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.

 

RELATED ARTICLES

Pub property: a parma, a pint and a profit

A-REITS are looking at M&A activity again

What’s next for Australian commercial real estate?

banner

Most viewed in recent weeks

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Latest Updates

Investment strategies

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Investment strategies

Don't let Trump derail your wealth creation plans

If you want to build wealth over the long-term, trying to guess the stock market's next move is generally a bad idea. In a month where this might be more tempting than ever, here is what you should focus on instead.

Economics

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Investment strategies

Will China's EV boom end in tears?

China's EV dominance is reshaping global auto markets - but with soaring tariffs, overcapacity, and rising scrutiny, the industry’s meteoric rise may face a turbulent road ahead. Can China maintain its lead - or will it stall?

Investment strategies

REITs: a haven in a Trumpian world?

Equity markets have been lashed by Trump's tariff policies, yet REITs have outperformed. Not only are they largely unaffected by tariffs, but they offer a unique combination of growth, sound fundamentals, and value.

Shares

Why Europe is back on the global investor map

European equities are surging ahead of the U.S this year, driven by strong earnings, undervaluation, and fiscal stimulus. With quality founder-led firms and a strengthening Euro, Europe may be the next global investment hotspot.

Chalmers' disingenuous budget claims

The Treasurer often touts a $207 billion improvement in Australia's financial position. A deeper look at the numbers reveals something less impressive, caused far more by commodity price surprises than policy.

Fixed interest

Duration: Friend or foe in a defensive allocation?

Duration is back. After years in the doghouse, shifting markets and higher yields are restoring its role as a reliable diversifier and income source - offering defensive strength in today’s uncertain environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.