Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 380

A-REITs offering much-needed income

While Australian listed property stocks, or A-REITs, have gone through a challenging period during 2020, most are currently performing well and offer investors an attractive opportunity for income yield.

During the latest reporting season, most A-REITs did not provide much future guidance which is unusual, but this was more a result of the challenge in predicting the short-term future rather than any specific concerns about the property groups.

Indeed, A-REITs outperformed the broader Australian equity market during reporting season, returning 8% (compared to 3%) in August 2020 and this outperformance continued through September.

Income trajectory

On the whole, balance sheets across the sector are in good shape and within covenants, with increased available liquidity. As investors, our focus is now more on the income trajectory.

One of the key concerns about A-REITs during the lockdown was the impact it would have on rent collections and income. Across the sector, rent collections have varied. The most impacted were large scale and CBD-based retail A-REITs while sectors such as office, industrial and other subsectors were less affected.

Now, with the COVID-19 lockdowns relaxing across Australia, with the exception of Victoria, stores are opening, and foot traffic is returning, and this is leading to an acceleration in rent collection.

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.

Taking the diversified GPT Group (ASX:GPT) as a bellwether for A-REITs, over the six months to June 2020, it experienced around 80% rent collection, yet the most recent distribution rate annualised still provides a yield of around 5% on current pricing.

Another example is Aventus Group (ASX:AVN), Australia’s largest owner and manager of large-format retail offerings across Australia. Aventus is arguably a barometer of what may transpire for other REITs, and why we are constructive on the sector as a source of income.

At the end of January 2020, Aventus had a share price of $2.99. Its most recent quarterly distribution at the time was 4.26 cents per share which annualised would have reflected 5.7% distribution yield.

Unfortunately, with the uncertainty of COVID, the distribution was cut to 1.06 cents per unit for the March quarter, while its security price hit a low of $1.36. By June, the quarterly distribution was increased to 2.35 cents. When Aventus reported its results in late August, foot traffic (excluding Victoria) was actually above the prior year levels.

Source: Aventus

Its most recent September quarterly distribution was increased to 4 cents, similar to pre-COVID levels, and the security price at the end of September was $2.36. The annualised rate therefore reflects a yield of 6.8%, or more than 100 bp higher than that in January.

In the meantime, long-term interest rates have also come down, making the case for alternative sources of income even more compelling. This provides the backdrop for further re-rating potential and likely a signpost for what may transpire for some other REITs.

Positioning for the recovery

A key question for investors is whether they continue to focus on the ‘stay at home’ theme or whether they start to position themselves for the ‘recovery’.

We have seen the ‘stay at home’ theme resonate throughout equity markets as companies that benefit from this trend – such as Amazon, Netflix and the like – experience soaring share prices. This has carried through into the A-REIT sector, with those groups having some association with e-commerce (logistics) or data (data centres) at high prices, while much of the traditional A-REIT sectors such as retail and offices at low prices.

In our view, some stocks at such extreme levels are over-extrapolating the ‘stay at home’ theme, whereas the reality is that there will be a return to normality as COVID-19 runs its course or when a vaccine is rolled out.

Therefore, we are positioning for the recovery trade, and there are some strong and compelling opportunities in real assets, which are out of favour at the moment that will benefit from the return to normality.

We are also seeing some good opportunities in alternative real estate, such as land lease communities, storage and childcare centres – which are currently a good source of income, diversification and re-rate potential.

However, we believe it is important to not overlook traditional core real estate in the A-REIT sector because that’s where investors can find the deepest value and some real opportunities in the current market.


Grant Berry is a Director and Portfolio Manager at SG Hiscock & Company. SG Hiscock & Company Ltd (ABN 51 097 263 628, AFSL 240679) may hold positions in companies mentioned in this article. This is general information and is not intended to constitute a securities recommendation. While the information contained in this presentation has been prepared with all reasonable care, SG Hiscock & Company accepts no responsibility or liability for any errors or omissions however caused.



A-REITS are looking at M&A activity again

Luxury in a pandemic: five grand ways LVMH delivers grandeur

Five megatrends driving the Liquorice Allsorts of real estate


Most viewed in recent weeks

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.

Latest Updates


Superannuation: a 30+ year journey but now stop fiddling

Few people have been closer to superannuation policy over the years than Noel Whittaker, especially when he established his eponymous financial planning business. He takes us on a quick guided tour.

Survey: share your retirement experiences

All Baby Boomers are now over 55 and many are either in retirement or thinking about a transition from work. But what is retirement like? Is it the golden years or a drag? Do you have tips for making the most of it?


Time for value as ‘promise generators’ fail to deliver

A $28 billion global manager still sees far more potential in value than growth stocks, believes energy stocks are undervalued including an Australian company, and describes the need for resilience in investing.


Paul Keating's long-term plans for super and imputation

Paul Keating not only designed compulsory superannuation but in the 30 years since its introduction, he has maintained the rage. Here are highlights of three articles on SG's origins and two more recent interviews.

Fixed interest

On interest rates and credit, do you feel the need for speed?

Central bank support for credit and equity markets is reversing, which has led to wider spreads and higher rates. But what does that mean and is it time to jump at higher rates or do they have some way to go?

Investment strategies

Death notices for the 60/40 portfolio are premature

Pundits have once again declared the death of the 60% stock/40% bond portfolio amid sharp declines in both stock and bond prices. Based on history, balanced portfolios are apt to prove the naysayers wrong, again.

Exchange traded products

ETFs and the eight biggest worries in index investing

Both passive investing and ETFs have withstood criticism as their popularity has grown. They have been blamed for causing bubbles, distorting the market, and concentrating share ownership. Are any of these criticisms valid?



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.