By guest contributor Atchison Consultants
Australian real estate investment trusts (AREITs) continue to provide attractive relative yields in the current low interest rate environment. AREITs returned -1.1% over the month of May 2017, outperforming the broader Australian equities market, by 1.7%.
Despite absolute negative performance over the month, relative outperformance to the broader equities market is the continued movement towards ‘flight to safety’ investments amidst geopolitical risks and uncertainties.
The Retail AREIT sector (the largest constituent of the asset class) underperformed significantly over the month relative to Office and Industrial AREIT Sectors. Weaker performance of the Retail AREIT sector over the last few months is attributable to worse than expected sales values and sales volumes.
Valuation multiples of the AREIT sector are currently higher relative to long term averages. As at 31 May 2017, the yield spread for the AREIT sector above the 10-year Government bond yield was 3.3% p.a. Current yield spread is higher than the long term average spread (15 years to 31 May 2017) of 2.7% p.a.
