By Chris Owens, Analyst, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 AREIT Index, returned -4.1% in the month ending 31 January 2021. The AREIT index has significantly underperformed the S&P/ASX 200 return of +0.3% over the month.
Over the 12 months to January 2021, AREITs posted a total return of -14.0%, which is 10.9% lower than the S&P/ASX 200 return of -3.1%. AREITs have rallied in recent months, from their 35.5% fall in March.
Sector Performance
Table 1 below shows the performance of AREITs for various periods ending 31 January 2021.
The easing of COVID-19 restrictions has had a positive impact on the performance of AREITs during January. Over the 3 years and 5 years to the end of January, the sector produced total returns of 5.1% and 5.9% per annum respectively.
Sector returns in January were led by Retail AREITs with -2.9%, followed by Diversified AREITs with -3.5%, Office AREITs with -4.8% and Industrial AREITs with -6.2%. The negative returns from all AREIT sectors can be partially attributed to the rising Australian Government bond yields.
Table 2 below shows the income performance of AREITs for various periods ending 31 January 2021.
The income component of the total return was 3.6% for the 12-month period to January 2021. Annual volatility of income returns was 1.8%, which is low when compared with other asset classes.
AREITs were trading at an earnings yield of approximately 6.3% which was significantly higher than yields of both cash and Commonwealth Government bonds. Australian 10-year government bond yields finished January at 1.09%. The spread of the earnings yield over the Government bond yield rose from 5.1% to 5.3%.