Weekly Update 22/8/202123 August 2021
Welcome to this week’s Property News.
The FY21 REIT reporting season continued to provide great insights into the real estate market again week with Lend Lease, GPT Group, Dexus, Charter Hall Convenience Retail, Abacus, Aventus, Ingenia, HomeCo Daily Needs, APN Industria REIT, Stockland
and Vicinity releasing their results.
We are yet to hear from a number of REITs however the results so far show most REITs have managed the year very well. Earnings growth has averaged in excess of 3% on FY20 and distributions have averaged 5.9% for the year. The strong distributions helped push Total Securityholder Returns to an average of 34% as most REITs starting the year trading at discount to Net Tangible Assets (NTA) per security (average of -13%) and finishing the year slightly above NTA per security (average of 1%).
Valuation gains have been strong across all sectors, except for major regional shopping centres which continue to see negative rental spreads (Stockland -6%, GPT -9%, Vicinity -12%) and negative valuation gains. So far, Vicinity have felt the most pain from COVID 19 with significant CBD assets, and a large number of Centres in Victoria which have been affected by lockdowns. Vicinity ended the year trading at a -27% discount to NTA, suggesting the market feels the valuations and or income are expected to come under further pressure.
GPT are also trading at significant discount to NTA (-17%) and are working hard to paint a positive picture in its retail business which is likely to be the drag on overall performance. The NTA gap does present an M&A opportunity for those with deep pockets.
Capital raising during the year was generally in support of acquisitions as opposed to debt reduction and was in most cases accretive to earnings per share. I have updated last week’s chart on Total Security holder Returns and Earnings per Share (see below).
Several REITs are withholding guidance for FY22 given the current lockdowns, however those that have provided guidance are showing an average distribution of 5.1% (based on 1st July opening prices). It is likely that FY22 will see more modest Total Returns. Our modelling suggests that, baring any extended COVID impacts, average Total Returns will average 9%.
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