By guest contributor Chris Owens, Analyst, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 REITs Index, returned
7.9% in the month ending 31 August 2020. The AREIT index has outperformed the S&P/ASX 200 return of 2.8% over the month.
Over the 12 months to August 2020, AREITs posted a total return of -17.7%, 12.6% lower than the S&P/ASX 200 return of -5.1%. AREITs have not yet fully recovered from the 35.5% fall in March.
Sector Performance
Table 1 below shows the performance of AREITs for various periods ending 31 August 2020.
The restrictions arising from the pandemic continue to have a substantial impact on the medium-to-long term performance of the AREIT sector. Over the 3 years and 5 years to the end of August, the sector produced total returns of 4.4% and 5.8% per annum respectively.
Sector returns in August were led by Diversified AREITs with 9.7%, followed by Retail AREITs with 8.5%, Industrial AREITs with 7.5% and Office AREITs with 3.6%. The positive but low returns from Office AREITs reflected concerns over continued work from home practice. Industrial AREIT returns have been resilient so far to the second COVID-19 lockdown in Victoria.
Table 2 below shows the income performance of AREITs for various periods ending 31 August 2020.
The income component of the total return was 3.7% for the 12-month period to August 2020. The 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 6.2%, which was significantly higher than yields of both cash and Commonwealth Government bonds. Australian 10-year government bond yields finished August at 0.9%. The spread of the earnings yield over the Government bond yield was unchanged from July at 5.3%.