REIT: Reporting season preview snapshot

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Director of Research, Senior Analyst
Date posted:
29 July 2021, 2:30 PM
Sectors Covered:
Property, AREITS

For the upcoming result season, most Real Estate Investment Trust's (ASX:REIT) have guided to FY21 FFO/DPS outcomes so the focus turns to outlook comments and the provision of FY22 guidance (we expect most groups to provide it); commentary around impacts from the current lockdowns (rent relief); revaluations (expecting overall NTA growth); and leasing trends across all sub-sectors.

Revaluations announced to date highlight the strength of the industrial market with industrial/logistics-focused REITs (ADI, CIP, GDF, GOZ) already flagging significant cap rate moves reflecting the demand for the asset class given the growing shift to e-commerce and increased focus on supply-chain resilience.

Large format retail (AVN) and convenience retail (HDN, CQR, SCP) exposed REITs have also seen an uplift in values. We remain positive on REITs exposed to these sub-sectors

However traditional mall owners (SCG, VCX) continue to experience ongoing structural headwinds with current lockdowns also likely to further hinder recoveries. Although after +10% asset devaluations last year, recent revaluations indicate some stability (albeit still weak).

We also expect other niche sectors including pubs (HPI, LEP); service stations (AQR, WPR); self-storage (ABP, NSR); healthcare & childcare (ARF, CQE); and long WALE assets (CLW) will post positive revaluations in upcoming results. This will also benefit property fund managers with exposure (HMC, CHC, CNI, APD).

Office valuations seem to be holding up with several REITs reporting preliminary valuations (COF, DXS); however, we expect to get some better insights into office portfolio metrics including the leasing environment/incentives with trading updates in August. In particular, the focus will be on impacts from the current Sydney lockdown, which has recently seen GPT withdraw its FY21 guidance.

While there has been concern regarding long-term office demand given the acceleration in working-from-home trends over the past year, we haven’t see any clear impacts as yet with many businesses currently adopting a hybrid model (home/office).

Diversified REITs (MGR, SGP) will also provide good read through for residential markets, which have benefited from strong sales on the back of HomeBuilder.

Balance sheets remain sound with good liquidity.

Near-term unknowns/risks include: 1) higher bond yields; 2) inflation impacts; 3) the general economic environment/recovery coming out of COVID – particularly if there are prolonged lockdowns; and 4) subsequent impacts on valuations/leasing/rental markets and rent relief pressures.

Our key picks leading into reporting season include AQR, HDN, HPI and WPR. We recently moved to a Hold rating on AVN and COF following strong security price appreciation. 

Figure 1: : FY22F distribution yieldsGrowth stocks have had a choppy ride since the onset of the pandemic

Source: Morgans, Company Data

Find out more

We share the full list of 20 stocks with material upcoming catalysts and share our analysts' comments in our full research note.

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

Download full research note

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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