Real estate: Pam Walkley
Listed property trusts have had a rough time, but there are better days ahead as share prices and yields recover
Many people who invest to provide an income for themselves, including retirees, put their faith to varying degrees in Australian real estate investment trusts (A-REITs). And while 2020 was a challenging year for the sector – especially in the early days of Covid-19, when the S&P/ASX 300 A-REIT Accumulation Index fell 44% between January 2 and March 31 – it has come through in reasonable shape. The sector has since bounced back with the index, which includes distributions, increasing by around 55% from the end of March.
A key concern was the impact the lockdowns would have on rent collections and income. This varied, with large-scale and CBD-based retail A-REITs the most impacted while office, industrial and other subsectors were less affected, says Grant Berry, portfolio manager at boutique fund manager SG Hiscock.
“Encouragingly, despite the drop in rent collection, income yield across many A-REITs has remained strong and, as the situation improves, we see the potential for good upside in income yields. In fact, in some cases, distributions are back to the same levels they were before the Covid-19 outbreak,” says Berry in an article on firstlinks.com.au.
Despite deferrals and cancellations of dividends by some A-REITs, many still offer attractive yields relative to both bonds and cash, holding at a 3%-4%pa yield differential, says researcher Lonsec. But, as in most sectors, there have been winners and losers.
An analysis by global investment manager VanEck of the performance of 15 A-REITs in the year to September 30 found Goodman Group (ASX: GMG), which has a $52 billion global portfolio of logistical/industrial facilities, has been the best performer. Its share price had risen about 30% (at the time of writing) on the back of strong 2020 earnings and a positive outlook based on its global development pipeline and funds management fees.
The demand for logistics centres to support ecommerce has seen Goodman’s development work-in-progress increase to $7.3 billion, according to its September 2020 quarterly report. Goodman also reaffirmed its guidance for earnings to rise by 9% for 2020-21 and a distribution of 30¢ a share, the same as in the past two years.
Charter Hall Group (CHC), which manages listed and unlisted property funds on behalf of wholesale, institutional and retail investors, was the second-best performer. It has $43.4 billion funds under management and its share price has risen about 40% over the past year to date on the back of upgrades to its earnings guidance for the full 2020-21. It paid a dividend of 36¢ per unit for the year, up from 35¢ in 2019 and 33¢ in 2018.
A-REITS owning large-scale retail centres, especially those in CBDs, have been among the biggest losers. Overall, rent collections in retail were only around 55% for the June 2020 quarter, with dividends cut or cancelled by the likes of Scentre
Group (SCG). Scentre, the second-worst performer in the VanEck survey, owns Westfield shopping centres in Australia and New Zealand. Its share price has been down about 25% over the past year.
Vicinity Centres (VCX) – one of the largest A-REITs focused on ownership, management and development of shopping centres – was the poorest performer, losing 45% in value over the period. In its September quarter update, it said that only 56% of gross rental billings had been received for the three months to September. It did not provide a full-year 2020-21 guidance due to uncertain circumstances, but did say it intended to pay a distribution for the six months to December 31.
While retail rents for discretionary stores are likely to continue to come under pressure, says Lonsec, some analysts point to both Scentre Group and Vicinity as possible recovery stocks, especially as the rollout of vaccines should greatly increase visitors to major retail centres.
Other winners in 2020 include
• BWP Trust (BWP), which mainly holds Bunnings warehouse properties. Its share price has risen about 3% this year and its dividend yield is 4.2%.
• Waypoint REIT (WPR) owns a portfolio of 469 service station properties. Its share price has been steady for the year and its dividend yield is 5.3%
• National Storage (NSR) is a self-storage owner/operator. It has 194 storage centres under operation or management across Australia and New Zealand. Its share price has been steady for the year and its dividend yield is 4.2%.
Pam Walkley, founding editor of Money and former property editor with The Australian Financial Review, has hands-on experience of buying, building, renovating, subdividing and selling property.