Australian real estate investment trusts (AREITs) still presents well on yield relative to cash and other yielding asset classes and sectors. AREITs are expected to continue providing attractive relative yields in the current investment environment
AREITs returned -4.8% over the month of June 2017, underperforming the broader Australian equities market, by 5.0%. Over the year to 30 June 2017, AREITs returned 6.3%, underperforming the broader Australian equities market by 20.3%.
The Retail sector makes up the largest component within the sector and as a result heavily impacted sector performance. Continuing fear surrounding the retail sector amidst patchy retail spending and expected competition from Amazon’s impending entry into Australia and online retailing more broadly weighed down the AREIT sector during the month. Hawkish comments from central bankers didn’t help the overall sector either.
However, notwithstanding the concern with the retail sector, it’s performance (-4.6%) still meant it outperformed the Office (-5.3%) and Industrial (-5.9%) sectors over the month.
Over the month of June, the best performing stock within the Retail sector was BWP Trust (+0.9%) and the largest underperformer was Westfield Corporation (-5.3%). Within the Office sector, Cromwell Property Group (+1.6%) was the best performer whilst Dexus Group was the largest underperformer (-10.0%) mainly attributable to unfavourable pricing in its latest capital raising. Goodman Group, the only industrial REIT within the AREIT sector, returned -5.9% over the month.
Valuation multiples of the AREIT sector are currently higher relative to long term averages. As at 30 June 2017, the yield spread for the AREIT sector above the 10-year Government bond yield was 3.2% p.a. compared with the long term (15 year) average of 2.7% p.a.
The yield spread fell over the month, attributable partly to an increase of 15bps in the 10-year Government bond yield, as well as a small (10 bps) increase in forecast earnings yield over the month for the sector.
Source: RBA, UBS