What the H1 2026 Reporting Season Revealed for the AREIT Sector
In this update, Amy Pham, Fund Manager of the Pengana High Conviction Property Securities Fund, reviews the February 2026 reporting season and shares her outlook on the A-REIT sector.
The H1 FY2026 reporting season delivered a notably strong set of results for the Australian REIT (AREIT) sector, with earnings growth that meaningfully exceeded the recent historical average. Against a backdrop of elevated interest rates and ongoing macroeconomic uncertainty, the sector demonstrated resilience across earnings, balance sheet health, and asset valuations. Below, we unpack the key takeaways from reporting season.
Earnings Growth Well Above Historical Norms
The standout headline from this reporting season was EPS growth of approximately 7% for FY2025/26. To appreciate the significance of this, consider that over the five years since COVID, the sector averaged just 1 to 2% EPS growth per annum. This result is not merely solid for the current environment; it represents a material step-change in the sector’s earnings trajectory.
Equally encouraging was the breadth of the result. All REITs confirmed or reaffirmed their earnings guidance for the year, and 13 of them issued upgrades. Importantly, not a single company in the sector recorded an earnings downgrade, making this one of the cleanest reporting seasons in recent memory.
Balance Sheet Strength Provides a Buffer Against Rate Headwinds
One of the most compelling structural features of the sector today is the state of its balance sheets. Average gearing across the sector sits at approximately 28%, a marked improvement from the pre-GFC era when gearing averaged over 45%. This lower leverage profile means that while higher interest rates do increase the cost of debt, their net impact on earnings is considerably more contained than it would have been in prior cycles.
Further reinforcing balance sheet visibility, approximately 70% of the sector’s debt is hedged. This provides earnings predictability not just over the next 12 months, but across a three to four year horizon, which is a meaningful consideration for investors focused on capital protection and sustainable income.
Valuations and NTAs Beginning to Recover
Property valuations, which had been under pressure throughout calendar year 2025, appear to have found their floor. Consensus market view points to 2025 as the trough for AREIT valuations, and the H1 FY2026 season has delivered early confirmation of a recovery, with net tangible assets (NTAs) increasing on average between 2% and 5% across the sector.
Notably, this recovery extends to the office sector, which has faced significant headwinds for close to seven years. Even here, valuations are beginning to stabilise and edge higher, which speaks to the improving conditions across the sector more broadly.
Active Real Estate Platforms Attracting Record Capital
Active real estate platforms performed strongly this period, with both Charter Hall Group and the Centuria Group recording high capital raisings and deployment rates. Charter Hall in particular reported $4 billion in equity inflows for the half, the strongest result in its 30-year history. This level of capital attraction reflects renewed investor confidence and is an important indicator of the sector’s underlying health.
Equity inflows and transaction volumes reaching record highs for the first time since COVID is a significant signal that institutional investors are re-engaging with the asset class at scale.
February Volatility: Sector Rotation, Not Fundamental Deterioration
The AREIT sector fell approximately 3.5% in February, while the broader equity market rose close to 4%. At face value, this looks concerning, but it is important to understand what was driving broader market performance. The equity market outperformance was concentrated in just two sectors, banks and building materials, rather than reflecting broad-based strength.
In our assessment, this was a sector rotation dynamic rather than any deterioration in AREIT fundamentals. The underlying earnings and balance sheet characteristics of the sector have not changed, and the reporting season results reinforce that view.
Macro Risks Acknowledged, but Earnings Characteristics Offer Resilience
Geopolitical uncertainty continues to exert upward pressure on oil prices, with flow-on effects for inflation expectations and, by extension, the interest rate outlook. A higher-for-longer rate environment is a headwind for the sector, and we are not dismissing that.
However, the fundamental case for REITs rests on three pillars: sustainable earnings growth, capital protection through net tangible assets, and earnings resilience backed by long-term contractual leases with national and multinational tenants. The sector has delivered on all three through this reporting season.
Where We Are Finding Opportunity
The Pengana High Conviction Property Securities Trust does not hug the index. Where we do not have conviction in a sub-sector or individual name, we will not own it. As high conviction managers, our portfolio is concentrated in our best ideas, holding up to a maximum of 20 stocks.
For the past two to three years, we have maintained a favourable view on the residential sector, particularly those companies operating in the more affordable housing space. Cedar Woods, Ingenia, Gem Life, and Peet Co are among the names we find attractive in this sub-sector, with the majority sitting outside the benchmark index.
Goodman Group remains one of our top five holdings. It has underperformed the sector materially over the past year, down approximately 16%, which has created a valuation opportunity we view as compelling. Trading on a price-to-earnings multiple of 18 times, with forecast EPS growth of 12 times over the next three years, we believe Goodman offers genuine value for patient investors.
