Sector Moves: REITs – Charter Hall Retail, SCA Property, Goodman

The listed property sector rose 0.6 per cent in April and outperformed the ASX 200 which posted a 0.9 per cent loss that month on a backdrop of rising treasury yields, as prices fell. A move that caught my eye given that this sector would normally be under pressure in these circumstances.

Why? The sell-off in treasuries usually indicates a looming rate hike which we did receive this week, a surprise 25 basis point jump to 0.35 per cent which means the cost of debt to purchase properties is set to move higher.

Before we go into it, let’s recap the main wall of worries challenging investors. The consumer price index (CPI), came in at 5.1 per cent year over year in March to a new two decade high, angst on the speed of tightening and the interest rate hiking cycle by global central banks, and talks of a demand slowdown.

To close off April, Dexus (ASX:DXS) inked a deal to buy AMP’s real estate and domestic infrastructure equity business, Collimate Capital for up to $500 million, upgrading distribution per security growth of no less than 2.5 per cent for this financial year thanks to better than expected business outcomes.

Who are the biggest losers and winners?

The more defensive REITS were in the spotlight with Charter Hall retail REIT (ASX:CQR) rose 6.2 per cent in April, SCA Property (ASX:SCP) added 5.1 per cent, followed by Goodman Group (ASX:GMG) advanced 4.8 per cent. Other winners included Centuria Industrial Reit (ASX:CIP) rose 3.9 per cent, followed by BWP Trust (ASX:BWP), and Cromwell Property Group (ASX:CMW).

Over the past 12 months, each of these companies have added almost 30 per cent each. These stocks were in favour as investors looked for defensive stocks in the search for safety in a rising rate environment. Usually, rents tend to grow in line with CPI in the long term, the capital value of buildings lifts as building costs rise. However, on the flip side, rising rates also present downside risks for the sector – it’s a double edged sword.

The losers were more growth style REITS like Ingenia Communities Group (ASX:INA) tumbled 7.3 per cent, after downgrading its earnings per share guidance for this financial year due to prolonged wet weather and supply chain issues. National Storage REIT (ASX:NSR) fell 3.7 per cent, followed by Mirvac (ASX:MGR) down 2.8 per cent amid a slowdown in residential sales and rising construction costs. Other losers include Mirvac Group (ASX:MGR), Stockland Corporation (ASX:SGP), and Home Consortium (ASX:HMC).

However, what could see inflation move higher are a few macro moves such as the Russian war in Ukraine, China’s covid crisis and its extended lockdowns, compounding the pricing pressures of an already strained supply chain.

We will wait and see how this will all turn out.

Source: Bloomberg, FactSet, Australian Bureau of Statistics, IRESS