Shocks from the property sector are receding slowly as it goes back to basics.
Australian listed property had a spectacular fall from grace during the worst of the GFC, when prices fell almost 80 per cent between their peak in February 2007 and the bottom in March 2009.
It was a severe jolt to the legions of retirees who had invested in the sector for years because of their stable income.
The trusts, called Australian Real Estate Investment Trusts (A-REITs), were vulnerable to the global credit squeeze. Many had loaded up on debt to rapidly expand their portfolios, including into offshore property.
They also went into riskier activities such as property development and funds management.
After some of the trusts had near-death experiences, they went back to basics - reduced debt, raised new equity and jettisoned many of their riskier activities.
The sector's prices, which are still down, did better for the year to January 31 than the broader sharemarket, with the S&P/ASX 200 A-REIT Index down 4.71 per cent compared with the S&P/ASX 200 Index's fall of 10.33 per cent over the year.
The founder of property fund manager Maxim Asset Management, Winston Sammut, says conditions remain difficult for much of the sector. Consumers are spending cautiously, which continues to affect the retail sector. With the financial services sector shedding jobs, there is little demand for additional office space in Sydney and Melbourne. However, in an environment where capital growth from all types of investments is likely to be subdued, Sammut says investment income becomes more important.
Most of the big trusts are on distribution yields of between 6 per cent and 8 per cent. Among the larger trusts, Sammut likes the diversified trust GPT Group, which owns and manages Australian retail, office and industrial properties.
He also likes Westfield Retail Trust, which has half ownership of the Westfield malls in Australia and New Zealand; and Ardent Leisure, which owns Dreamworld in Queensland, marinas, gyms and bowling centres.
The managing director of Property Investment Research, Dinesh Pillutla, says the sector has returned to its past of consistent returns and lower gearing and adds: "If the world can muddle through the present circumstances, we expect property to deliver modest, sustainable gains." But risks remain.
He prefers A-REITs likely to remain resilient in the worst-case scenario. That means A-REITs with strong cash flows, low gearing, high yield and quality property assets.
"We continue to favour Bunnings Warehouse Property Trust as a defensive investment," he says. Others worth considering include Australian Education Trust, CFS Retail Property Trust, Westfield Retail Trust and Westfield Group, which has a global property portfolio, including its half ownership with Westfield Retail Trust of malls in Australia and New Zealand.
The chief investment officer of APN Property Group, Howard Brenchley, favours Westfield Retail Trust, which is on a distribution yield of about 7 per cent; CFS Retail Property Trust, on a yield of almost 8 per cent; and Bunnings Warehouse Property Trust, on a yield of almost 8 per cent.
The managing director of specialist real estate fund manager Resolution Capital, Andrew Parsons, says there are better opportunities for investors in overseas real estate trusts. There is not the quality nor depth in the A-REIT sector, although they are "solid" after having cleaned up their balance sheets with many trading on discounts to their asset value.
Parsons says the Westfield trusts - Westfield Group and Westfield Retail Trust - continue to be well run.
"They have consistently delivered and the quality of what they own is high," he says.