition.
BWP suffered not from the result, but from Bunnings’ decision, announced on Friday, to quit seven of the properties.
“I think it could be a reasonable outcome as it allows BWP to explore higher and better uses for each site ahead of the lease expiries,” Mr Barrett wrote, noting that in the short term, Bunnings would continue to pay rent on the properties, underpinning earnings.