By Chris Owens, analyst, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 AREIT Index, returned 5.8% in the month ending 30 November 2022. AREITs underperformed the S&P/ASX 200 return by 0.8% over the month.
Over the 12 months to November 2022, AREITs posted a total return of -13.0%, underperforming the S&P/ASX 200 return of +5.0%.
Sector Performance
Table 1 below shows the performance of AREITs for various periods ending 30 November 2022.
Over the 3 years and 5 years to the end of November, the sector produced total returns of -1.6% and 4.2% per annum respectively.
Sector returns were led by Industrial AREITs which produced a return of 12.1%. Diversified AREITs were next with a return of 5.5%, while Office AREITs returned 2.8% and Retail AREITs returned 2.7%.
Table 2 below shows the income performance of AREITs for various periods ending 30 October 2022.
The income component of the total return was 3.9% for the 12-month period to November. Annual volatility of income returns was 1.6%, which is low when compared with other asset classes.
AREITs were trading at an earnings yield of approximately 6.6% at the end of the month, higher than yields of both cash and Commonwealth Government bonds. However, the spread of the earnings yield over the 10-year government bond yield slipped from 3.3% to 3.1%.
Changes over time of the spread between the earnings yield of AREITs and the 10-year government bond yield are shown in Chart 1.
Market Review
In 2020 and 2021, hotels suffered significantly with repeated lockdowns and borders closed to international and domestic tourists. Last year, at the height of the pandemic, the national hotel occupancy rate fell to an historical low of 25%. According to STR, a data insights organisation, hotel occupancy across Australia recovered and reached 70% for the first time since February 2020.
The average daily hotel room rate also increased. In Sydney an average hotel room would set you back $183 per night in 2020. This is now $271, while Melbourne has seen the average hotel room rate rise from $135 to $231.
However, the strong rebound Australia’s hotel rebound maybe short lived as new supply is set to open. Almost 6000 hotel rooms are under construction and set to open in 2023. This is up from the 3400 that opened in 2022. This is likely to push down daily rates and increase competition between hoteliers.
Event Hospitality & Entertainment, owner of Rydges and Atura hotels, saw revenue from hotels rise 16.4% to $216 million for the year to June 2022.