We have discussed property stocks in a few reports of late, including this comprehensive note “Are we too early owning property stocks” plus we reiterated some of our thoughts in yesterday’s webinar- a replay of which can be seen here. Yesterday’s CPI hasn’t changed our opinion, but we feel it has reduced any urgency towards increasing exposure into the sector.
- With rate hikes back in the front of investors’ minds, the sector is likely to underperform over the coming weeks/months.
We continue to believe the key is owning the right balance sheets and being prepared to look through what could be a difficult FY27 toward a more normalised earnings environment beyond it. We currently own Charter Hall Long WALE REIT (CLW) and Mirvac (MGR) in the Income Portfolio, with MGR also held in the Growth Portfolio, and these remain our stocks of choice, especially at current levels after their recent results:
- Mirvac (MGR) delivered a solid result that MM and the market liked here; the stock’s ~6% yield and $200mn buyback should prove supportive into weakness
- Charter Hall Long WALE REIT (CLW) had some underlying weakness, but we felt it was solid enough given where it’s trading – result covered here; a more than 7% yield on reliable earnings makes this an excellent income option at current levels.
We’re unlikely to add materially until there is clearer evidence that interest rates and bond yields have peaked, or markets get too pessimistic around rate hikes, but for now, as we showed with the 3-year bonds, things are fairly balanced. However, buying weakness is an obvious thought, but the obvious doesn’t always work! Markets often move before the economic picture becomes completely clear; from a technical perspective, we get a buy signal if the sector trades back up through resistance ~1650, shown on the chart below.
- We like the risk/reward towards the property stocks but feel they will struggle in the coming weeks – MGR and CLW remain our top picks.
