REITs in Review

A number of REITs announced their 3Q19 operational updates yesterday.

Dexus forecast 5% underlying earnings growth.  reaffirmed its FY19 guidance for 5% growth.

Mirvac indicated their FY19 guidance will be in the 3 – 4% growth range with DPS growth at 5%.

Across the sector it is likely residential and retail remain the weak spots, whilst  office and industrial will continue to provide strong growth. Softening of the retail sector was evident in GPT’s March quarter business update.

Despite GPT’s exposure to retail, the office exposure along with the groups strategy to expand the footprint in logistics, makes the stock one of our preferred opportunities within the REIT sector.

 

 

 

 

 

Property Stocks Find Buying Interest

As the US yield curve flattens, which is caused by the long-end of the curve no longer increasing at the same rate as the shorter-end, we’ve started to see institutional money flow back into ASX listed yield sensitive names.

Our preference among these, within the property sector is GPT, SGP, and WFD, (based on valuation grounds).

Within Utilities and Infrastructure, we continue to like AGL, SYD and TCL.

 

 

Stockland – Algo Update

Stockland  was added to our ASX 50 model in January and we’ve continued to accumulate the stock in recent trading sessions.

The latest earnings result continued to show strong momentum in residential property sales which should help support a move back to $4.40

SGP is forecast to pay $0.13 dividend in June which places the stock on a 5.5% annualised yield.

Stockland Corporation

ALGO Buy Signal For Stockland Corporation

Our ALGO engine triggered a buy signal for Stockland Corporation at $4.28.

Like several of the ASX interest-rate sensitive names, the SGP share price has dropped more 10% over the last month.

With over $16 billion in real estate assets across the country, SGP is Australia’s largest residential property developer.

We believe that the company’s diversified community development model will insulate the firm from a downturn in the higher-end property market and support a higher share price.

The technical “higher low” pattern is based on the July lows near $4.00. With a year-on-year dividend expected in the 26 cent range, this puts the stock yield at around 5.5% at current prices.

Stockland

 

 

Property Stocks Under Pressure

After the strong rally in SGP, LLC, GPT and MGR, the price action looks to be rolling over, pointing lower, and we’ll watch these names closely. SGP appears to be showing the most selling pressure with the current price action taking out the 4.74 low formed on the 26th of April.

Our Algo Engine generated a buy signal on MVA.AXW (Vaneck Vectors Australian Property ETF) back in November at around $18.40, the ETF traded up to $21.30 and in the last week it’s starting to run into selling pressure.

 

Chart – SGP
Chart – MVA

 

Stockland – 1H17 Earnings Release

Diversified REIT, Stockland Corporation, announced a 7.8% rise in its underlying earnings after posting record turnover in its residential division; primarily from the East coast of the country.

Stockland said revenue from operations reached $369 million, which is is tracking toward the upper end of its guidance for 5 to 7% revenue growth in 2017.

The company announced an interim dividend of 12.6 cents per share, compared to a 12.2 cent dividend for the same period last year.

 

Chart – SGP

Property Trusts & Infrastructure

The sell-off in property trusts and infrastructure names has been substantial, 15 to 20% since early September.

The REIT sector has underperformed as bond yields have rallied. The repricing has seen the dividend yield of REIT’s back above 5%.

Historically, the correlation between Australian yield names and US 10-year yields has been inverse; as US yields fall, Australian property trusts and infrastructure stocks rise.

US 10-year bond yields have risen by 79 basis points, or over 50%, since early October. We see this pace as unsustainable and expect the local yield names to trade higher as the US Treasury yields drift lower.

We continue to track WFD, GPT, SGP, SYD and TCL versus the US10 year bond yields.

wfd
Chart – Westfield

 

gpt
Chart – GPT
Chart - Stockland
Chart – Stockland
Chart - Sydney Airports
Chart – Sydney Airports
Chart - Transurban
Chart – Transurban
US 10YR Yield
US 10YR Yield

 

 

 

 

The Yield Basket We’ve Been Tracking

Over the last two months, bond markets have been repricing the probability of a US rate increase. During that time, we’ve watched the US10YR yields trade up from 1.3% to 1.9% . As a consequence, money managers have sold-off defensive yield names. This has been most evident in ASX 50 names within the infrastructure and property sectors.

We maintain a positive interest in these names as the current share prices now have many of the yields offering 100 basis points, (or 1%), more than they were trading at 2 months ago.

WFD and GMG are now trading back on 4% yield, whereas TCL, SYD, GPT and SCG are on average trading near 5% yield.

The December FOMC rate decision meeting will likely be the catalyst for a  bounce, however, we’re not expecting these names to recapture the recent highs. Therefore, we’ll look to sell the rally into the early part of 2017. The algorithm engine will track these names and I’ll be certain to alert you to the next lower structural high, but for the time being, you may want to position around the short term bounce which could offer up to a 10% rally.

Chart - GMG
Chart – GMG
gpt
Chart – GPT
scg
Chart – SCG
sgp
Chart – SGP

 

wfd
Chart – WFD

 

Chart - TCL
Chart – TCL
Chart - SYD
Chart – SYD

Lendlease Group – Higher Low Formation

Most property stocks have broken their long term uptrends and are displaying the early signs of a “rollover” type pattern. We’ll most likely see a bounce from the current oversold level, driven from an outcome on the December Fed rate hike. However, the probability of a bearish lower high in the next 3 to 6 months will mean the counter trend trade from the current lows will be short and explosive but the real opportunity to watch will be the short side trade in 2017.

The above picture applies to most property trusts and property development companies. The exception appears to be SGP and LLC. Out of the two names, my preference remains Lend lease.

FY17 should deliver EBITDA of $1.2b, EPS of $1.30 and DPS of $0.68 placing the stock on a forward yield of 4.9%

 

llc
LLC.ASX
sgp
SGP.ASX

Property Trust – Watch List Opportunities Update

On the 2nd of September, we made a blog post highlighting a group of stocks to place on your watch list. Among these were a number of property trusts and their indicated buy zones. Since then, as anticipated, we’ve seen bond yields move higher and selling in defensive yield names continue. We’re now at a point where a number of the names on our preferred watch list are in the “go zone”.

This post revisits the property trust names, however, there’re other sectors too that are now showing multiple buy-side signals from our algorithm engines.

Westfield (WFD.ASX)

wfd

GPT Group (GPT.ASX)

gpt

Scentre Group (SCG.ASX)

scg

Stockland Group (SGP.ASX)

sgp

Goodman Group (GMG.ASX)

gmg