By Chris Owens, analyst, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 AREIT Index, returned -0.3% in the month ending 28 February 2023. AREITs outperformed the S&P/ASX 200 return of -2.4% over the month.
Over the 12 months to February 2023, AREITs posted a total return of -6.5%, underperforming the S&P/ASX 200 return of +7.2%.
Sector Performance
Table 1 – S&P/ASX 200 AREIT Accumulation Index Performance: Total Returns (28 February 2022)
Over the 3 years and 5 years to the end of February, the sector produced total returns of 0.7% and 6.3% per annum respectively.
Sector returns were led by Office A-REITs which returned +2.2%. Retail A-REITs returned -0.3%, Diversified A-REITs returned -0.5% and Industrial A-REITs returned -0.6%.
Table 2 – S&P/ASX 200 AREIT Accumulation Index Performance: Income Returns (28 February 2022)
The income component of the total return was 1.8% for the 12-month period to February. Annual volatility of income returns was 1.7%, which is low when compared with other asset classes.
AREITs were trading at an earnings yield of approximately 7.0% at the end of the month, higher than yields of both cash and Commonwealth Government bonds. The spread of the earnings yield over the 10-year government bond yield remained unchanged after rounding at 3.4%.
Changes over time of the spread between the earnings yield of AREITs and the 10-year government bond yield are shown in Chart 1.
Market Review
Shopping centres have long been a cornerstone of the retail industry, providing a convenient and comprehensive shopping experience for consumers. However, the COVID-19 pandemic posed a significant challenge to the sector, with lockdowns and social distancing measures forcing many shopping centres to temporarily close their doors.
Despite the disruption, the industry has shown remarkable resilience, with major shopping centres such as Chadstone in Melbourne and Westfield centres seeing a rebound in sales. Chadstone, which is jointly owned by John Gandel and Vicinity Centres, recorded almost $2.7 billion in annual sales last year, a 16% increase from before the pandemic. Its success is attributed to steady investments in its expansion, which now covers close to 240,000 square metres of space.
Meanwhile, Westfield centres owned by Scentre dominated the Shopping Centre News Big Guns report rankings, with seven of the top 10 performing centres in the country for specialty sales per square metre. The report indicated 85% of the 91 centres included in the rankings significantly increased their annual turnover, while the other 15% either maintained their 2020 levels or showed minor falls.