REIT interim dividends tipped for reinvestment
Most of the REITs pay their interim dividends, and some for the full year, by February 28. The breakdown is $1.96 billion in distributions this week, with a further $90 million due by mid-March.
According to the REIT reports, the average payout ratio is about 85 per cent of profits. In the dark days of the financial crisis it was closer to half, indicating that trust managers needed to retain cash to pay the bankers.
But in this lower interest rate climate, brokers are expecting up to 90 per cent of distribution payments to be reinvested in the listed REITs.
Maxim Asset Management managing director Winston Sammut said the reinvestment of dividends could provide further impetus for price rises in REIT share prices.
In the last two weeks, the REITs have reported strong results and have been upbeat in their outlook commentary. Most are predicting average earnings growth of about 5 per cent, comfortably above the rate of inflation. As a result of keeping a lid on costs over the past year, most of the REITS are also trading near or even above their net tangible asset levels, leading analysts to issue upgrades for the full year.
Andrew Smith, a director at Evergreen Capital, said a combination of the lower interest rates and the weight of money from super funds would see more cash reinvested into REITS this year.
"Investors seem less concerned about stockpiling cash this dividend season, as some did a year ago, so there are high expectations a majority of this dividend season will be reinvested," Mr Smith said.
"There has been a run in some of the larger trusts as investors seek higher yields, which has pushed the security prices up. We are seeing good value in the small-to-medium trusts, which have had positive earnings results."
John Kim, property analyst at CLSA, said 2013 had so far been about management changes and potential merger and acquisition targets.
"Since 2009, there have only been 11 REIT transactions. We expect the volume of transactions to pick up to take advantage of REITs' lower cost of capital, modest gearing (27 per cent), limited external growth from a local focus [mainly Australian mandates]," he said.
"Capital partners are also increasing their allocations into REITs against the backdrop of a low interest rate environment."
Frequently Asked Questions about this Article…
According to the article, more than $2.3 billion will be paid out from the listed REIT sector in the coming days. The piece highlights a breakdown of $1.96 billion in distributions scheduled this week, with a further $90 million due by mid‑March.
The article notes that most REITs pay their interim dividends (and in some cases full‑year distributions) by February 28. Investors should expect a concentrated dividend season over late February and into mid‑March as listed trusts make their distribution payments.
REIT reports cited in the article put the current average payout ratio at about 85% of profits. By contrast, during the financial crisis the payout ratio was closer to half, as trust managers retained more cash then to meet financing needs.
Brokers quoted in the article expect a high rate of reinvestment — up to about 90% of distribution payments may be ploughed back into listed REITs this dividend season, rather than being held as cash.
Yes. Winston Sammut of Maxim Asset Management in the article suggested that large-scale reinvestment of dividends could provide further impetus for price rises in REIT share prices.
The article says REITs recently reported strong results and are upbeat on outlooks, with most predicting average earnings growth of about 5%, comfortably above inflation. It also notes many REITs are trading near or above their net tangible asset levels, prompting analyst upgrades.
John Kim, a property analyst at CLSA quoted in the article, said 2013 had focused on management changes and potential M&A targets. Since 2009 there have been only 11 REIT transactions, but he expects transaction volume to pick up as REITs benefit from lower cost of capital, modest gearing (about 27%), and limited external growth from a local focus.
The article points to superannuation funds and capital partners increasing allocations into REITs in a low interest‑rate environment. Analysts in the piece also note a run in larger trusts as investors seek higher yields, while some see good value in small‑to‑medium trusts that have reported positive earnings results.
Call 1300 880 160
Start a chat
Schedule a call
