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Should you put your money into ASX REITs in a bear market?

Real Estate Investment Trust

The A-REIT (Australian real estate investment trusts) sector is renowned for its defensive characteristics and its ability to benefit from central bank stimulus.

Despite these features, the overall A-REIT sector has plunged more than 40% since the COVID-19 pandemic escalated in mid-February. The rout in the sector has seen the share price of some big name A-REITs sink to decade lows.

So, has the market oversold A-REITs and is this the sector you should put your money into in this bear market?

Mirvac withdraws earnings guidance

Mirvac Group (ASX: MGR) released an announcement yesterday informing the market that the company has withdrawn its FY20 earnings guidance due to the uncertainty and impact of the COVID-19 pandemic.

The Mirvac share price has plummeted more than 45% since February on the back of investor fears.  Management assured shareholders that the company’s balance sheet and debt position remain robust, with $944 million in cash and undrawn bank facilities.

With the announcement, Mirvac has been the first major A-REIT to withdraw its earnings guidance. The share price of other companies in the industry have also been punished, however none have provided revised outlooks.  

Analysts sound a warning

According to analysts from UBS, despite local shopping centres and malls remaining open a short-term disruption is likely. In addition, analysts noted the transition to online retail will accelerate as the COVID-19 pandemic heightens.

In addition to commercial real estate feeling the pinch, analysts also forecast a short-term impact on residential businesses. Brokers are cautious on the outlook, with lower rates and undersupply expected to be offset by higher unemployment.

A-REITs to watch

Scentre Group (ASX: SCG), which owns Westfield centres around Australia, announced that all malls will remain open, however the company has not released an outline of the effect of COVID-19 in its guidance. The Scentre share price has plummeted more than 60% since January and is currently trading at multi-year lows.

The share price of Vicinity Centres (ASX: VCX) and Stockland Corporation Ltd (ASX: SGP) have also been hit hard, with both companies having exposure to the  corporate and retail sectors. The Charter Hall Group (ASX: CHC) share price has also come under selling pressure, trading more than 57% below its highs from February.

Should you buy?

The commercial real estate market has many moving pieces right now and the outlook does not look too flattering. Especially with many people now working from home, we could begin the see the transition into more flexible work environments and a decrease in demand. The brick-and-mortar retail sector also looks uncertain, again with more people at home online shopping is becoming more popular.

In my opinion and experience, trying to pick the bottom of stocks is extremely high risk. A prudent strategy would be to wait for the share price of these stocks to consolidate before making an investment decision.

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Motley Fool contributor Nikhil Gangaram 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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