Invest
Retail drag on REITs not all doom and gloom
In the world of REITs, COVID-19 is a human and economic crisis but not another GFC, according to an investment group.

Retail drag on REITs not all doom and gloom
In the world of REITs, COVID-19 is a human and economic crisis but not another GFC, according to an investment group.

Speaking to investors, portfolio managers from Principal Real Estate Investors portfolio managers have outlined how despite the persistence of volatility in the market and continuing uncertainty around COVID-19, the defensive attributes of REITs could help them stand up over the long term.
Todd Kellenberger, client portfolio manager for real estate securities, observed that “in the REIT market, we are seeing a differentiation in return between sectors rather than an across-the-board fall as seen in the GFC”.
He said this time around, we are dealing with a much healthier banking system and a credit market situation that “overall has not, especially in real estate, taken unnecessary risks and engaged in over-leveraging”.
From Mr Kellenberger’s perspective, it’s also worth noting that the average REIT leverage ratios were meaningfully higher pre-GFC than they are today, referencing a fall from >40 per cent to 30 to 35 per cent on average.
Australia v elsewhere
He said the impact on the office sector will vary by country, depending on the length of average lease periods and how long the lockdowns continue.
“There will be tenants that don’t survive this, it’s just a question of how many,” he commented.
“On a macro level, there are the logistical challenges of completing due diligence, tenants are pausing leases and lenders can’t underwrite loans without accessing the property,” Mr Kellenberger considered.
From real estate securities portfolio manager Shern-Ling Koh’s pespective, Asia has generally held up “relatively well”, while Australia has been hit harder than most.
Mr Koh noted that “Asia has held up quite well in this bear market, with REITs displaying their typical defensive characteristics going into a period of uncertainty, until a week or two ago when there was a sharp collapse”.
The sharp drop “was in line with people selling bonds, forced deleveraging on many fronts”.
According to the portfolio manager, this did have a material impact on REITs – which hit Australia hardest, thanks to a predominance of retail.
The retail effect
He commented that almost 50 per cent of the AREIT benchmark is comprised of retail REITs.
“Retail has been under pressure in Australia for quite a while, just like retail in many other developed markets,” Mr Koh explained.
With Australia’s commodity-based economy and a global collapse of demand, “that’s not great for the market”.
“Australian REITs are stapled securities and in times of uncertainty, people start worrying about the earnings from the development component,” he conceded.
In addition, Mr Kellenberger blamed social distancing for hitting the property sector hard, thanks to a decline in retail foot traffic and high hotel and office vacancies.
But it’s not all doom and gloom, with Mr Kellenberger outlining that while the duration of the virus is uncertain, and the future is uncertain, “there’s many areas in REITs where things can turn out much better than in the GFC”.
Unsure of what an REIT is? nestegg has more information here.
About the author

About the author


Mutual funds
RAIZ v Spaceship: Which is better value?
Raiz and Spaceship have become the two biggest apps in the micro-investing space, but which offers a better deal for Aussie investors looking for a hands-off savings strategy? ...Read more

Mutual funds
Sold your stocks during the dip last year? Here’s how much it might have cost you
If you cashed out during last year’s COVID-19 crash, here’s how much it might have cost you. ...Read more

Mutual funds
‘True to label’ warning again given to fund managers: ASIC
Consumers should be wary: Fund managers aren’t doing enough to ensure products are “true to label”, with a number of product names not aligning with underlying assets in those funds. ...Read more

Mutual funds
Move over, mainstream: ESG excels
Responsible investing is proving its worth in the investment game, beating out the total return of the S&P/ASX 300 over the last decade. ...Read more

Mutual funds
ASIC makes frozen funds easier to access
A new relief measure will enable investors suffering hardship to access their investment money even where managed funds have been “frozen” to maintain fund stability through the COVID-19 pandemic....Read more

Mutual funds
Is it time to put a food-style label on investment products?
Much like the food people eat, investors are being told they need to know what they are buying before purchasing exchange-traded products, as many are unaware of the ramifications if they don’t. ...Read more

Mutual funds
Why you should think about ESG investing this World Environment Day
Today marks World Environment Day, with experts using the occasion to flag how Aussies can benefit by investing in a way that helps the planet. ...Read more

Mutual funds
Is a model portfolio the way to go during a downturn?
The use of model portfolios – a type of managed account – can provide investors with a range of benefits during a downturn such as the COVID-19 crisis, an investment expert has touted. ...Read more

Wrapping up an eventful 2021
Listen now

What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now

Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now

Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now

Mutual funds
RAIZ v Spaceship: Which is better value?
Raiz and Spaceship have become the two biggest apps in the micro-investing space, but which offers a better deal for Aussie investors looking for a hands-off savings strategy? ...Read more

Mutual funds
Sold your stocks during the dip last year? Here’s how much it might have cost you
If you cashed out during last year’s COVID-19 crash, here’s how much it might have cost you. ...Read more

Mutual funds
‘True to label’ warning again given to fund managers: ASIC
Consumers should be wary: Fund managers aren’t doing enough to ensure products are “true to label”, with a number of product names not aligning with underlying assets in those funds. ...Read more

Mutual funds
Move over, mainstream: ESG excels
Responsible investing is proving its worth in the investment game, beating out the total return of the S&P/ASX 300 over the last decade. ...Read more

Mutual funds
ASIC makes frozen funds easier to access
A new relief measure will enable investors suffering hardship to access their investment money even where managed funds have been “frozen” to maintain fund stability through the COVID-19 pandemic....Read more

Mutual funds
Is it time to put a food-style label on investment products?
Much like the food people eat, investors are being told they need to know what they are buying before purchasing exchange-traded products, as many are unaware of the ramifications if they don’t. ...Read more

Mutual funds
Why you should think about ESG investing this World Environment Day
Today marks World Environment Day, with experts using the occasion to flag how Aussies can benefit by investing in a way that helps the planet. ...Read more

Mutual funds
Is a model portfolio the way to go during a downturn?
The use of model portfolios – a type of managed account – can provide investors with a range of benefits during a downturn such as the COVID-19 crisis, an investment expert has touted. ...Read more