Among the most traded blue chips, the real estate sector is head and shoulders above the rest. It sold off heavily during Monday’s trading, with many investors looking to buy the dip on Tuesdays.
The real estate sector is faced with continuing uncertainty due to the COVID-19 pandemic. In some cities, residential housing prices are starting to show signs of deterioration. Moreover, shopping centres are still working through issues of rent during the crisis. The full impact on smaller retailers is yet to be clearly determined.
Most traded blue chip real estate shares
Vicinity Centres (ASX: VCX) led the week announcing a $1.2 billion capital raising through share placement. At the same time, it announced there would be no distribution for the 6 months ending 30 June. Vicinity was down by 1.5% from Friday’s closing price to Tuesday’s closing price. On Tuesday, 65 million shares changed hands.
The move will shore up the company’s balance sheet in light of increased uncertainty due to COVID-19. The placement has allowed it to reduce its level of gearing from 34.9% to 26.6%. In addition, the company now sits with cash and undrawn debt facilities of $2.6 billion. Vicinity invests in shopping centres across Australia.
The Mirvac Group (ASX: MGR) share price has fallen by 2.1% from Friday’s closing price to Tuesday. Over 44 million shares have changed hands since the opening of the ASX this week. Over 60% of its assets are in office real estate. Mirvac removed its FY20 guidance and distributions on 18 March. It disclosed a 5.6% reduction in monthly comparable sales in its retail assets.
Scentre Group (ASX: SCG) saw its share price rise by 2.65% by close of trading on Tuesday. This was after a sharp sell-off on Monday. As one of the week’s most traded blue chips, Scentre saw 79 million shares change hands in the first two days of this week. Scentre holds the domestic shopping centre assets formerly owned by Westfield Corporation. It withdrew guidance on 20 March. Like the other most-traded blue chips, Scentre saw a sharp fall on Monday followed by investors clawing back value on Tuesday.
All three of these real estate investment trusts (REIT’s) are selling at a price to earnings ratio (P/E) of 10 or under. Historically this is a good P/E for this sector and is generally lower than it has been since 2015. The worst news is yet to be announced as April and May have been our worst months as a country during the pandemic. They are all well-managed companies with strong balance sheets. If you are patient then these companies are selling at good entry points over a medium-term of, say, 1–2 years.
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Motley Fool contributor Daryl Mather 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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