A-REITS performance in 2008

[Process]

gday, I am new and signed up to discuss REITS. I am investigating building an A-REIT portfolio. I have too much USD based speculative-grade concentrated risk (another story) and want to diversify.

Many of the current listed REITS and Property Trusts / Property Groups were not around in 2008. Those that were, performed very badly v.s. the broader market. I understand well the mortgage backed and property catalysts for the GFC (property in the US, not Australia), but I still was surprised when I investigated 2008 A-REIT performance. I have little wisdom or experience to fall back on for this and would appreciate any experience and wisdom others can offer

By comparison, for 2008-2009, in rough numbers:

ASX200 -50%
ASX200 A-REIT Index -75%

Individual names that were listed in 2008 and are still listed today:
ABP -80
APZ -90
BWP -40
CDP -40
CAC -90
CMW -60
CQR -90
GMG -95
GPT -90
LEP -60
MGR -85
SGP -70

I am a speculator, but I have no stomach for possible 70-90% drawdowns on large amounts.

Of the above names that were listed in 2008, the two that performed the best were REITS that owned Bunnings properties, and Carindale Westfeild in Brisbane. So... more focused REITS?

What am I missing? Are some of these names more so Property Groups than "pure" REITS (what ever I mean by that, I am not sure). Or was 2008 fundamentally different for REITS? Would some of the newer REITS of the last 5-7 years have performed better in 2008? What kind of REIT would not suffer an 80% fall v.s. an index fall of 50%?

For a stock class that is supposed to behave like bonds.... eek.

Please tolerate my ignorance.

 

[sptrawler]

Hi process, welcome to the forum, I haven't dealt with REITS but many on the forum have, so I'm sure you will get answers to your question.
Meanwhile if you go to the ASF home page, then use the search function in the top right hand corner, I'm sure there will be plenty of results to check on.
Anyway as I said welcome to the forum and great question to start with.

 

[Zaxon]

Many of the current listed REITS and Property Trusts / Property Groups were not around in 2008. Those that were, performed very badly v.s. the broader market. I understand well the mortgage backed and property catalysts for the GFC (property in the US, not Australia), but I still was surprised when I investigated 2008 A-REIT performance. I have little wisdom or experience to fall back on for this and would appreciate any experience and wisdom others can offer

An excellent summary of exactly what happened with REITS. I agree, it's surprising that unit trusts which collect money from shopping centers, office towers, and warehouses, would suddenly become deemed worth so little.

We know that property trusts were in 2008, carrying high amounts of leverage, and that included the A-REITs as well. We know that in the US, jobs were slashed, many business went bankrupt, so that would suggest that US-REITs had legitimate problems to worry about.

In Australia, we had a shock, our economy slowed, but it didn't even go into recession. This suggests our REITs should have been fairly stable, if valued on their rental income alone. The problem with listed REITs is they're treated like shares and often fall and rise with the rest of the market. But how closely are the two correlated? And over time, are A-REITs distinct enough from shares to be a valid, separate asset class that adds diversification to your portfolio?

I've pulled up the side-by-side data of the ASX and A-REITs. If they're a valid form of diversification, then we'd expect them not to rise and fall in lockstep with the ASX. Let's see.

I've highlighted in yellow, every year where the ASX and the A-REITs both had either positive years or negative years together.



We can see there's a strong correlation between shares and reits: 26 years they were in-step, 4 years property went against the ASX.

But that could simply mean that shares and property tend to go up over time. If we focus on the times when the ASX lost money, we find that 3 times REITs didn't lose money and 2 times when they did.

Statistically, the correlation between the ASX and A-REITs over that time period is 0.666 (insert demonic laugh here). So we know the assets are positively correlated, and resonably so.

A-REITs are definitely not a hedge against ASX stocks, and definitely don't perform like bonds. Most of the time they move in syc. Whether they're uncorrelated enough to make them a worthwhile, separate asset class to invest in, I'm undecided. My initial reaction is, probably not.

Based on that data, I'd be interested to hear whether people consider A-REITs to be worthwhile as a separate class or not.

 

[Skate]

gday, I am new and signed up to discuss REITS. I am investigating building an A-REIT portfolio. I have too much USD based speculative-grade concentrated risk (another story) and want to diversify.

Many of the current listed REITS and Property Trusts / Property Groups were not around in 2008. Those that were, performed very badly v.s. the broader market. I understand well the mortgage backed and property catalysts for the GFC (property in the US, not Australia), but I still was surprised when I investigated 2008 A-REIT performance. I have little wisdom or experience to fall back on for this and would appreciate any experience and wisdom others can offer

By comparison, for 2008-2009, in rough numbers:

ASX200 -50%
ASX200 A-REIT Index -75%

Individual names that were listed in 2008 and are still listed today:
ABP -80
APZ -90
BWP -40
CDP -40
CAC -90
CMW -60
CQR -90
GMG -95
GPT -90
LEP -60
MGR -85
SGP -70

I am a speculator, but I have no stomach for possible 70-90% drawdowns on large amounts.

Of the above names that were listed in 2008, the two that performed the best were REITS that owned Bunnings properties, and Carindale Westfeild in Brisbane. So... more focused REITS?

What am I missing? Are some of these names more so Property Groups than "pure" REITS (what ever I mean by that, I am not sure). Or was 2008 fundamentally different for REITS? Would some of the newer REITS of the last 5-7 years have performed better in 2008? What kind of REIT would not suffer an 80% fall v.s. an index fall of 50%?

For a stock class that is supposed to behave like bonds.... eek.

Please tolerate my ignorance.

Hi @Process, welcome to the ASF community.

When it comes to a "REIT" dedicated thread there is no better than "A-REIT valuation model" by @nulla nulla

A-REIT valuation model - found here
https://www.aussiestockforums.com/posts/1044606/

Great Advice

Meanwhile if you go to the ASF home page, then use the search function in the top right hand corner, I'm sure there will be plenty of results to check on.

My takeaway from @Zaxon post

The problem with listed REITs is they're treated like shares and often fall and rise with the rest of the market.

Skate.

 

[Process]

Thanks for the welcome, and great replies. Zaxon - vey detailed and thoughtful, thanks.

A house in Hobart would [virtually] never fall 50%. This has really slowed our plans! Unfortunately we will have to find something far more stable, and forgo the original motivation to find a property proxy [complicated, but physical RE doesn't suit our situation right now. This was supposed to be a place-holder until it did.] Be better putting it all in CSL!

hmm.

Open to any ideas to balance against a USD-denominated high volatility tech position. Large, deep in the money, illiquid. Not selling. Bit of a silly question on my behalf, san-personal situation.

ps, I saw that other great thread on REIT valuation, but didn't want to barge in and start asking wordy questions. Apologies if I should have just posted there.