By guest contributor Jeremy Jiang, Property Analyst, Atchison Consulting
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 REITs Index, returned 4.2% in June, outperforming the S&P/ASX 200’s return of 3.7% over the month.
Over the 12 months to June 2019, AREITs posted an impressive total return of 19.3%, which was 7.8% higher than the S&P/ASX 200 (11.5%). One of the forces responsible for this return was a fall in market interest rates. The Australian 10-year government bond yield fell 35bps from 1.65% to 1.30% over the month. Compared to the same time in 2018, the Australian 10-year government bond yield has decreased by 149bps.
AREIT prices appreciated strongly as bond yields fell but, in doing so, they have “overshot” and a gap has opened up between prices and valuations. This is a result of lower bond yields being viewed as positive for underlying property valuations.
At the end of June, AREIT sectors were trading on a 54.2% premium to net tangible assets (NTA) on an index-weighted basis. This measure implies the sector is expensive, with a limited upside in asset valuations remaining in this cycle. However, 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 June 2019.
Table 1
