By Chris Owens, analyst, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 AREIT Index, returned 0.4% in the month ending 31 December 2020. The AREIT index has marginally underperformed the S&P/ASX 200 return of 1.2% over the month.
Over the 12 months to December 2020, AREITs posted a total return of -4.6%, which is 6.0% lower than the S&P/ASX 200 return of 1.4%. 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 December 2020.
The easing of COVID-19 restrictions has had a positive impact on the performance of AREITs during December. Over the 3 years and 5 years to the end of December, the sector produced total returns of 5.4% and 7.0% per annum respectively.
Sector returns in December were led by Industrial AREITs with 1.9%, followed by Retail AREITs with 0.3%, Office AREITs with 0.0% and Diversified AREITs with -0.5%. The high returns from Industrial AREITs can be attributed to the increase in demand for warehouse space, as shoppers avoided malls and continued to shop online.
Table 2 below shows the income performance of AREITs for various periods ending 31 December 2020.
The income component of the total return was 3.5% for the 12-month period to December 2020. 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 6.1% which was significantly higher than yields of both cash and Commonwealth Government bonds. Australian 10-year government bond yields finished December at 0.97%. The spread of the earnings yield over the Government bond yield remained steady at 5.1%.