The reporting season for the first half of the 2015 financial year is done and dusted for the Australian real estate investment trusts, and by all accounts it was not too painful.
The main theme was office leasing is improving, the low interest rates and petrol are underpinning retail sales, while the rise in demand for online goods has seen a boom in warehouses for storage and distribution.
Residential development remained the leader when it came to earnings and margin growth, and the demand for housing, hi rise and medium density, will see that trend continue for a few years.
In fact, given the extent of the developments, with the likes of Lend Lease, Mirvac and Stockland, there were vague murmerings that a residential A-REIT could be a reality in coming years.
Multi family REITs, as they are known in the US are very popular, but there is a lot of generic stock - lots of apartment blocks from Manhattan to Los Angeles and all stops in between, that make such an investment class a viable option.
The same is said for Asian cities, where a bulk of the population live in high rise blocks, which can be easily compared for yields and rents.
In Australia, it's impossible to get two street that could be compared for investment purposes.
But, with the new residential developments at Barangaroo, Harold Park and Docklands in Melbourne, among many others, perhaps it's getting easier to get a residential REIT up and running.
Industry stalwarts, Greg Paramor, managing director of Folkestone, and Winston Sammut, managing director of the Folkestone Maxim A-REIT Securities Fund, said the latest reporting season was positive, but it's not time to be complacent.
Mr Paramor said the Australian economy is facing a number of head winds as we enter 2015 and therefore is expected to grow below long term averages.
"Whilst consumer spending is improving and residential construction and prices are rising, consumer confidence remains weak. Business confidence and investment is also weak," Mr Paramor said.
"The housing boom has not been uniform across Australia. Whilst Sydney has been the stand-out performer with prices up 13 per cent in the year to January 2015, price growth across the rest of Australia's major cities was between -0.3 per cent in Canberra and 7 per cent in Melbourne."
Mr Sammut said notwithstanding Australia's weak economic outlook, the A-REIT sector is expected to continue to be well supported due to the low interest rate environment currently in place and the prospect for the cash rate to move lower.
"Despite the strong performance of A-REITs in 2014, we expect A-REITs to continue to provide investors with an attractive alternative to general equities in the year head. The current spread between A-REIT dividend yields and 10-year bonds is circa 220 basis points, well above the long-term average of 80 basis points.
"We also expect continued strong inflows into A-REITs from global investors given the lower Australian dollar and the relative yield premium. A-REITs currently trade on a yield premium of 200 basis points to US REITs and 300 basis points to Singaporean REITs."
