Top 3 ASX property stocks: A year of volatility in focus
We look at some of the recent developments across Australia’s residential and commercial property sectors, focusing on the recent quarterly results from Dexus, Goodman Group and Scentre Group.
The road to recovery
Australia’s property market is starting to show signs of recovery, following five months of price declines, according to CoreLogic’s Tim Lawless.
The coronavirus pandemic saw property prices stall – with lockdown measures, including the banning of in-person inspections and other measures – driving down listing volumes and seller activity.
Despite that reduced activity, unit prices across the country held up remarkably well during the pandemic period, declining less than housing values. CoreLogic’s Tim Lawless noted that he does not expect such a trend to continue, saying that:
‘Low levels of investment activity, relatively high supply of unit stock in inner-cities and international border closures are key factors that imply units will under-perform relative to houses over the medium term.’
Despite an uncertain outlook for unit values, October proved to be a strong month for Australia's residential market overall, with national dwelling values rising 0.4% on a month-over-month basis. Darwin's property market was the best performing in October, rising 1.2%, followed by Canberra at +1.0% and Hobart also at +1.0%. By comparison, Melbourne was the worst performing state, with dwelling values falling 0.12%.
Beyond property prices, a number of other key indicators have also improved over the last month, with consumer confidence rising, listing volumes improving and auction clearance rates strengthening. Mr Lawless elaborated that:
‘In October we saw an 11.9% surge in the Westpac-Melbourne Institute consumer sentiment index, rising clearance rates and an increase in valuation for purchase orders. Alongside this we are seeing persistently low advertised stock, which has supported price growth.’
Ultimately, though Australia’s all-important property market has struggled during the pandemic, it should be noted that over the past 12-months property values have actually trended higher, rising 3.9% in that period. The median national dwelling value currently sits at $559,254 – led by Sydney and Melbourne.
Markets boosted by vaccine hopes
With news breaking this week that BioNTech and Pfizer had made promising and significant progress on an effective covid-19 vaccine, investors piled into key sectors that would assumedly benefit from a faster than previously expected reopening of global and local economies. For example, airline and travel stocks surged on Tuesday, e-commerce stocks were bid lower, while ASX-listed property stocks, for the most part, were also bid higher on the prospect of a reopened economy.
Commenting broadly on the latest set of quarterly reports from ASX-listed property stocks, analysts from Morgan Stanley (MS) argued that:
‘Maybe the worst of Retail devaluations is already done,’ while adding that ‘Most major Retail portfolios saw book values decline c.-10% in the Jun '20-half, and our feeling is that the market is expecting another c.-5-10% across the Dec '20-Jun '21 periods.’
Looking at the performance from some of Australia’s key listed property stocks: On Tuesday, October 10, Scentre Group (SCG) finished out the session up 14.52%, Goodman Group (GMG) fell 8.36% and Dexus (DXS) rose 8.08%.
Given this renewed volatility and optimism around the reopening of Australia’s economy, below we look at the recent quarterly results from GMG, DXS and SCG.
Scentre Group share price: -27% YTD
Despite surging during Tuesday’s session, Scentre Group remains solidly down year-to-date. Indeed, with operations focused on shopping centres, this share price weakness should come as little surprise given the impact that government mandated restrictions would have on foot traffic at such locations.
Things look to be improving somewhat: As per the company's latest operational update, it was noted that 92% of retailer stores are currently open and trading, that all its 42 Westfield Living Centres are open, and that total rent collected for the ten months ending October 31 hit $1,621 million, a significant increase since June 30.
From a distributions perspective, as the company noted in September and reiterated as part of its latest operational update:
‘Subject to unforeseen circumstances, the Group's current intention is to make a distribution in early 2021 from surplus net operating cash flows during the period ending 31 December 2020.'
Goodman Group share price: +42% YTD
Goodman Group reported a solid set of results as part of its Q1 FY21 trading update, revealing a 2.9% increase in net property income growth across its managed partnerships, a 97.8% occupancy rate, while also revealing that $1.7 billion worth of development commencements were made during the quarter. Elsewhere, GMG also used the quarterly update to reaffirm its FY21 outlook, with management noting they expected earnings growth of 9% for the full-year against a distribution of 30 cents per security.
Likely underscoring the company’s recent share price strength, Goodman’s CEO, Greg Goodman noted that during the quarter not only had customer demand increased on a global scale, but 'Development WIP [work in progress] has doubled over the past 12 months with strong levels of pre-commitment and long lease terms being sought by our customers.'
Dexus share price: -17% YTD
Looking at the Dexus September quarterly update, the company reported that it retained a high occupancy rate across its office and industrial portfolios, that it recorded a robust rent collection rate of 94%, while the company retained a below target gearing range of 24.3%.
Speaking of these results, the Dexus CEO, Darren Steinberg noted:
'We continue to operate in an uncertain environment, with no vaccine and the economy in recession, and still face significant challenges over the coming year as a result of border closures and government restrictions.'
Looking forward, Dexus management said they expected the FY21 full-year distribution to be consistent with FY20, assuming no further lockdowns.
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