The AREIT sector continued its strong performance in August, delivering a return of 6.4%. In comparison, the Fund returned 6.3% over the month with key positive contributions from our exposures in Lifestyle Communities (LIC), Centuria Capital (CNI) and Charter Hall Group (CHC).
The AREIT sector continued its strong performance in August, delivering a return of 6.4%. In comparison, the Fund returned 6.3% over the month with key positive contributions from our exposures in Lifestyle Communities (LIC), Centuria Capital (CNI) and Charter Hall Group (CHC).
Looking at the reporting season scorecard, there was a vast improvement compared to last year. 15 REITs provided either EPS or DPS guidance. Those withholding guidance have retail exposures (CQR, GPT, SCP, VCX & URW) and cited uncertainty surrounding COVID with the recent NSW and VIC lockdowns being the key drivers. However, of the REITs that did provide guidance, many indicated that it was based on the assumption of a reopening by the end of the year following a successful vaccine rollout.
With structural shifts continuing to put pressure on retail and office earnings and the tight pricing in the direct markets for favourable assets, such as industrial and long WALE, many of the REITs (DXS, SGP, VCX, MGR, GPT, GOZ, SCP and AVN) have shifted towards active earnings, such as development and funds management, in order to generate growth. Out of the 8 REITs that have flagged their ambition to grow their funds management businesses, DXS has been the most active thus far in winning the management rights for the AMP Capital Diversified Property Fund, taking over the listed APN Property Fund (APD) and forming a partnership with Australian Unity in their Healthcare Fund. These transactions have increased DXS’s FUM by 60% to $25bn, making it the third-largest real estate fund manager in the sector after Goodman Group at $58bn and Charter Hall Group at $52bn.
Other REITs, such as Vicinity (VCX), have started a strategy to shift from being pure retail landlords to a broader real estate business with mixed-use developments and new funds management initiatives. VCX anticipates that they can grow this from 10% of earnings to 20% over the next ten-year period. Whilst these initiatives are seen as positive, it will take several years to build a track record and investors are unlikely to pay a premium for these earnings. The new entrants will have to compete with existing fund managers such as Goodman Group, Charter Hall Group and Centuria Capital, who have achieved consistent FUM growth of 20%+ over the past 3 years.
We have also seen REITs positioning for growth post COVID with Mirvac ramping up its two Sydney apartment projects (Willoughby and Harbourside), Stockland expanding in Manufactured Home Estates (MHE) post acquiring Halycon, and many groups taking advantage of low cap rates and robust tenant demand through developing logistics assets. This ability to create assets instead of competing in the direct market is seen as a key differentiator for earnings growth going forward.
Once again, this reporting season has highlighted the resilience of cashflow in the alternative real estate sector. Across the board, there were positive asset valuations in childcare, healthcare, data centres, farms, manufactured housing and land lease estates, driven by strong investor demand and continued cap rate compression. Furthermore, rent relief due to COVID has been minimal due to their exposure to essential services with long leases and government support to operators (childcare).
We continue to favour REITs with strong free cashflow and back management teams that can grow sustainable earnings through development and capital recycling. As a high conviction manager, we are benchmark unaware and can allocate to sectors with favourable thematics and growth outlooks including all the alternative real estate sectors highlighted above. Currently, the Fund has over 20% exposure to these alternative sectors compared to our benchmark of 6%.
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.
