By guest contributor, Atchison Consultants.
Australia real estate investment trusts (AREITs) finished March flat (+0.1%), outperforming the S&P/ASX 200 Index which returned -3.8%. So far in 2018, the sector is down 6.4% compared to -3.9% for the broader market. AREITs continue to provide relatively attractive earning yields at 6.7% on average.
Performance of AREITs was helped this month by the decline in the long-term bond yield which fell from 2.86% to 2.72%. The long-term average premium of the forecast earnings yield over the 10-year Australian government bond is 2.76%. Currently, this premium is at 3.98%.
The earnings yield of retail sectors (the largest constituent of AREITs) at 6.4% was lower relative to Office and Diversified AREIT at 7.1% and 7.7% respectively.
Source: RBA, UBS (2018)
Forecast earnings yields by property sector over the next year are as follows.
Forecast Earnings Yields
1 Earnings per unit divided by unit price. Weighted by market cap.