AUSTRALIAN & GLOBAL REITS: MAN OVERBOARD! - HEATHCOTE MEET THE MANAGERS 8-12 MARCH 2021 - Heathcote Investment ...
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AUSTRALIAN & GLOBAL REITS:
MAN OVERBOARD!
QUALITY INCOME OPPORTUNITIES ACROSS
THE GLOBE ARE NOW MORE COMPELLING
THAN EVER
HEATHCOTE MEET THE MANAGERS
8-12 MARCH 2021
COVID-19 IMPACTS ON REITS
REITs were in deep water when C-19 struck but the tide
has since turned. Quality income opportunities across the
globe are now more compelling than ever.
2
REIT market 2020 performance - COVID impacts
Source: UBS 31/12/20
▪ Variation in performance of REITs in 2020 was extreme due to COVID (42% spread between best & worst)
▪ Australia & France: saw close to 50% declines from pre-COVID peak in Feb to March lows
▪ Asian REIT markets were more stable with peak to trough declines of around 30% in most markets
▪ Singapore and German REITs have seen the best recovery, providing positive returns for 2020 – a solid outcome
▪ Further recovery potential across REIT markets as economies rebuild.
33
REIT sector performance – extreme divergence due to COVID
▪ Sector performance divergence was extreme
▪ Hotels down 25% (↓67% in March as travel
effectively stopped).
▪ Retail savaged, ↓53% at its trough finishing the year
↓ 24%.
▪ Office marginally better ↓15% (trough -40%) with
lockdowns & WFH uncertainty weighing on the
sector.
▪ Residential ended flat for 2020, a good result
considering the 35% trough in March.
▪ Industrial: the sector winner through the global
pandemic. Online sales growth was huge with years
Source: UBS 31/12/20
of future expansion compressed into a few months.
▪ Data centres (also industrial) faced unprecedented
demand as consumers binge watched their way
through lockdown and leaned on data driven tech.
44Australia: C-19 impacted divergent across sectors
Source: Bloomberg 31/12/20
▪ AREITs second hardest hit sector in March - high retail exposure/offshore ownership & falling A$
(low $0.55) drove panic selling
▪ Skewed AREIT recovery by sector due to the uneven burden placed on Australian landlords via
Leasing Code of Conduct to support SME tenants.
▪ Vaccine drove November recovery boosting re-opening trade (+13.2% for AREITs vs. 10.2%
equities). AREITs to benefit from a sustained recovery through 2021 and beyond
55Property Sector Outlook 2021
Office (Mixed/Weak) Industrial (Strong) Retail (Mixed/Weak) Residential (Strong)
Fundamental indicators (vacancy, Online retail spike has A derivative of the global pandemic Transaction volumes
effective rents) have deteriorated stabilised with structural hence has been hit hard but have recovered to record
while both cyclical (economic shift/growth bought forward. impact/outlook varies by asset type levels. Some divergence
weakness) and structural (usage Logistics/distribution & data (CBD, Regional/Sub, Neighbourhood between the outlook for
trends, WFH) headwinds remain, centres in strong demand, LFR) and tenant mix (Non-Discretionary apartments vs. houses
pointing toward further uncertainty. with record prices and further - supermarkets/ pharmacy vs. (strong) with BTR now
Capital transaction activity though cap rate compression Discretionary F&B/ Apparel/Others). also gaining traction.
has been relatively strong, expected in most markets. Re-opening recovery but long term
suggesting valuation resilience. headwinds to certain categories.
Data Centres Mobile Towers Storage (Good) Service Stations (Good)
Demand for digital data storage Central to all things digital, the Improving consumer Record transactions in
facilities is growing rapidly across types of mobile tower and fibre sentiment/residential markets 2020. Strong tenant
global markets. Specialist owners and assets owned within specialised supportive to rates and occupancy. covenants, cashflow
operators of these facilities provide REIT portfolios are providing the Positive look throughs from major security and fixed rental
real estate investors with access to large furniture and homeware growth underpinning
infrastructure necessary to
growing rents ensuing from users of stores which have displayed strong investor demand into 2021.
facilitate the transmission of all
these mission-critical assets. things digital. sales.
6REIT BENEFITS WHEN INTEREST RATES ARE LOW
GREITs are trading at wide valuation discounts to equities
P/E Relative to Equities
1.6 ▪ Global REIT PE vs. Global Equities
provides an indication of relative value.
1.4
▪ Global REITs are trading on 0.7x PE of
1.2 global equities, well below the 10 year
average PE Rel of 1.0x (on par).
1.0
▪ Longer term (24 years) the average
0.8 REIT PE Rel is 0.8x so REITs appear
cheap relative to equities.
0.6
▪ Current PE relative metric suggests
0.4
GREITS are at their cheapest level
0.2
relative to equities since 2003. A good
time to buy!
Jan-03
Jan-97
Jan-99
Jan-01
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Jan-17
Jan-19
Jan-21
Rel. Value Hist Avg 10yr avg.
Source: UBS Research,. December 2020
8Indicators of AREIT value vs. Australian equites
ASX200 REIT PE relative to ASX Industrials PE
REITs trading at 0.8x
Industrials vs. average in
line over past decade
ASX200 REITs vs. ASX200 Industrials dividend yield (%)
REIT divi yield 4.3%,
spread to industrials has
doubled to 1.3% (10yr
avg 50bp) due to REIT
underperformance
Source: Bloomberg, JPMorgan
99REIT earnings yield spread to government bonds is elevated
EPS yield vs. local 10Yr bond yield
High spread
indicates REIT
valuations are
relatively
attractive
Source: UBS Research, December 2020
▪ Average Global REIT EPS yield is 5.9% vs. the global average 10 year bond yield ofIndicators of value AREITs vs. Australian bonds
EPS & DPS yields vs. 10 year Australian bond yields
AREIT DPU Yield
of 4.3% attractive
with a 3.2% spread
to 10yr bonds,
100bp higher than
10 year average
spread (2.2%)
Source: Bloomberg, JPMorgan
1111APN funds deliver competitive monthly income
Investment Yield Comparison
7.0%
Index/RBNZ Cash
6.1%
6.0% 5.8% APN fund
5.49%
5.0%
4.3%
4.1%
4.0% 3.8% 3.8%
3.50%
3.0%
2.0%
1.0%
0.3%
0.0%
RBNZ Cash NZ REITs Global REITs Asian REITs AREITs
Source: APN, BNZ, Bloomberg, Macquarie, RBNZ , S&P as at December 2020.
APN fund’s distribution yields are as at 31 December 2020. Current running yield is calculated daily by dividing the annualised distribution rate by the latest entry unit price. Distributions may include a capital
gains component. Distributions are not guaranteed and past performance is not an indicator of future returns.
Cash: RBA cash rate as at Dec 2020 is 0.1%. Top four bank term deposit average rate is 0.3%
*Note, an investment in an APN fund should not be regarded as an alternative or substitute to a deposit with a bank or deposit-taking institution. There is a different return profile and additional risks
associated with investing in an APN fund compared to such a deposit.
.
12Why REITs are an ideal investment in a low interest rate environment
A boost for real estate and positioned to
benefit from a sustained recovery through
Vaccination roll-out & further economic stability 2021 and beyond, providing an attractive
proposition for value/income focused
investors.
High spread of REIT yield to bonds (well
above the 10 year avg) highlights that REIT
Attractive valuations
valuations are attractive, supported by
prolonged low interest rates.
Petrol Stations, Childcare, Storage,
Healthcare, Data Centres, Mobile Cell
Opportunities in specialised REITs
Towers, Multifamily (Build-to-rent) offer
outstanding value.
Relatively high monthly income distributions,
Regular and sustainable income underpinned by quality rental earnings.
13136.13 %
pa 1
6.05 %
pa 1 4.22 %
pa 1
Current running yield Current running yield Current running yield
Income focused property
securities funds delivering
monthly distributions
1. As at 28 February 2021. Current running yield is calculated daily by dividing the annualised distribution rate by the latest entry unit price. Distributions may include a capital gains component.
Distributions are not guaranteed and past performance is not an indicator of future returns.
14
14Disclaimer
This presentation has been prepared by APN Property Group (ASX:APD) comprising APN Property Group Limited (ACN 109 846 068) and APN RE Limited (ACN 627 612 202, AFSL
No. 510685) as responsible entity for APD Trust (ARSN 629 330 007) (APN) and APN Funds Management Limited (APNFM) (ACN 080 674 479, AFSL No. 237500). APNFM is a
wholly owned subsidiary of APN Property Group Limited and the responsible entity and issuer of the APN Property Group products. This presentation contains summary information
about APN, APNFM and one or more of its funds. Information contained in this presentation is current as at 15 February 2021. This presentation comprises general financial advice
only and is not intended to contain or be financial advice for the purposes of the Financial Advisers Act 2008 (NZ), the Financial Markets Conduct Act 2013 (NZ) or Corporations Act
2001 (Aust). In preparing this presentation, APN and APNFM did not take into account the investment objectives, financial situation and particular needs of any particular person. This
presentation is for information purposes only and only intended for the audience to who it is presented. Accordingly, before acting on the general advice, prospective investors should
consider the appropriateness of the advice having regard to their objectives, financial situation and needs. Before investing in a product, prospective investors should read the relevant
disclosure document in full, obtain individual financial advice and assess whether an investment is appropriate in light of their own financial circumstances. This Presentation does not
constitute an offer of interests in APNFM’s funds to investors. Past performance is not a reliable indicator of future returns. Offers of units in APNFM’s range of funds are made in the
relevant fund product disclosure statement (PDS). You should consider important information about risks, costs and fees in the relevant PDS. Anyone wishing to apply for units will
need to complete the application form attached to the relevant PDS. APNFM manages the funds and will receive management fees as set out in the relevant PDS.
This presentation may contain forward-looking statements regarding future events. Any forward-looking statement included in this presentation involves subjective judgment and
analysis and is subject to significant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, APN and its related bodies corporate,
shareholders or respective directors, officers, employees, agents or advisors (collectively, Related Parties). Such forward-looking statements are based on assumptions and
contingencies which are subject to change without notice. They are provided as a general guide only and are not guarantees or predictions of future performance. There can be no
assurance that actual results will not differ materially from those expressed in the statements contained in this document and neither APN nor APNFM undertakes any obligation to
revise the forward-looking statements included in this document to reflect future events or circumstances. The forward‐looking statements only speak as at the date of this presentation
and, other than as required by law, APN, APNFM and their Related Parties disclaim any duty to update forward looking statements to reflect new developments.
To the fullest extent permitted by law, APN, APNFM and their Related Parties make no representation and give no assurance, guarantee or warranty, express or implied, as to, and
take no responsibility and assume no liability for, the authenticity, validity, accuracy, suitability or completeness of, or any errors in or omission, from any information, statement or
opinion contained in this presentation. APN and APNFM disclaim all liability and responsibility for any direct or indirect or consequential loss, damage, cost, expense, outgoing, interest,
loss of profits or loss of any kind which may be suffered by any recipient through relying on anything contained in or omitted from this document. This material shall not be reproduced
or used for any other purpose without the express permission of APN.
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