The February reporting season has now ended, and Australia’s residential and retail property subsectors recorded worse than expected results.
Australia’s listed property heavyweights returned results largely in line with the expectations of structural and cyclical trends, with Goodman Group, Charter Hall and Dexus outpacing their competitors.
UBS analysts had Lendlease, Vicinity and Aventus Group losing out in its ranking of Australia’s listed real estate investment trusts – blaming retail and residential headwinds.
“Our results scorecard ranked Goodman, Charter Hall and Dexus as the top three, whereas Lendlease, Aventus and Vicinity were at the bottom,” UBS analysts Grant McCasker and James Druce said.
“Results from reporting season clearly illustrate the impact of the credit tightening environment.
“We anticipate conditions (impact of price declines, default rates etc.) to deteriorate further throughout 2019 in the absence of policy adjustments.”
Increasing scrutiny on a plethora of retail assets hitting the market is set to be the biggest headwind for the property sector in 2019.
With residential and retail earnings from reporting season coming in below UBS’ “already cautious expectations”, analysts downgraded earnings of REITs exposure by 2 per cent to 4 per cent over the forecast period.
“The pricing differential between ‘haves’ and ‘have nots’ appears extreme but we see no inflection point in sight,” McCasker and Druce said.
“Facilities management businesses, office and logistics look set remain in favour throughout 2019 despite historically high pricing.”
“We see value in Lendlease (high risk, but long term re-rating expected) and small caps (Centuria and Rural Funds Group) with no re-rating in sight for retail.”
McCasker and Druce said their retail preferences were for SCA Property Group and Scentre.
The analysts maintained their sell recommendation for Mirvac and Stockland. The investment bank first downgraded Stockland’s rating from “sell” to “neutral” in mid-2018.
“For Stockland to hit its guidance target of 5 per cent growth and 6,000 lots for the financial year, it needs to settle 3,600 lots in 2H,” McCasker and Druce said.
“This is a large task, which has only been achieved once (2H17).”
Hero image: Stockland's Marsden Park. The developer is offering $20K discounts and up to $100K building bonuses in the new community.