For obvious reasons, this AREIT reporting season was unlike any other. The impact of COVID-19 on the sector is reflected in the S&P/ASX 300 AREIT Index returning -20.7% over the last financial year versus the broader S&P/ASX 300 Equities Index which returned -7.6%.
As noted in AREIT reporting season wrap Q&A, we expected an elevated level of complexity and cautious outlooks. Needless to say, both those expectations were met. Before diving into the sector-specific commentary, here are seven insights that have framed our portfolio investment decisions in this unique environment.
1. Cash collection is king
Pandemic-stricken AREITs experienced a heavy impact to their top-line earnings. For the last quarter of the last financial year (FY20), cash rent collection averaged just 78%. This was down to the collision of lockdown restrictions and government policy that allowed tenants in difficulty to reduce rental payments. The situation was further exacerbated by some tenants with the capacity to pay refusing to do so.
As the chart below shows, the retail sector was hardest hit, achieving just over half the cash rents of what would ordinarily have been collected. Despite most shopping centres remaining open, many stores were forced to close. In contrast, across the Industrial sector rent collections were at pre-pandemic levels while Office suffered slightly more.