ASX REITs have taken a battering in 2020 amid the coronavirus pandemic and subsequent bear market with Scentre Group (ASX: SCG) shares one of the worst affected. Shares in the retail REIT fell 62.86% lower from 2 January to 24 March this year.
Those are some scary numbers for investors. However, Scentre wasn’t alone with many other ASX REITs slumping to start the year. Vicinity Centres (ASX: VCX) shares fell 60.64% lower while Stockland Corporation Ltd (ASX: SGP) shares fell 61.29% by 23 March.
But it’s not all doom and gloom for investors in Scentre shares or the other REITs. In fact, Scentre and Vicinity saw their values surge 48.41% and 44.66% higher, respectively, in April. So, what’s causing these big share price moves and is there time to buy in 2020?
Why the ASX REITs were smashed in March
It’s fair to say March wasn’t a great month for many ASX 200 shares. The S&P/ASX 200 Index (ASX: XJO) was hammered lower as COVID-19 fears took hold. The economy was largely shut down and society came to a relative stand still. For ASX retail REITs like Scentre, Vicinity and Stockland, that meant less foot traffic through their centres.
The knock-on effect was also on Aussie retail. While some stores continued to sell online, government restrictions forced many to close their doors for the time being. Investors feared that a loss of tenants could lower earnings and thus lowered the value of Scentre shares in 2020.
What sparked the April recovery?
There were a few positive signs for investors in April. In fact, the 8.8% increase in the benchmark ASX 200 index represents the best month on record since 1988.
The ASX REITs were right in the mix with Scentre, Vicinity and Stockland shares all climbing higher. There was a new mandatory commercial code of conduct put in place for landlords and tenants which eased some concerns about rental disputes.
Strong retail data suggested that the retail sector may not have been hit as hard as anticipated by the pandemic. Scentre shares also climbed as governments look to ease some COVID-19 restrictions. There appears to be light at the end of the tunnel and a gradual return to normality.
Should you buy Scentre shares in 2020?
The main reason I would buy ASX REITs is for strong income. REITs pay out more than 90% of their income to shareholders each year, with Scentre shares yielding 8.24% right now.
However, I think dividend yields could be a little misleading. Given the uncertainty in 2020, I wouldn’t be surprised to see dividends temporarily trimmed by ASX REITs like Vicinity, Scentre or Stockland.
That doesn’t mean they’re not a bargain buy, but I would have to be holding for a long time with a clear strategy in mind.
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Returns as of 6th October 2020
Motley Fool contributor Ken 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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