By guest contributor Binesh Seetanah, analyst, Atchison Consultants
Australian real estate investment trusts (AREITs) continue to provide relatively attractive yields in the current low interest rate environment. As at 31 December 2017, the average forecast earnings yield 1 was stable at 5.8%.
At the end of December, the earnings yields exceeded the 10-year Australian government bond yield by 3.2%. This is higher than the long term average of 2.7%. The premium over the bond yield fell by 0.1% during December 2017.
Forecast earnings yields by property sector over the next year are as follows.
Forecast Earnings Yields
1 Earnings per unit divided by unit price. Weighted by market cap.
Pricing of AREITs
Net Asset Value (NAV) and Net Tangible Assets (NTA) are two common valuation metrics of AREITs. NTA is the balance sheet or book value of the underlying properties held within an AREIT, net of liabilities and intangibles. NAV is an analytical valuation of an AREIT based on expected net cash flows from property assets as well as profits generated from other activities. These activities may include funds management and property development.