The AGM and quarterly update season is upon us and given the near historic levels of uncertainty it couldn’t have come any sooner. There have been around 50 AGMs thus far, many of which provided investors with some form of trading update. The dispersion in performance has been very large and here we will discuss interesting updates from the property, buy now pay later and retail sectors.
Australian Property Trusts
Most of the Australian REITs have provided their quarterly updates and sifting through these gives some interesting insights into how the various asset classes are performing.
- Despite rent collection methodology differing from company to company, rent collections have improved almost uniformly across the board. This is great to see given REITs have been one of the key shock absorbers of this crisis.
- Retail has shown the biggest improvement with rent collections improving a whole 23 ppts on the June quarter.
- Occupancy unfortunately has begun to slip with Stockland, Dexus, Centuria, Mirvac and GPT all seeing their office occupancy fall in the quarter.
- Residential is performing very well and Stockland reported a 57% year on year increase in sales and Mirvac reported a 40% q/q increase in exchanges.
- The working from home conversation remains hotly debated however there was some encouraging commentary from the key landlords (don’t be surprised the office REITs are optimistic!).
- GPT: “Whilst physical occupancy in our office buildings remains well below pre-pandemic levels we have seen a gradual increase in customers returning to the office during the quarter as community transmission rates have declined in Brisbane and Sydney”.
- MGR: “We are seeing increasing evidence of tenants starting to encourage more of their staff to return to the office as the benefits the physical workplace brings to culture, innovation, productivity and staff development are becoming more widely recognised.”
- GOZ: “We are pleased to see our tenants increasingly returning to their offices, outside of Victoria. Working from home exclusively is not something that most employees or employers view as optimal. There is shared recognition of the many benefits of working in an office, such as fostering company culture and mentoring junior employees.”
Buy Now Pay Later
All the key BNPL providers have released quarterly updates and the growth remains rapid.
- The majority reported triple digit underlying merchant sales (UMS) growth led by Sezzle and Laybuy. Despite these large percentages, when looking at the dollar increase in sales processed, the numbers tell a different story.
- In totality they processed $2.9b more this quarter than the same quarter last year. Of this $2.9b increase, Afterpay (APT) accounted for $2.1b or ~73% of the increase.
- Interestingly, APT processed almost the same amount in this quarter alone ($4.1b) as all the other BNPL providers combined over the past 12 months.
- Unsurprisingly, the USA and the UK are growing very quickly in percentage terms, however USA and Australia are adding the most in dollar terms. Australia does appear to be maturing (if you can call a market <5yrs old maturing) given growth rates are slowing.
- The BNPL story is by no means over. Sezzle has launched in Canada and soft launched in India, LayBuy is looking at the US, Afterpay has launched in Canada, has launched in store in the US and is planning on launching in Singapore and Spain next year.
Retailers
Finally, we cast our eyes to the retailers.
- There are a number of listed retailers in Australia however I’ve focused on the ones that released a trading update in August and another recently. The August updates were incredibly strong across the board as a combination of pent up demand and stimulus led to material growth in sales for several retailers.
- The most recent updates I would argue are far from disappointing, ranging from +20% to +138% on the prior comparable period. However, the market is focused on the delta, and momentum has clearly waned.
- As can be seen below the stellar performance of listed retailers appears to be tapering. It will be interesting to see how aggressive these retailers become leading up to Black Friday and Cyber Monday – a key trading period.
We are currently operating in a very opaque and uncertain set of market conditions where state and federal stimulus remain key short-term drivers. At Milford, we remain focused on stock selection and picking high quality companies, balancing the short-term implications of this current uncertain environment, with each business’s long-term potential.
