REITs have outperformed, but stellar gains unlikely to continue: Research specialist

Listed property stocks are well managed and in good shape to deliver strong distributions to investors but stellar capital gains made over the past year are unlikely to continue, a research specialist predicts.

Real estate companies and investment trusts have been delivering attractive running yields from high-growth property that is efficiently financed with manageable debt levels, accountancy and financial advice firm Crowe Horwath’s head of research Jeremy McPhail told Property Observer.

Over the six months to June, the property sector returned about 12%, compared with a 3% gain from the overall market as investors focused on consistent cash flow, McPhail said.

“At the start of the year we had a view that it was worth looking at more tactical short-term allocations to property and infrastructure-based stocks. Those stocks have now outperformed the market,” he said.

Share prices gains had been supported by consistent income distributions.

“For us [property and infrastructure stocks] are neither expensive nor cheap,” McPhail said.

He said distributions were likely to continue to increase at a slow and stable pace but added that he would not be surprised those stocks produced lower capital gains over the coming months.

Investments in listed property and infrastructure stocks were among ten of the best investment ideas for the year identified by Crowe Horwath’s financial advisers, investment analysts and economists. The firm last week issued its 2014 Ten Best Investment Ideas Half Year Progress Report, providing an update on the investment ideas identified at the start of the year.

The report noted: “Overall, we remain confident that balance sheets (gearing) for most investment grade opportunities are well under control. Occupancy is high, with low tenant turnover. Management are seeking to replace more expensive debt with lower interest rates and longer-term maturities aligned with current market rates, which improves funds from operations. While this isn’t helping the underlying fundamentals of the assets, it is good to see management focused on controlling what they can.”

This story originally appeared on Property Observer..