Tipping point For Retail Property Stocks

Tipping point For Retail Property Stocks

According to market researchers, the widespread impact of the covid-19 is likely to drag the world economy towards depression and the event of a global financial crisis (which took place between 2007-2009). Prior to the covid-19, the Australian economy has endured the bushfires. The influence of these back to back events are likely to take a toll on several sectors, especially the property sector.

Property Stocks Amidst Covid-19

Moreover, the latest survey by the Australian Bureau of Statistics (ABS) states that around half of the Australian businesses surveyed have experienced a negative impact due to the covid-19 during mid-March data collection period. Moreover, around 86% businesses believe that they are likely to be impacted by the spread of coronavirus in the coming months.

Related: Assessing COVID-Induced Business Impact – RWC, IVC, RDC, WES, SGR

Experts believe that the shutdowns and lockdowns imposed by the governments across several countries are likely to drive away from the livelihood of the people. Although these restrictions are the need of the hour, they are likely to prove deadly for the economy in the bigger picture.

The huge sell-off that the market witnessed not long ago had property stocks reeling for recovery. The high gravity of volatility in the market has been a driving force for the plunge that property stocks underwent.

The spectacular reversal in the investor sentiments caused by the coronavirus disease jolted the market’s best-performing stocks, including the ones from the property business. Although the most hit sectors include travel, tourism and related sectors, also, the rental businesses might witness lower incomes due to deferred rent payments.

What do Interest Rate Cuts Tell?

A look at recent data by ABS shall reflect that housing and rental businesses had been strongly favoured by the market forces as well as individuals in recent times. Moreover, residential property prices surged by 3.9 per cent during the December quarter 2019 in Melbourne and Sydney.

Experts also believe that the cutting interest rate is one of the most likely factors that has supported the growth of popularity of A-REITs. It is also likely that the markets shall respond favourably to the reduced interest rates and a softer revenue outlook.

The declining interest rates lay direct impact on the expense of servicing the debts of a company. With lower interest rates, the real estate companies in Australia are likely to experience reduced expenditure on servicing their debt as loan repayments are generally the largest business expense for companies.

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Considering this and other factors impacting immaterially; the profits of the businesses are more likely to grow with the significant decrease in the expenditure, and there might be greater demand for shares that would further push the prices up for the shares.

Although real estate businesses are taking precautionary measures to deal with the situation, many have withdrawn their earnings guidance and distributions to their shareholders. In highly uncertain times when economists are predicting the worst global financial crisis, further declines in the rates are expected to increase the attraction of the dividend-yield stocks held by property securities.

CHS issues Earnings Guidance

One of Australia’s leading fully integrated property company, Charter Hall Group (ASX:CHC) has available balance sheet liquidity of $350 million and gearing of 2.8%, and its weighted average debt maturity is 6.3 years.

These numbers were posted subsequent to receiving the Charter Hall Office Trust (CHOT) performance fee amounting to $148 million. CHC believes that the performance fee throws light on CHC’s ability to secure investment opportunities and an effective investment outcome that CHOT fund investors have experienced.

The Company also affirmed approximately 40% growth over FY19 in its post-tax operating earnings per security (OEPS) through its earnings guidance for FY20 and includes $98 million of the $148 million CHOT performance fee received, noting $50 million of this was recognised in FY19 earnings.

Charter Hall has posted earnings guidance in times of high ambiguity surrounding the market due to the spread of covid-19.

In the past five days, the CHC stock has decreased by 5.62% and settled at a price of $6.350 on 26 March 2020. The stock surged by 4.959% intraday and has a market capitalisation of $2.82 billion. However, on 27 March 2020, CHC was trading at $6.660, rising up by 4.882% (at AEDT 12:17 PM).

Related: Developments in Industrial Stocks Amidst Covid-19 Pandemic - DOW, CWY

On the other hand, a leading, diversified Australian property company, Mirvac Group (ASX:MGR) has withdrawn its FY20 earnings and distribution guidance and any forward-looking statements, including comments about active and passive earnings.

However, the Company boasts a robust and balance sheet along with debt position. It is well-positioned in terms of liquidity with the availability of $944 million of cash and committed undrawn bank facilities as at 31 December 2019.

While MGR holds credit ratings of A3/A along with stable outlook from Moody’s and Fitch, its debt amounts to $200 million maturing in the next 12 months which can be repaid from available facilities.

MGR is of the view to take prudent measures across the business to secure its employees and stakeholders and ensure transparency in the ever-changing environment.

In the past five days, the MGR stock has increased by 17.89% and settled at a price of $ 2.170 on 26 March 2020. The stock surged by 7.96 % intraday with a market capitalisation of $ 7.91 billion. On 27 March 2020, MGR was trading at $2.030, moving down by 6.452 % (at AEDT 12:15 PM).

Interesting Read: Capital Raising to Aid Reeling Businesses – BGL, TCL, SES, COH, TRS

Premier global developer and operator of flagship destinations, Unibail-Rodamco-Westfield (ASX:URW) announced withdrawal of its 2020 AREPS guidance, confirmed that it shall pay interim cash dividend of €5.40 per share on 26 March 2020 and has cancelled the payment of the final dividend of €5.40 per share.

URW has ample liquidity constituted by €10.2 billion in cash on hand and undrawn credit lines to cover the projected funding requirements. Moreover, the implementation of a program to reduce non-staff expenses, defer non-essential capital expenditure and make use of any relevant facilities is expected to help the group endure through such uncertain times.

URW also notified that its Combined General Meeting (AGM) of stakeholders would be conducted, in closed session, at URW SE’s registered office on 15 May this year (at 10:30 AM). The formal notice to stakeholders would be Published on 27 March in the BALO, and would set out the agenda for the AGM, along with the proposed resolutions, and terms and conditions for voting during the AGM. Also 2019 Universal Registration Document of URW SE was filed with the French Financial Markets Authority on 25 March this year.

In the past five days, the URW stock has increased by 19.87% and settled at a price of $5.110 on 26 March 2020. The stock decreased by 8.913% intraday and has a market capitalisation of $15.53 billion. Also, on 27 March 2020, URW was trading at $5.015, declining by 1.859 percent (at AEDT 12:07 PM).

Outlook

The rapid pace at which the covid-19 has been evolving has materially hampered the outlook for the businesses, and it has become increasingly difficult for them to provide any appropriate earnings guidance.

Moreover, the development pipeline and growth in assets under management needs to be strengthened in current times. Any reduction in demand for industrial well as residential properties is likely to influence the outlook for development projects and rental growth.


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This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice. 

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