Normality returns as transactions, M&A and debt issuance picks up

A-REITs performed exceptionally well through the month of March, delivering a +9.56% return and outperforming the broader equities market by +6.26%. This was driven by the view that rates have peaked, together with the continued strong performance from Goodman Group (+13.1%) following its FTSE EPRA NAREIT index inclusion on 18 March.

As a comparison, the Fund returned +8.07% over the month, underperforming the benchmark by 1.49%, mainly as a result of the Fund’s significant allocation to non-index stocks.

For the March quarter, the Fund returned +16.19%, in line with the benchmark. For the 1 year, the fund returned 38.38%, outperforming the benchmark by 3.03%.

Portfolio Manager Amy Pham was recently featured in an episode of the ‘Inside the Rope’ Podcast with Koda Capital Adviser & Partner David Clark. During the episode, David and Amy discuss the changing property investment scene amidst fluctuating interest rates and remote work trends. You can access the full episode here. 

Top Holdings (alphabetically)

Goodman Group

Australia

Real Estate

Goodman Group is an integrated industrial property group. The Group has operations in Australia, New Zealand, UK, Asia and Europe. Goodman's activities include property investment, funds management, property development and property services. The Group's property portfolio includes business parks, industrial estates, office parks and warehouse/distribution centers.

Ingenia Communities Group

Australia

Real Estate

Ingenia Communities Group engages in managing and developing a portfolio of retirement and lifestyle communities. It operates through the following segments: Lifestyle Development, Lifestyle Rental, Ingenia Gardens, Ingenia Holidays; Fuel, Food & Beverage Services, and Corporate and Other. The Lifestyle Development segment comprises development and sale of lifestyle homes. The Lifestyle Development segment refers to long-term accommodation within lifestyle and rental communities. The Ingenia Gardens is involved in rental villages. The Ingenia Holidays segment is composed of tourism and rental accommodation within holiday parks. The Fuel, Food & Beverage Services segment is associated with the Group's investment in service station and food & beverage operations adjoined to Ingenia Holiday communities. The Corporate and Other segment relates to the Group's remaining assets and operating activities. The company was founded on November 22, 2003, and is headquartered in Sydney, Australia.

National Storage REIT

Australia

Real Estate

National Storage REIT engages in providing self-storage and tailoring self-storage solutions to residential and commercial customers. It offers spans self-storage, business storage, records management, climate-controlled wine storage, vehicle storage, vehicle and trailer hire, packaging, insurance and other value-added services. The company was founded in December 2013 and is headquartered in Brisbane, Australia.

Scentre Group

Australia

Real Estate

Scentre Group Limited owns and operates pre-eminent living centre. The Company specializes in the management, development, construction, leasing, and retail solutions. Scentre Group serves customers in Australia.

Stockland

Australia

Real Estate

Stockland is a diversified Australian property group. The Group develops and manages Retail centers, Residential Communities and Retirement Living assets with a focus on regional centers and outer metropolitan. Stockland also owns a portfolio of Office and Industrial assets.

With rates stabilising, we are starting to see an increase in transaction volumes with $2.2bn in assets changing hands including the recent sale of Mirvac Wholesale Office Fund’s 50% stake in 255 George Street at 9% below book value to Singaporean Keppel REIT for A$364m.  This trade is important for several reasons; 1) it is the first major transaction that has occurred in the A-grade office sector in Australia in a long time; 2) the investor is institutional and 3) the transaction sets a supportive backdrop to the intended partial sell down of Mirvac’s 55 Pitt Street development.

M&A activity continued during the month with Bunnings Warehouse Trust (BWP) progressing its acquisition of Newmark Property REIT (NPR). Charter Hall Group (CHC) and its managed vehicle Charter Hall Retail Trust (CQR) also jointly acquired a 14.8% strategic stake in Hotel Property Investments (HPI)

March also saw a return of bond issuance with Stockland Group (SGP) and Region Group (RGN) raising $400m and $300m respectively.

So where to from here – how much more is in the tank for REITs?  We believe sector outperformance still prices in improving NTA and earnings momentum, which continue to rely on a fall in interest rate expectations.

Strong economic data from the US and the RBA’s March 2024 Financial Stability Review highlight the resilience of most borrowers, who are able to continue to service their debts and other essential spending notwithstanding the recent rate hikes.  This points to a higher for longer thesis, which pans well for the Fund’s strategy that does not rely on rate cuts and continues to favour companies with a strong balance sheet and high visibility in earnings growth.