ASX real estate investment trusts (REITs) have had a mixed performance in 2020, but can the recent RBA interest rate cut turn things around?
3 ASX REITs that are worth watching in March
Some of the biggest names in real estate have been under pressure this year. One ASX REIT that has crashed lower in 2020 is Scentre Group (ASX: SCG).
Scentre Group shares are trading 11.43% lower at $3.41 since the start of the year. The Westfield operator slumped lower in February after a disappointing full-year result. The Aussie retail group reported funds from operations (FFO) in line with forecasts at $1.345 billion. Scentre also reported a 99.3% occupancy rate but saw net assets shrink 1.26% to $23.339 billion.
However, Scentre Group isn’t the only ASX retail REIT that is under pressure in 2020. The Vicinity Centres (ASX: VCX) share price is 10.44% lower year-to-date at $2.23 per share. Vicinity is an Australian shopping centre owner and manager with a portfolio that includes Chadstone (VIC) and Chatswood Chase (NSW).
The ASX REIT reported $17.4 billion in annual retail sales and first-half funds from operations (FFO) of $337 million, up 1.5% on 1H 2019. Vicinity’s adjusted FFO payout ratio came in at 94.9% which was paid last Monday. Vicinity is diversified across 63 Australian assets with total assets under management of $26.6 billion.
But while Vicinity and Scentre shares have been slumping lower in 2020, it hasn’t been all bad news for the Aussie real estate groups this year. Vicinity’s and Scentre’s dividend yields are up to 7.24% and 5.63%, respectively, which could be enough for investors.
The National Storage REIT (ASX: NSR) share price has surged 23.37% higher this year to to $2.27 per share. However, it’s more because of the competing takeover offers that the group is receiving than strong fundamentals.
The ASX self-storage REIT received an unsolicited, non-binding, indicative proposal from China-based GAW Capital Partners to acquire 100% of National Storage shares for $2.20. It was also reported that Warburg Pincus put in an offer at the same price on February 14. That was quickly followed by a $2.40 per share offer from US-based Public Storage.
Are any of these shares in the buy zone?
The recent RBA interest rate cut could be the tonic that these ASX REITs need in 2020. Lower rates could mean some respite for Aussie retailers, but there are downsides. As interest rates fall, the shopping centre REITs may need to lower rent to keep tenants and maintain occupancy levels.
Broader issues in the Aussie retail sector would also be a concern for the likes of Vicinity and Scentre, which means I’d be steering clear for now.
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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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