December 2022 performance metrics

The listed A-REITs delivered a weak performance in the 12 months to 31 December 2022. The S&P/ASX 200 A-REIT Accumulation Index delivered a -20.5% total return for the 12-month period, whilst the broader S&P/ASX 200 Accumulation Index delivered a total return of -1.1%.
 
The weak performance was driven by interest rate concerns across the market. The RBA increased the cash rate by +3.00% during the year, with the majority (+2.25%) being delivered in the last 6 months of the year. The rate rise was the first time the RBA has increased interest rates since November 2010, with the cash rate now standing at 3.10%.
 
Whilst the listed property stocks are generally geared at modest levels of 20% - 35%, the market remains cautious about the impact that interest rates will have on earnings as well as valuations. Core Property reviewed 39 property stocks for their total return over these periods.
 
Only 4 of the stocks delivered a positive return in the 12 months to December 2022 (VCX +24.5%, BWF +16.0%, WPR +3.0% and HPI +0.4%). The majority of property stocks delivered negative returns which were in the -10% to -35% range.
 
Vicinity Group (ASX: VCX) was the strongest performer for the year, with a 24.5% return. VCX’s shopping centres have benefitted from a rebound in 2022, following the COVID-19 lockdowns of 2020-2021.
 
Fund Managers continue to be the hardest hit, with concerns about how they would deliver growth in the high interest rate environment. During the 12-month period weaker returns were delivered by CNI (-48.1%), HMC (-44.9%), CHC (-39.8%),  GMG (-33.4%) and ENN (-22.7%).
 
Various managers have provided guidances that they expect valuations to reduce as a result of higher capitalisation rates on their portfolios in December 2022. Across the main property sectors, Core Property expects to see capitalisation rates increase by around 0.10% - 0.20% for December 2022. This appears modest when compared to the increase in the RBA cash rate, and leaves room for further capitalisation rate increases to flow through in 2023. The overall impact on portfolio valuations is expected to be in the low single digits, as strong rental increases have partially offset the impact of capitalisation rate movements.
 
Higher interest rates are also expected to impact earnings and distributions for the FY23 period, and the market will be looking to the February 2023 reporting period for guidance from management about their expectations.