By guest contributor Atchison Consultants
Institutional and retail investors are still seeking investments with higher yields, other than the traditional fixed income asset classes amidst the current low interest environment and expectations. Australian real estate investment trusts (AREITs) has been one of the asset classes which have been offering attractive yields over the last few years.
Better than expected financial results resulted in an outperformance of the AREITS over the broader Australian equities market, by 1.8%, over the month of February 2017. The recovery in bond yields that started in July 2016 continues to have a negative impact on the performance of the AREIT sector.
Valuation multiples of the AREIT sector are higher relative to long term averages.
As at 28 February 2017, the yield spread for the AREIT sector above the 10-year government bond yield was 3.0%. This is higher than the long term average spread (15 years to 28 February 2017) of 2.7%. The yield spread has fallen by close to 80bps since November 2016 attributable partly to a rise of approximately 30bps in the 10-year bond government bond yield and lower earnings yield over the same period.
AREIT Earnings Yield vs 10 Year Government Bond Yield
RBA, UBS