Property trusts well positioned

APN Property Group issued a report considering whether the Australian sector’s performance was sustainable and whether Australian real estate investment trusts were overvalued.

Over the past 12 months, the S&P/ASX300 Property Accumulation Index has delivered 30.8% total return, outperforming the broader equities market by 4.8%. The Australian sector is trading at about a 10% premium to net tangible asset value (NTA).

APN said Australian real estate investment trusts had been the beneficiaries of a search for yield. “We believe this exceptional performance will moderate over time, as was indicated by the market’s performance in May, down 3.7% over the month.”

It said the sector was still well positioned to provide long-term returns of about 9% to 11% over the next 12 months because of sustainable rental earnings.  It said there was room to move even further up over NTA because of the costs associated with property purchases.