AREIT investors should focus on long-term view

23 June 2020

The short-term implications of COVID-19, which have hit the Australian real estate investment trust (AREIT) sector, should not detract investors from seeing on a long-term outlook, given that REITs are currently far better positioned to recover than during the Global Financial Crisis (GFC). 

According to SG Hiscock and Co portfolio manager of AREITs, Grant Berry, the current and more favourable characteristics of REITs was strongly underpinned by lower gearing, more diversified debt and longer tenure. 

“Real estate is also a real asset, with a growing income profile over time, and this will always prove attractive for many investors,” he said. 

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“The extent of the recent REIT sell-off was surprising but, having said that, we had been cautioning for some time on the late cycle pricing and fundamentals.” 

Additionally, AREITs benefitted from monetary policy and extensive fiscal stimulus measures announced by the Federal Government which also provided some support for the sector. As a result, Australia was ahead of expectations and opened up the economy which had a positive impact on the REIT sector. 

Although the office subsector continued to be affected by softer tenant demand which was expected to persist in a recessionary environment, the vacancies across the Sydney and Melbourne’s CBDs were still at low levels and the introduction of social distancing measures may further assist in pushing against the densification of workplaces, Berry noted. 

He advised investors to look for the better opportunities across east coast capital cities in the suburban markets, largely due to uncertainty around office commuting.  

“Our preferred CBD office market is Perth, as it’s in the recovery phase with more attractive value metrics and has a far easier commute to the CBD than other Australian capitals,” Berry said. 

“Overall, REITs are managing through a very challenging environment…they were at the front line of closing down the economy but are poised to lead in the recovery.” 

According to FE Analytics, the SG Hiscock Premier Opportunities Fundthe SG Hiscock Property Fund and the SGH Property Opportunities Fund lost -29.66%, -25.28% and -25.37% respectively over the six months to 19 June, 2020, against the sector average of -17.05%. 

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AREIT's. In the GFC, Australian Unity's AREIT Growth Units declined about 90%. Even some years later, they still had not recovered beyond 20%.

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