By Jeremy Jiang, analyst, Atchisons Consulting
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 REITs Index, returned 6.2% in March, outperforming the S&P/ASX 200, which returned 0.7% over the month.
Over the 12 months to March 2019, AREITs posted a significant total return of 26.2%, which was around 14.1% higher than the S&P/ASX 200 (12.1%). A strong appreciation in AREITs prices following a recent collapse in bond yields has led to stretched valuations across AREIT sectors. This is the result of falling bond yields being viewed as positive for their underlying property’s valuations.
At the end of March, AREIT sectors were trading on a 32% premium to net tangible assets (NTA) on an index weight basis. This measure implied the sector is expensive, with a limited upside in asset valuations remaining in this cycle. Conversely, AREITs’ earnings yields continued to look attractive relative to interest rates.
Sector Performance
Table 1 below shows the performance of the AREIT sector for various periods ending 31 March 2019.
Table 1
Source: S&P/ASX 200 AREIT Accumulation Index (2019)
The medium-to-long term performance of AREITs continues to be relatively strong. Over 3 years and 5 years to the end of March 2019, the sector produced total returns of 9.9% and 14.7% per annum respectively.