Real Estate Investment Trusts (REITs) have been nice earners for investors over the past year, but discussion recently has centred on the risks in the sector.

The ASX XPJ A-REIT index outperformed the ASX 200 XJO index over the last two years, as reflected in the chart below.

In the past few weeks, however, the XPJ has dropped 3% compared to a 1% lift for the XJO. Is this a sign of troubling times to come?

Clearly, over-leveraged property plays will strugggle if there’s a property market slowdown – so with this in mind, what about looking at specialty A-REITS that focus on other kinds of real estate.

The following table lists five stocks. 

Most of these stocks operate in sectors with positive forward-looking trends – education, health care, and retirement.

Ingenia Communities Group (INA) has the lowest yield but the highest total shareholder return, at 46.8%.  Total shareholder return takes into account share price appreciation plus dividend payments.  The 3 year average annual rate of total shareholder return for INA is 77.7%. 

Ingenia is in the retirement village business with 44 properties across Australia.  It was once part of ING. 



Mkt Cap

Share Price

52 Wk % Change

Div Yld

1 Yr Total Share-holder Return

2 Yr
Earn. Growth Fore
2 Yr Div Growth Fore



Australian Education Trust (AEU)










Australian Social Infrastructure Fund (AZF)










General Healthcare (GHC)








Ingenia Communities Group (INA)







Ale Property Group (LEP)











INA began trading on the ASX in June 2012 and the share price has advanced nicely, up 200% over the past two years.  Here is a two year price chart:

In its Full Year 2013 results (released in August), profit from continuing operations was up 95% year over year; however net profit came in a -$10.3 million, a 131% drop from the previous year.  The loss was attributed to the decision to exit the US market to focus exclusively on Australia, involving subsequent asset writedowns and currency adjustments.  

Ingenia has made key acquisitions in order to pursue the Manufactured Home Estates (MHEs) for senior market and successfully completed a capital raising this year to pursue further opportunities.

MHEs are communities of prefabricated homes. 

Australian Education Trust (AEU) and the Australian Social Infrastructure Fund (AZF) are both wholly owned subsidiaries of Australian property and funds manager Folkestone Limited (FLK).  The parent is broadly diversified with a variety of subsidiaries targeting different real estate markets as well as a wealth management operation.  

Australian Education Trust holds 326 early learning centres across Australia and New Zealand.  The centres are standalone learning centres and are located in metropolitan and major regional areas.  The company argues that early learning assets are less volatile in valuation than traditional commercial and residential property assets.  

AET has produced positive total returns for the past 10 years, which shows a resilient business model considering the GFC’s impact on many players in the A-REIT sector.  Total shareholder return over 3 years is 44.1%; over 5 years, 44.6%; and 10 years, 9.6%.  

In early August AEU released its Full Year 2013 earnings, highlighted by a 71.1% increase in statutory profit.  The dividend distribution was $0.107 per share, an increase of 7% over the previous corresponding period.  Management announced the dividend distribution for FY 2014 is expected to be $0.12 per share.  Other positives included a renegotiation of its debt facility through FY 2014 at lower rates and an impressive 99% occupancy rate across its holdings.

The Australian Social Infrastructure Fund (AZF) holds 48 childcare facilities, a medical centre and a self storage facility.  In addition, it has a portfolio of real estate related securities, including units in the Australian Education Trust. AZF did not begin trading on the ASX as an independent entity until February 2011 but it has rewarded investors handsomely since then. The following 2 year performance chart compares AEU and AZF against the A-REIT XPJ index:

AZF released Full Year 2013 results on 8 August 2013.  Statutory profit rose from $2.4 million in FY 2012 to $8.1 million for FY 2013.  The dividend distribution increased an impressive 17.4%, from $0.145 per share to $0.176, and management is forecasting a dividend distribution for FY 2014 of $0.19 per share.

Generation Healthcare (GHC) is the only A-REIT on the ASX that invests exclusively in healthcare facilities, with nine properties currently held in Victoria, Queensland, and New South Wales.  The company completed a successful capital raising to fund the acquisition of Westmead Rehabilitation Hospital in Sydney, finalising the deal in May 2013.

On 30 June 2013 Generation reported solid Full Year 2013 results.  Underlying net operating income rose 33%, from $5.1 million in FY 2012 to $6.8 million for FY 2013.  Dividend distributions increased 10%, from $0.0668 to $0.0734.  Positive announcements included the acquisition of two key development locations for further growth; a refinancing of debt facilities; and forecasted dividend distribution of $0.0786 for FY 2014.  The share price is up 20% year over year and 50% over two years.  Shareholders have seen solid total returns of 27.4% at a one year average annual rate; 17.4% over 3 years and 16.5% over 5 years.  Here is a 2 year price chart comparing GHC against the XPJ:

The final A-REIT in the table is Ale Property Group (LEP).  As its name implies, the real estate interests of this trust are pubs – 87 of them across Australia.  The pubs are leased to the Australian Leisure and Hospitality Group, which is 75% owned by Woolworths.  

Ale reported Full Year 2013 results on 30 June and they were respectable.  Rental income rose from $51.9 million to $53.1 million; operating expenses decreased from $89.6 million in FY 2012 to $56.2 million; net profit after tax went from a loss of $17.1 million to a positive $14.9 million; and dividend distributions remained the same at $0.16 per share.

Despite being a highly defensive stock some investors might be put off by gearing of 124% in FY 2013.  However, one of the advantages of LEP is the long term leases with Woolworths – averaging 15 years.  Woolworth’s Australian Hospitality and Leisure segment is reportedly growing at double digit rates, suggesting growth for ALE as well since that company owns 30% of ALH’s pubs.  In addition, analysts claim ALE’s building to land utilisation rate is only 22% is another potential growth driver.

Macquarie has an UNDERPERFORM rating on LEP and JP Morgan has an UNDERWEIGHT rating, with both citing valuation as their rationale.  Investors appear to be less convinced as the share price continued to rise following the company’s earnings release.  Here is a 2 year chart for LEP compared to the XPJ:

While hardly the stuff of rigourous trend analysis, a glance back at the price charts of the five specialty A-REITS in our table shows a common pattern.  The XPJ took a sharp turn south around mid-May and has been on a downtrend since.  In contrast, every A-REIT in our table has bucked the trend of the XPJ and continued to move upward.  

Common sense suggests that this might have something to do with the fact none of these trusts have major exposure to traditional commercial, retail, and residential property.  

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