A-REITs were down -2.57% in October, as a result of the political overhang from the US election and the 53 basis points jump in the Aussie 10-year bond yield to 4.5%, as market expectations of rate cuts moderated. In comparison, the Fund returned -1.19% and outperformed the index by +1.38%. Key contributors to performance were our investments in Qualitas Limited (QAL +16.60%), Lifestyle Communities (LIC +2.25%) and Cedar Woods Properties Limited (CWP +1.95%).
Portfolio Manager
Investment Specialist
A Property Fund focussed on capital security, income yield, and sustainable growth.
The Fund believes each security has an underlying or intrinsic value and that securities become mispriced at times relative to their value and each other.
The Fund seeks to exploit such market inefficiencies by employing an active, value based investment style to capture the underlying cashflows generated from real estate assets and/or real estate businesses.
The Fund believes that responsible investing is important to generate long term sustainable returns. Incorporating ESG factors along-side financial measures provides a complete view of the risk/return characteristics of our property investments.
The Fund is benchmark unaware. All positions are high conviction and assessed on a risk-reward basis, resulting in a concentrated portfolio of 10-20 securities.
1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. The Fund incepted on March 11th 2020. Index performance calculations include a complete month’s performance for March 2020. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. Inception 11 March 2020.
3. Annualised standard deviation since inception.
4. Relative to S&P/ASX 300 A-REIT TotalReturn Index.
* For further information regarding fees please see the PDS available on our website.
COMMENTARY
During the month, several companies provided quarterly operational updates, which saw guidance reiterated. Residential sales remain below trend, retail re-leasing spreads softened, while industrial and office metrics were relatively stable.
Key takeaways included:
Residential: Sales in September were up 16% compared to the prior corresponding period (pcp), but still 20% below the June quarter. This decline was impacted by cancellations in Victoria, timing of new releases, and slow apartment sales. Masterplanned Communities (MPC) continued to record price growth and strong sales in QLD and WA, supporting margins. Both Mirvac and Stockland are set to deliver a material 2H settlement skew for this financial year, similar to the results seen in FY24.
Office: Market conditions remain subdued, with average occupancy declining to 93.5%. Leasing markets continue to be slow, with incentives remaining stubbornly high at an average of 30%. Encouragingly, Dexus, with its premium grade office portfolio, reported a slight improvement in incentives from 27.9% to 26.3%. This points to a bifurcation in the market and a flight to quality.
Industrial: Logistics occupancy declined by 0.5% to 97%, but re-leasing spreads remain strong. Centuria Industrial REIT reported that 1Q 25 re-leasing spreads reached a record 54% across 67,000 sqm of leasing deals.
Retail: Sales growth was stable at 2% p.a. for the 12 months to September, while re-leasing spreads – particularly for discretionary retail – have softened.
Overall, the A-REIT sector remains resilient. As rates start to come down from these levels, we believe this will drive transactional volumes and positive sentiment, particularly in residential which is highly leveraged to the interest rate cycle.