By guest contributor Jeremy Jiang, Analyst, Atchison Consulting
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 REITs Index, returned -2.6% in April, underperforming the S&P/ASX 200’s return of 2.3% over the month.
Over the 12 months to April 2019, AREITs posted an impressive total return of 17.7%, which was 7.3% higher than the S&P/ASX 200 (10.4%). AREIT prices appreciated strongly as bond yields collapsed but, in doing so, a gap has opened up between prices and valuations across AREIT sectors. This is the result of falling bond yields being viewed as positive for underlying property valuations.
At the end of April, AREIT sectors were trading on a 31% premium to net tangible assets (NTA) on an index-weighted basis. This measure implies the sector is expensive, with limited upside in asset valuations remaining in this cycle. Conversely, AREITs’ earnings yields continued to be attractive relative to interest rates.
Sector Performance
Table 1 below shows the performance of the AREIT sector for various periods ending 30 April 2019.
Table 1
Source: S&P/ASX 200 AREIT Accumulation Index (2019)