SUMMARY
ASX300 REITs declined 1.9% in September, outperforming the broader market (-2.4%) despite the RBA’s 25bp rate hike to 4.60% at month-end.
The sector recovered strongly at the end of the month on a softer-than-expected CPI print, indicating that macro factors remain the key driver of performance. As a comparison, the Fund returned -2.8%, underperforming the benchmark by 0.9%.
Contributors to performance included our investments in Ingenia Communities Group (INA +32.24%) and Region Group (RGN -0.45%).
Detractors included NextDC (NXT -21.58%) and Qualitas Limited (QAL -18.42%). After underperforming last month on its bid for Peet, INA rebounded strongly and more than recovered those losses following a series of bids from Warburg Pincus.
COMMENTARY
Over the past 12 months, the REIT sector has returned -14.1%, compared with +2.4% for the broader market. Most of the 16.5% underperformance has come in 2026, coinciding with the start of the rate-hiking cycle. On valuation, the sector now trades on a forward P/E of 14x versus 18x for equities, with 7% earnings growth and a 15% discount to book value.
The withdrawal of the Firmus IPO should ease selling pressure on stocks such as Goodman Group (GMG) and Charter Hall Group (CHC), which investors may have been selling to fund their IPO allocations. More broadly, it strengthens the case for REITs. The sector offers earnings visibility backed by tangible assets, along with exposure to growth in AI and data centres.
As we head into AGM season and the quarterly updates, the market will focus on residential sales volumes for developers such as Mirvac (MGR) and Stockland (SGP). With rates at multi-year highs and changes in the federal budget, we expect sales volumes to fall by 10–20%. We prefer residential developers with strong earnings visibility, such as Cedar Woods (CWP), which has around 90% of FY27 earnings covered by presales.
In retail, we expect softer consumer spending to weigh on leasing spreads and specialty sales, particularly in discretionary retail. We prefer convenience-based retail such as Region Group (RGN), where 70% of sales come from supermarkets and 30% from specialty stores.