It is hard to get excited about large Australian Real Estate Investment Trusts (A-REITs) with signs of weakening tenant demand and expectations of higher bond yields. But beneath the tough outlook are some good performances from niche A-REITs.
The S&P/ASX 200 A-REIT index has a total return of 1% (including distributions) over one year. With the ASX 200 index up 10%, A-REITs have underperformed. The gap would widen as ‘bond proxies’, such as A-REITs, utilities and infrastructure stocks are sold.
A pullback was overdue. The A-REIT sector strongly outperformed the broader sharemarket over three and five years and income investors flocked to listed property trusts with attractive, reliable distributions as global bond yields fell.