By Chris Owens, Analyst, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 AREIT Index, returned +1.7% in the month ending 31 May 2021. The AREIT index underperformed the S&P/ASX 200 return of +2.3% over the month.
Over the 12 months to May 2021, AREITs posted a total return of +24.4%, underperforming the S&P/ASX 200 return of +28.2%. Recovery from the depths of falls prompted by the pandemic is reflected in this performance.
Sector Performance
Table 1 below shows the performance of AREITs for various periods ending 31 May 2021.
Over the 3 years and 5 years to the end of May, the sector produced total returns of 6.6% and 5.4% per annum respectively.
Returns were strong across all sectors. Sector returns in May were led by Industrial and Office AREITs which each producing a return of +2.8%, followed by Diversified AREITs with +1.2% and Retail AREITs with +0.3%.
Table 2 below shows the income performance of AREITs for various periods ending 31 May2021.
The income component of the total return was 3.6% for the 12-month period to May 2021. Annual volatility of income returns was 2.1%, which is low when compared with other asset classes.
AREITs were trading at an earnings yield of approximately 5.9%, significantly higher than yields of both cash and Commonwealth Government bonds. The spread of the earnings yield over the 10-year government bond yield remained at 4.3%.
Changes over time of the spread between the earnings yield of AREITs and the 10-year government bond yield are shown in Chart 1.