FNArena’s Weekly Insights – March 18 2024
In this week’s Weekly Insights:
-Selective Opportunities Among Discounted REITs
-Conviction Calls & Best Buys
By Rudi Filapek-Vandyck, Editor
Selective Opportunities Among Discounted REITs
Central bankers will lower interest rates, though the exact timing remains unknown. Bond markets will try to anticipate these reductions and rally in advance, lowering bond yields as a result.
Bank shares in Australia have rallied hard and many suggest today’s share prices are unwarranted given the weak fundamentals that dominate the sector, including a benign outlook 18 months out.
That other source for regular investment income, A-REITs listed on the ASX, is still offering securities trading at a discount to underlying asset values. No double-guessing why the local REITs sector remains on many an investor’s radar.
In February, REITs as a group outperformed the broader market by no less than 4.3% (returning 5.1% against 0.8% for the ASX200).
As per always, the devil hides into details, as the sector is operating under a cloud of ongoing threats, headwinds, (valuation) traps, and challenges.
Bond yields might be below last year’s peak, but they are still high and for many REITs the costs from carrying debt is restricting how many can be paid out to shareholders.
Many in the sector are effectively ex-growth, for the period ahead, as price inflation, devaluing assets and polarising consumer spending offer additional negatives.
In some cases, asset sales are the only way out of the stasis.
One additional factor to keep in mind is that while your average REIT is trading at a discount to implied asset valuations, the general consensus is there will be further asset devaluations occurring in the year ahead, though maybe not as large as is currently priced in.
Post the February results season, which offered positive surprises (led by sector-leader Goodman Group ((GMG)) as well as predictable disappointments, we run through updated sector assessments by those analysts whose daily job revolves around REITs and investing in them.
