AREITS Maybe a time to buy

Discussion in 'Commercial Property' started by Len, 31st Mar, 2020.

Join Australia's most dynamic and respected property investment community
  1. Len

    Len Member

    Joined:
    25th Mar, 2020
    Posts:
    23
    Location:
    Sydney
    Hi I am looking at Buying AREITS for yield to have money coming in.
    Have been looking at BWP Trust, Goodman, and Stocklands.
    Just wondering if this seem ok as I am new to this

    Len
     
  2. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    10,209
    Location:
    Sydney
    Don't get trapped into thinking yields are high based on historic earnings vs current prices.

    The bottom has fallen out of the sector - down 40% since recent peaks 5 weeks ago. In that time, earnings won't have been updated.

    upload_2020-3-31_10-29-49.png

    Given that many commercial landlords are going to take a big hit with businesses closing up or struggling to pay rent - I think earnings are likely to drop significantly this year.

    Yields might look great today - but make sure you understand what the numbers actually mean and what is likely to happen moving forward.

    Would be interested to hear the view of some of our other members who I know invest in A-REITs. Maybe there really are some bargains out there?
     
    Redwing, Empire, Player and 1 other person like this.
  3. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    20,353
    Location:
    Sydney or NSW or Australia
    @Simon Hampel - that's one helluva correction. If only we had crystal balls to guide us in guessing how many tenants will be going belly up (I'd be avoiding shopping centres would be feeling the pinch as many food court/fashion tenants fail - their returns will be rather flat/negative, whereas those that hold commercial offices/industrial which aren't exposed eg - Distribution Centres or Offices with Government tenants will remain quite strong).
     
    Last edited: 31st Mar, 2020
  4. SatayKing

    SatayKing Well-Known Member

    Joined:
    20th Sep, 2017
    Posts:
    6,319
    Location:
    It's All About Me.
    Trusts. No reserves. Not for me.
     
    Silverson likes this.
  5. MangoMadness

    MangoMadness Well-Known Member

    Joined:
    20th Feb, 2020
    Posts:
    140
    Location:
    Adelaide
    Is it worth a long (2+year) investment?

    Yes they will be smashed in the short and maybe medium term until we recover but at what discount is it worth a small % of a portfolio?

    As much as people are now buying from home I think that once the lockdown in lifted people will want to do things outside the house, eat, shop, socialize, anything outside the bloody house :)

    I have a small holding in VAP which has dropped from $90+ to $50 and now back to $58. I was thinking of putting a little more into it at that price (mid $50's)
     
  6. Buynow

    Buynow Well-Known Member

    Joined:
    22nd Oct, 2018
    Posts:
    186
    Location:
    Sydney
    Lots of REIT’s will be struggling with debt covenant issues given lots of tenants will not be paying. I’d say it is a brave decision to buy now. I think there is a lot more pain to come for REITS and the market more generally. Market might look attractive around GFC lows
     
  7. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,225
    Location:
    Perth WA
    I guess it depend what the long term prognosis is for brick and mortar retail. I think it's a dying breed anyways, so would not be buying anything that holds a lot of it at all...especially not now.

    I think this will be a big shift in the way a lot of companies do business moving forward.
     
  8. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    8,928
    Location:
    Melbourne
    For future yield it may be a good time to jump in IMHO.

    However, please make sure you look at the properties and tenancies in each of the a-reits before dumping your money in.

    Of the 3 you mention;

    GMG - no for me. The last NTA we have for them is $5.58 per share, and the current share price is $12.24. That's akin to paying $1.224 million for a house that has a bank val of $558k.... They have some nice properties on the other hand, although they may be hit by vacancies as businesses go bust (and in turn hitting their NTA)

    SGP - a better proposal. NTA at $4.46, share price at $2.45 (discount to NTA). NTA will be hit, as SGP do new resi devs and these were already on the downturn prior to this crash. SGP was actively selling of resi devs and moving to logitsics sheds. The sheds will probably be ok thru this episode (critical industry). The SGP shopping centres will struggle - with Coles/Woolies/Aldi being the only key anchors for the coming months - and more so IMHO than VCX and SCG. Both VCX and SCG I reckon have better real estate under them.

    BWP - NTA of $2.92 but yield will not be great at today's price. You'd need to get in sub $2.80. Of the 3, the tenancy is probably of lowest concern here!!!

    Keep researching - look at the properties in the reit, the tenants (will they go bust, when do the leases end), how they might be affected in the long/short term, gearing (loan arrangements etc), etc. Take an attitude very similar to buying an investment property (because these are investment properties)

    The Y-man
     
  9. Omnidragon

    Omnidragon Well-Known Member

    Joined:
    17th Oct, 2015
    Posts:
    1,693
    Location:
    Victoria
    Retail reits easily the cheapest on trailing yields. For good reason. I wonder how much rent cut Solly Lew and John King Wang now for next 5 years. 60%?
     
  10. Brumbie

    Brumbie Well-Known Member

    Joined:
    5th Mar, 2018
    Posts:
    143
    Location:
    Canberra
    And after all the "good news" of malls shutting and rent not payable. VCX and SCG up over 10% today. The stockmarket is stupid sometimes (often actually).
     
    Player, Silverson and The Y-man like this.
  11. Omnidragon

    Omnidragon Well-Known Member

    Joined:
    17th Oct, 2015
    Posts:
    1,693
    Location:
    Victoria
    Back down today. Feels like long retailers, short REITs is the trade.
     
    Brumbie likes this.
  12. Fargo

    Fargo Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,306
    Location:
    Vic
    Could be OK for the long term, I wouldnt invest in them yet , I Have been loading up on RFF @ $1.65, but should be just as good or better buying now @ 1.93 with the boom in soft commodities in recent days, with both demand and supply shocks, with some countries banning exports . Has a 6% indexed yeild meaning rising compounding yield, on 10 year leases should get 8%p/a + CG. meaning you should double your money every 5 years. Also had good perfectly timed rains, labour shortages have quickly abated, meaning yeilds can at least be maintained and probably increased.
     
    Brumbie likes this.
  13. Player

    Player Well-Known Member

    Joined:
    15th May, 2009
    Posts:
    968
    Location:
    Paradiso
    Just look at S&P/ASX 200 A-REIT [XPJ] It's peak in Nov 2007 was circa 2400 and it fell to 565 in March 2009. I would need to see similar capitulation to dip my toes in and I wouldn't touch discretionary retail who's model was slowly but surely being disrupted by online e-comm's for a while now. Sorry for the link. Can't insert an image right now

    https://www.google.com/search?q=asx...so=_742FXtLHCpmE4-EPm4emiA01:0&wptab=OVERVIEW
     
    Brumbie likes this.
  14. kierank

    kierank Well-Known Member

    Joined:
    10th Oct, 2005
    Posts:
    7,720
    Location:
    Gold Coast
    We only have one REIT in our portfolio, namely ARF.

    It went up 21.74% today (yep, up 21.74% in ONE day) :D.

    Thanks ScoMo.

    PS
    Still down 36.94% from its 20 February price :eek:.
     
    kmrr likes this.
  15. Property Guts

    Property Guts Well-Known Member

    Joined:
    16th Jun, 2018
    Posts:
    121
    Location:
    Australia
    yes, i reckon too. i note GMG has been trading at close to 40% discount on price at start of year, good value at that price
     
  16. Omnidragon

    Omnidragon Well-Known Member

    Joined:
    17th Oct, 2015
    Posts:
    1,693
    Location:
    Victoria
    I traded Vicinity a little. Got out at $1.225 today. I don't think anything's a particular hold. Have actually swapped to holding retailers, since they'll screw the landlords big time in the Common Wealth of Australia (where you wealth is commonly shared).
     
  17. Brumbie

    Brumbie Well-Known Member

    Joined:
    5th Mar, 2018
    Posts:
    143
    Location:
    Canberra
    Don't fall for recency bias. Just because something was worth $1 three months ago and now selling for 50c doesn't mean it is a bargain.
     
    Beano and Kriv like this.
  18. Len

    Len Member

    Joined:
    25th Mar, 2020
    Posts:
    23
    Location:
    Sydney
    Thanks Fargo had a look at RFF brought at $1.87 happy with these.
    Also invested in CIP & DDR & AQR last friday
    CIP pure sheds should be ok with the retail is heading
    DDR debt lower and thinking the owner has a lot of skin in the game.
    AQR was a toss up with that and Viva energy reit I think there maybe some growth.
    These will sit along side my Milton, Argo, Afic. Maybe I need SOL or Brickwoods
    Looking for a LIC/LIT with international focus sorry not into EFT's
     
  19. Big A

    Big A Well-Known Member

    Joined:
    18th Nov, 2018
    Posts:
    1,532
    Location:
    Australia
    How did I miss this post about my favourite topic Reits?

    As the regulars would know I am heavily invested in Reits, though I mostly hold unlisted property trusts. How are they holding up and is it a good time to buy in?

    The 2 listed reits I hold being CLW & COF have copped a beating price wise, in line with everything else. Maybe even more so than the market in general. But I am still happy to hold them both. They both still paid out there full distributions for the march quarter and so far have not announced a reduction in future distributions. Sure there could be a reduction in future income from them, as there most likely will be with most assets during this crazy time. But overall looking at the assets they hold, they should hold up ok. Would I buy more right now? Honestly I am tempted with COF, as it is priced so well right now for office assets that should be able to survive this mess. But I probably wont be buying any more reits, as I have been saying for a while now that I am way to heavy in property trusts and have been looking at re balancing towards general equities for some time now.

    On the unlisted side which I have holdings in about 15 different funds, so far they have faired well. Its still early days but most are still distributing as per normal. I do hold a few that are exposed to retail ( luckily not many ) and they have ceased distributions for now. I am in regular communication with a number of the managers and I am actually glad they are holding off on distributions. Especially with retail its better they hold onto extra cash flow until they see this thing through. Would rather loose some income short term than run into cashflow issues and they need to sell assets in a distressed market. On the office side which most of my holdings sit there has been no reductions yet. And I don't think there will be if maybe a small amount. Most of the office funds I hold have solid tenants. Either government or large national tenants. Have some industrial also and they should hold up well.

    The point being is, with reits it really depends on what you buy or hold. I wouldn't go and buy a reit index personally. I would rather pick individual managers and assets that I feel could survive during a market downturn. Though this market downturn is not your average downturn and could pose risks that were not accounted for.

    Overall so far the property trusts are doing the job that I expected them to do when I went into this segment. Continue to pay me an income in the good and bad times, even if it may be reduced during the bad. Look at it this way, a majority of the funds I hold are now paying me 7% yield or more based on my purchase price over the last few years. Lets say during a major downturn like now the overall yield drops by 50% which I think would be worse case, then I end up with a minimum 3.5% yield for a while. I don't see that as a terrible outcome, considering the current climate.

    OK. Rant over.
     
  20. Brumbie

    Brumbie Well-Known Member

    Joined:
    5th Mar, 2018
    Posts:
    143
    Location:
    Canberra
    Buying COF now and assuming no dividend change yields close to 10%. Happy days.