Australian REITs to Offer Returns as Much as 15%, Merrill Says

Jan. 17 (Bloomberg) -- Australian property trusts will offer total returns of between 12 percent and 15 percent in 2012, outperforming Australian equities and other Asia-Pacific property markets, according to Bank of America Corp.’s Merrill Lynch unit.

Sales of properties and subsequent return of capital to investors, falling debt costs and divestments of “non-core” businesses will contribute to returns, analysts led by Simon Garing said in a report dated Jan. 13 and distributed today. The trusts will offer average dividend per share yield of 6.3 percent, 288 basis points above 10-year bonds, they said.

“While volatility will remain a feature of the entire market, we also think the Australian REITs will continue to offer lower volatility than the broader market,” the analysts wrote. “Australian REITs will continue to be disciplined in the face of external pressure.”

Most property groups have sold off overseas assets and simplified their businesses after a foray into offshore markets before the collapse of Lehman Brothers Holdings Inc. led to billions in losses as refinancing costs surged and asset values slumped. Their attempts to repair their balance sheets since then have returned most of them to profit.

Mirvac Group, Westfield Group, Dexus Property Group, Charter Hall Group and Centro Retail Australia will be the best performers next year, driven by their potential for growth and plans to restructure or sell off assets, Garing said.

Westfield Retail Trust, which Garing downgraded to “neutral” from “buy,” is expected to see constrained growth, as retailers’ struggles and its low return on equity keep a lid on price gains, he said.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net