The listed property sector sold off 6.1% in February despite a rate cut during the month. This was mainly driven by weakness in Goodman Group (GMG -14.10%), after its surprise $4bn capital raise, and breaking its streak of upgrading guidance. In comparison, the Fund was down 6.0%, slightly outperforming the benchmark.
Key contributors to the Fund’s performance over the month were our overweight positions in non-index stocks including Qualitas Ltd (QAL +11.97%) and Cedar Woods Properties Ltd (CWP +3.90%). QAL posted record deployment in private credit (up +34% on first half FY24), laying a strong foundation for growth. CWP achieved solid residential sales and settlements momentum, with strong gross margins, and guiding to an even stronger second half year.
We are positive on the outlook for the A-REIT sector underpinned by 1) macro support with the rate cutting cycle having started in February and the market pricing in a further 2 cuts in 2025, 2) strong earnings growth of +6% p.a. over the next two years anticipated with the bulk of the rising debt cost headwind now behind us, and 3) asset valuations having troughed. On a relative basis, the sector is looking attractive, trading at 15x PE versus the broader equities market at 20x.
Key themes from reporting season include:
As the macro environment turns more positive, this is allowing REITs to implement their growth strategies by expanding their funds management platforms or enter into new sub-sectors such as data centre development (GMG, SGP, CHC, CNI and HMC) and real estate private credit (QAL, CNI, HMC). We view this as a positive development for the sector. However, it also changes the earnings profiles, and more focus should be given to cashflow and balance sheet analysis, where we see ourselves adding value. By adopting a high conviction strategy, we are able to be selective in our investments (holding best of breed) and invest outside the index, providing further diversification.
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.
