Asia Pacific REITs Rebound as Investors Re-position Portfolios

Office landlord Champion REIT climbed 23.7% in November, Singapore’s Ascott Residence Trust led the country’s REITs with gains of 25.3%.

By Patrick Ma, Director, Listed Products and Research, Admiral Investment Limited

December 3, 2020 – Asia Pacific REITs, as indicated by the performance of the top-100 most traded REITs in the region, rose 9.8% in November, reversing October’s decline, However, REITs are still behind Asia Pacific equities in terms of performance as the latter gained 11.5% during the same period. 

Global capital markets in November reversed the falling trends seen in the last two months as positive news about Pfizer-BioNTech, Moderna and Oxford University-AstraZeneca’s successful trials of their coronavirus vaccines raised hopes for an end to the pandemic. 

These companies aim to make the vaccines available by the end of this year, thus, signalling the potential return of normalcy for the global economy. Due to these developments, global equities rallied strongly with a monthly gain of 12.8%. Global REITs followed closely with a slightly lower gain of 12.4%.

Global investors have re-positioned themselves towards such an outcome, with rotation from “pandemic beneficiaries” such as tech and e-commerce sectors to “recovery plays” such as cyclicals, retail and tourism-related sectors. 

We have also observed similar portfolio re-positioning within the REIT segment as investors overweighting traditional office, prime retail and hospitality REITs while underweighting “pandemic beneficiary REITs” such as logistics and data centre REITs. 

The US election victory of Joe Biden has also raised the expectation for a reversal of Donald Trump’s unilateral foreign policy and the prospect of a more stable geopolitical environment. 

Regional market performance

Australia REITs performed best in the region with a 20.7% gain. They also outperformed Australian equities. 

Among the Australia REITs, Vicinity Centres and Scentre Group led the pack – with a 36.4% and 33.3% gain, respectively – as vaccine hopes and the end of a lockdown in Victoria state raised recovery prospects for the retail sector. 

Mirvac and Stockland gained 22.3% and 18.2%, respectively, on hopes for an Australian economic recovery and rejuvenated residential property markets. 

Hong Kong REITs also performed strongly. Office landlord Champion REIT led the sector with 23.7% increase for the month. 

Hospitality REITs also benefited from the renewed hope of economic recovery. 

Singapore’s Ascott Residence Trust and CDL Hospitality REIT led the country’s REITs with gains of 25.3% and 27.3%, respectively. 

While the “old economy” sectors such as office, retail and hospitality REITs led the current round of rebound, REITs that had been “coronavirus winners” year-to-date showed underperformance in November. 

Data centre plays down for now

Data centre plays such as Singapore’s Keppel DC REIT and Mapletree Industrial Trust both dropped over 3% last month. Logistics plays such as Japan’s GLP J-REIT, Nippon Prologis REIT and LaSalle Logiport also reported declines in November.

The coronavirus vaccine trials’ progress raised the prospects of mass production and distribution of these vaccines by next year, which makes the return to a normal economic environment a possibility. 

Despite recovery expectations, we believe some of the pandemic-induced changes, such as working from home and increased reliance on online services/e-commerce, are unlikely to be reversed. Thus, while we expect the recovery hopes to propel the on-going rallies of traditional REITs, we expect the so-called “pandemic beneficiary REITs” to still outperform.