Oliver's Insights – Listed property securities – have they bottomed?

Oliver's Insights – Listed property securities – have they bottomed?

This note looks as the outlook for listed property securities (or real estate investment trusts – REITs).
The key points are as follows:

– Given the damage done to investor confidence by their big slump over the last 18 months, listed property securities are unlikely to soon return to their once exalted status.

– However, they are showing signs of having bottomed. The credit crunch is gradually fading, gearing has been reduced, Australian REITs are trading at a huge discount to net tangible assets and they are offering very high yields. As such, they offer very attractive medium-term returns, particularly given that Australian REITs are at levels last seen 25 years ago.

– Unlisted non-residential property valuations face further downside. However, the recovery in listed property securities and their recapitalisation is a positive sign. In fact, Australian REITs may turn out to be buyers of office, retail and industrial property rather than sellers.

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