By guest contributor Ken Atchison, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 REITs Index, returned 1.2% in October, outperforming the S&P/ASX 200 return of -0.4 % over the month.
Over the 12 months to October 2019, AREITs posted an impressive total return of 23.6% (4.3% higher than the S&P/ASX 200 return of 19.3%).
During October a number of the AREITs presented their September quarter updates. Retail sales saw a marginal improvement for the September quarter but below expectations following personal tax refunds. Residential developers saw increased net deposits, suggesting improved market conditions. Office and industrial landlords remain positive with expectations of further cap rate compression in the year ahead.
At the end of October, AREITs were trading on a 49.0% premium to net tangible assets (NTA). This measure implies the sector is expensive, with a limited upside in asset valuations remaining in this cycle. However, AREIT earnings yields remain attractive relative to interest rates.
Sector Performance
Table 1 below shows the performance of AREITs for various periods ending 31 October 2019.
The medium term performance of AREITs has been strong. Over the 3 years and 5 years to the end of October 2019, the sector produced total returns of 12.7% and 12.4% per annum respectively.
Sector returns in October were led by Diversified AREITs with 1.8%, followed by Industrial AREITs with 1.6%, Office AREITs with 0.9% and Retail AREITs with 0.5% over the month.