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 0.6% in the month ending 30 July 2020. The AREIT index has marginally outperformed the S&P/ASX 200 return of 0.5% over the month.
Over the 12 months to July 2020, AREITs posted a total return of -22.8% (12.9% lower than the S&P/ASX 200 return of -9.9%). AREITs have not yet fully recovered from the large fall in March of 35.5%.
Sector Performance
Table 1 below shows the performance of AREITs for various periods ending 30 July 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 June, the sector produced total returns of 2.0% and 4.4% per annum respectively.
Table 2 below shows the income performance of AREITs for various periods ending 30 July 2020.
Sector returns in July were led by Industrial AREITs with 13.5%, followed by Diversified AREITs with -1.9%, Retail AREITs with -5.4% and Office AREITs with -6.6%. The returns from Office AREITs reflected concerns over continued “work from home” restrictions, while Industrial AREITs continue to remain resilient to the second COVID-19 lockdown.
The income component of the total return was 4.0% for the 12-month period to July 2020. The annual volatility of income returns was 1.9%, which is low when compared with other asset classes.
The AREIT sector was trading at an earnings yield of approximately 7.10%, which was significantly higher than yields of both cash and Commonwealth Government bonds. Australian 10-year government bond yields finished July at 0.82%. The spread of the earnings yield over the Government bond yield remained largely unchanged from June at 6.28%.