Australia | 10:30 AM
A-REITs underperformed during result season despite positive results, hampered by rate rise fears (unlikely to subside in the short term). The outlook is not necessarily bleak.
- A-REITs post solid earnings results on average
- The sector nevertheless underperformed during February
- Valuations appear attractive
- Extent of debt hedging one key variable
By Greg Peel
On average, Australian real estate investment trust’s (A-REIT) December-half 2025 results beat consensus by 1.8% and all A-REITs reaffirmed or increased guidance, leading to marginal net increases for FY26 (average 0.2%), Macquarie reports.
Ten out of 28 A-REITs covered by Macquarie upgraded.
However, the sector registered broad net forecast decreases for FY27 (-0.5%) and FY28 (-0.8%). A-REIT earnings growth is expected by Macquarie to be lower in FY26 than FY25 before accelerating into FY27.
UBS equally observed the real estate sector underperformed materially throughout the February earnings season --down -6.6% since February 3 versus a 3.0% gain for the ASX 200-- despite a growth outlook which has remained resilient.
1H26 earnings came in 1% ahead of UBS on average, with 50% of results in line and 'beats' outweighing 'misses' by 2.7-to-1.
More importantly for UBS, FY26-28 earnings forecasts remained broadly flat which has left UBS’ three-year FY26-29 compound annual earnings growth rate assumption (excluding property fund managers) little changed at 5.2% (down from 5.3%).
This is seen as attractive in the context of near-term dividend yields in excess of 5% and PE multiples of circa 15x.
While compressing debt margins and solid property-level performance has helped sustain earnings, this has been overshadowed by macro headwinds, most recently the Iran conflict and a hawkish turn from RBA Governor Bullock last week.
UBS now expects another rate hike in August, with May still penciled in.
Jarden highlights 1H26 results confirmed the A-REIT sector is caught between strong operational trends (rent growth, development normalising), valuation support (net tangible asset value growth returning) and interest rate headwinds (the three-year swap rate has risen 90bps to 4.3% since October).
February saw results 3% above Jarden’s forecasts and guidance upgraded (5 out of 24 under coverage) or maintained, with no A-REITs downgrading.
Net tangible asset (NTA) valuations increased circa 2% on average, supported by valuation growth across the board with the strongest gains seen in manufactured housing estates and retail, while the office and logistics sectors lagged.
Active business models saw continued better momentum with fund managers still able to raise/deploy capital in a higher rate world, Jarden notes, for example Charter Hall Group ((CHC)), and developers, eg Mirvac Group ((MGR)), finding the operating environment has normalised.
Key positive updates came from Mirvac, Dexus ((DXS)) and Charter Hall while updates from Scentre Group ((SCG)), Stockland ((SGP)), HMC Capital ((HMC)) and Centuria Capital ((CNI)) fell short of Jarden’s expectations.
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