Blog

Bank reporting season scorecard

The last three years have been eventful for bank shareholders, with each year bringing a new set of worries predicted to bring the banks to their knees. 2020 saw capital raisings from NAB and Westpac missing its first dividend since the banking crisis of 1893, as experts forecasted 30% declines in house prices and 12% unemployment!

The down-and-out REITs worth buying

Cap rates are a measure that helps evaluate real estate investment, and a higher cap rate results in a lower property value. So the higher the cap rate, the better it is for the investor. Each REIT uses its own cap rate to determine its valuation.

• October saw a sharp rebound from the falls seen in September, based on the view that the central bank’s tightening of interest rates was nearing its peak. Over the month, many companies provided quarterly trading updates that showed solid leasing activity, robust tenant sales and minimal changes to vacancies. Besides improving macroeconomic sentiment, favourable trading updates saw investors buying property stocks.
• The Atlas High Income Property Fund gained +9.6%, as several key holdings saw significant recoveries in their share prices. Arena REIT (+18%) rallied the Federal Budget provided for increased childcare subsidies and SCA Property (+15.7%) on the “new” view that food inflation and rising mortgage payments might be beneficial for supermarket landlords due to higher sales. These two companies were sold down heavily in September, despite reporting solid profits and a positive outlook for 2023.
• The extreme market volatility over the past six months is very unusual and a result of a normalising of interest rates and, for many investors, their first experience with inflation. While exasperating, the Fund is populated with companies positioned to navigate changing market conditions with long-term fixed-rate debt and revenues tied to inflation.

Go to Monthly Newsletters for a more detailed discussion of the listed property market and the fund’s strategy going into 2023

• September was a very weak month, with global markets falling between -6% and -11% on fears of a global recession and continued tightening by central banks. Global listed property markets were off between -7% and -19% in September, with Australian Listed Property down -14%. Concerns around rising interest rates reducing profitability for property and infrastructure assets were the dominant theme. However, this assumes both the inability of company profits to rise with inflation and that company debt is short-term duration with a variable interest rate. While some companies structured their debt in this fashion before the GFC, few are in this precarious position in 2022!
• The Atlas High Income Property Fund fell by -12.4%, a fall based on global macroeconomic fears rather than any issues with the companies held in the Fund. In August, the companies owned in the portfolio increased their dividends on average by +13%. On average, the companies that populate the Fund have gearing of 22%, have a 3% cost of debt with an average length of 5.5 years, have revenues linked to inflation and enjoy a 98% occupancy rate.
• The Fund declared a quarterly distribution of $0.028 per unit for the September Quarter. The distribution was paid to investors late last week.

Go to Monthly Newsletters for a more detailed discussion of the listed property market and the fund’s strategy going into 2023

Korea’s Kospi tumbles 3%; Asia-Pacific markets drop as negative sentiment remains

Shares in the Asia-Pacific fell on Monday as negative sentiment continues to weigh in on markets.