By Chris Owens, Analyst, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 REITs Index, returned
-0.4% in the month ending 31 October 2020. The AREIT index has underperformed the S&P/ASX 200 return of -1.9% over the month.
Over the 12 months to October 2020, AREITs posted a total return of -18.0%, -9.9% lower than the S&P/ASX 200 return of -8.1%. AREITs have not yet recovered from the 35.5% fall in March.
Sector Performance
Table 1 below shows the performance of AREITs for various periods ending 31 October 2020.
Restrictions arising from the pandemic are having a substantial impact on the performance of AREITs. Over the 3 years and 5 years to the end of September, the sector produced total returns of 2.8% and 4.5% per annum respectively.
Sector returns in October were led by Industrial AREITs with 2.4%, followed by Diversified AREITs with -0.1%, Office AREITs with -1.9% and Retail AREITs with -3.1%. Low returns from Office AREITs reflected concerns over continued “work from home” practices. Retail AREITs have experienced a decline as Victoria continued extreme lockdown restrictions into October.
Table 2 below shows the income performance of AREITs for various periods ending 31 October 2020.
The income component of the total return was 3.9% for the 12-month period to October 2020. Annual volatility of income returns was 1.9%, which is low when compared with other asset classes.
AREITs were trading at an earnings yield of approximately 6.21%, which was significantly higher than yields of both cash and Commonwealth Government bonds. Australian 10-year government bond yields finished September at 0.83%. The spread of the earnings yield over the Government bond yield remained steady at 5.38%.