It’s a confusing time for investors, and just about everyone else. The experts were wrong about Brexit, Trump and many things in between. After market commentators (including APN analysts) forecast that ‘lower for longer’ was indeed a thing, Trump’s election victory prompted a rapid rise in long term bond yields that dented that view, at least temporarily.
Who cares, you might ask? Well, investors in Australian real estate investment trusts for one. If they’re looking for a reason why the REIT sector has fallen around the globe, blame it on Trump. Or Janet Yellen, who is busy talking up the prospect of rising rates in the US while the President-elect moves towards higher government debt.
All this chatter has had a local impact. Domestic bonds have been sold-off in sympathy, perpetuating a corresponding sell-off in dividend focussed stocks like AREITs. The effect is to detract from impressive first quarter operating updates from the sector, which offer better evidence of sound performance irrespective of bond market movements.
So, if you can see the value in focussing on factual reality rather than sentiment-driven speculation, which tends to drive short term movements in stock prices and bond markets, this is where income investors might look.
In short, the Australian economy and commercial property market are ticking along nicely. Office occupancy is high and rising (particularly the key office markets in Sydney and Melbourne), major shopping centres have very low vacancy and retailers are reporting sales growth. All of these are good for property trust investors because they bolster income security. Across the range of listed property trusts we cover, each either confirmed or increased their distribution guidance for the full year. It was further evidence that income investors need not worry about the recent sell off.
The following charts, showing four well-known and established AREITs that account for about half the sector’s capitalisation, tell the story.