By CHRISTINE BROWN
DIRECTOR, WEALTH ADVISORY

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REITs (listed property securities)

Real Estate Investment Trusts Monthly Quarter 1 Year 3 Year 5 Year 10 Year
S&P/ASX 300 A-REIT Accumulation Index -3.15% -6.18% 0.52% 5.04% 10.19% 3.27%
FTSE EPRA/NAREIT Dev. NTR (AUD Hgd) -6.26% -6.55% -2.60% 1.40% 6.92% 4.93%

 

The S&P/ASX 300 A-REIT Accumulation Index fell 3.2% in February, with higher yields bringing the sector under pressure. Shopping centre giant Vicinity Centres (-7.8%) was hardest hit after reporting a fall in H1 profit amid challenging retail conditions. News from major tenant RFG (whose brands include Donut King, Gloria Jeans and Crust Gourmet Pizzas) that it would be forced to close between 160 and 200 stores did not help. After a frustrating few months, National Storage REIT (+2.0%) gained in February, announcing a 22% rise in storage revenue and a 152% rise in profit driven by fair value adjustments to its portfolio. Globally, the EPRA/NAREIT Developed Market Index (AUD hedged) fell 6.3% in February, highlighting the relative tenacity of domestic REITs. US REITs, measured by the MSCI US REIT Index, tumbled 7.9% as yields spiked.

The Outlook

The latest (December quarter) survey of commercial property specialists run by National Australia Bank found that operators in the sector were reasonably upbeat about the business outlook, although they did not expect the outlook to translate into strong gains in capital value and rentals or sharp falls in vacancy rates. The overall picture concealed some sharp sectoral variations: Of the major subsectors, industrial is in best shape, with NAB finding “reports of high demand for warehousing arising from strong online retail (including Amazon).” Retail, on the other hand, is in outright poor shape: Respondents expected falling rentals, slightly lower capital values, and rising vacancy rates, and they expected the sector to be oversupplied with space for at least the next five years.

A faster rate of economic growth could improve the sector’s prospects, but as matters stand the economic outlook is only fair rather than robust, and even if operating performance picks up to some degree, the big challenge for the sector has not gone away. The prospect of higher bond yields is likely to lead to further underperformance.

 

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