In a market clamouring for yield, Australian real estate investment trusts (REITs) have been a very popular asset lately.

Local investors like the average distribution yield in A-REITs, which is running at about 5% – down from about 6.5% in 2013 – although there is no franking. (There can be small tax-advantaged component, arising from tax concessions such as depreciation allowances and tax-deferred income, which is not as effective in reducing an investor’s tax liability as fully franked dividends from shares – and in the SMSF context, does not give any augmentation of the yield to the SMSF in pension phase.)

And for international investors, facing near-zero interest rates domestically, A-REIT yields are very attractive.

This yield-oriented demand has seen money pouring into the A-REITs. According to MSCI (Morgan Stanley Capital International) indices, over the past five years REITs have earned 14.4% total return (capital growth plus income distributions) a year, versus 8.5% for shares. Over three years, the REITs have generated 23.4% a year, versus 16.6% for shares.

Worse, the A-REITs are trading on average at a material premium to net asset value (NAV). This tells you that investors are anticipating that the market will drive unit prices higher.

That is the problem with listed REITs: being listed, their unit prices can slump and rise, and where sometimes – most notably post-GFC – prevailing discounts to NAV allow an investor to buy into the portfolio cheaply, the flipside of an over-valued unit price can also apply: as it mostly does today.

However, the lower Australian dollar, added to the perceived relative stability of the Australian economy and its reputation as a low-risk investment environment, continue to make Australian REITs attractive to foreign investors. And remember, what looks fully-valued to an Australian investor might not appear that way to a Hong Kong or Japan-based investor.

Here are some examples of potential value in the A-REIT space at present.

Stockland SGP $4.45

Analysts’ consensus target price: $4.64 (upside 4.3%)

Australia’s largest diversified property group, the $10.4 billion Stockland develops, owns and manages retail centres, business parks, logistics centres, office buildings, residential communities and retirement living villages. The group is overhauling its asset mix, growing the industrial portfolio – especially logistics and business parks – and boosting the residential exposure, while making a gradual exit from the office property sector. While Stockland – like many REITs – is trading at a large premium to asset value, the company says it is on track to boost earnings per share (EPS) by up to 7.5% in FY15 and maintain its full-year distribution at 24 cents a share, pricing it on a FY15 expected yield of 5.4% (unfranked). The analysts’ consensus target on Stockland is 4.3% higher than the current price, a rare discount among the big trusts.

National Storage REIT NSR $1.60

Analysts’ consensus target price: $1.70 (upside 5.9%)

Specialist self-storage REIT National Storage REIT (NSR) is a good example of the niche REITs that have started to come on to the Australian Securities Exchange (ASX). NSR’s property assets are self-storage centres, of which it owns more than 80, spread across all states and territories (except NT). Capitalised at $473 million, NSR offers customers self-storage, business storage, vehicle storage, wine storage (under the WineArk brand, which holds more than two million bottles of wine), vehicle hire, packaging and insurance. The group manages $633 million worth of assets. NSR has just raised $57.5 million in a placement, but despite that dilution, analysts expect double-digit earnings and dividend growth from NSR in FY16, and a 5.8% yield.

360 Capital Office Fund TOF $2.09

Analysts’ consensus target price: $2.26 (upside 8.1%)

Capitalised at $162 million, 360 Capital Office Fund (TOF) is another niche operator, focusing on investing in A-grade suburban and B-grade CBD office properties with a focus on yield and security of income from blue-chip tenants, where it does not need to offer lease incentives. TOF owns four properties, with the occupancy rate of 100%, and with a weighted average lease expiry of 4.7 years. The properties are in Brisbane (two), Melbourne and Canberra, and TOF’s top tenants are the Commonwealth of Australia and the Queensland state government. TOF recently revalued its portfolio, resulting in a 4.8% uplift. Broker Morgans sees the fund offering a FY15 distribution yield of 8.1%, rising to 8.6% in FY16, with 8.1% upside at present to the target price.

Ingenia Communities Group INA $0.415

Analysts’ consensus target price: $0.50 (upside 20.5%)

Formerly the ING Real Estate Community Living Group, Ingenia Communities (INA) is a specialist retirement living REIT that is positioned to benefit from Australia’s ageing population. Ingenia owns, manages and develops a diversified portfolio of 58 affordable “seniors living” communities across Australia, in three specific brands. These are Garden Villages (rental), Settlers Lifestyle (deferred management fee) and Active Lifestyle Estates (manufactured home estates), which are cheap, pre-fabricated two-bedroom structures, aimed at the “grey nomad” retirement market. INA’s portfolio does not generate as high a yield as many other REITs – analysts expect 3.6% in FY15 and 4.1% in FY16 – but it could be considered as defensive annuity-style income. The consensus target price on Ingenia offers plenty of value if it is achieved.

Galileo Japan Property Trust GJT $1.86

Analysts’ consensus target price: $2.27 (upside 22%)

Lastly, for those prepared to invest offshore, Galileo Japan Property Trust is an interesting play on Japanese property. Capitalised at $197 million, the trust owns a portfolio worth ¥55.9 billion (A$594 million), spread across office (41% of the portfolio), retail/mixed use (41%), residential (14%), and industrial property (4%). The portfolio is also well diversified geographically, with 49% of the property space in central and greater Tokyo, and the rest spread across Osaka, Fukuoka, Kobe, Kumanoto, Shiga and Sapporo. At the end of December, the portfolio was 96.6% occupied. Japan cannot be said to be enjoying a property price boom, but there are clear signs of recovery. Galileo does not hedge its currency exposure, so the trust’s metrics are susceptible to movements in the yen/A$ exchange rate: if the yen drops against the A$, Australian investors lose, and vice versa. For example, Galileo’s net asset value dropped four cents in the December 2014 half-year, to $2.15, on currency effects, not property. So the trust trades at a 13.4% discount to NAV, and the expected 13.6 cent distribution in FY15 and 15.8 cent payout in FY16 has the stock offering a 7.3% yield in FY15, rising to 8.5% in FY16.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.