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High Conviction Property Securities Fund

Australia's only high conviction A-REIT fund with an ESG focus

February 2024 - Monthly REPORT

Addressing the elephant in the room

SUMMARY

This reporting season was one of the strongest A-REITs have delivered since Covid, driven by Goodman Group (GMG) delivering 28% EPS growth on 1H23 and retail REITs’ operational earnings proving to be more resilient than expected.  As a result, the sector was up +4.75% in February, outperforming the broader equities market by +3.8%.

In comparison, the Fund returned +6.70% achieving an outperformance of +1.95% over the benchmark. 

This brings the return of the Fund over the last 12 months to +19.19% compared to the benchmark of +15.10%.

Stocks that contributed to the Fund’s outperformance for the month included investments in NextDC (NXT +25.89%) and Ingenia Group (INA +9.19%).

PORTFOLIO

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.

Sector Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 29 Feb 20241
1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. SINCE INCEPTION P.A.
High Conviction Property Securities Fund 6.7% 19.2% 4.9% 10.8% 9.6%
S&P/ASX 300 A-REIT (AUD) TR Index 4.8% 15.1% 3.8% 10.4% 4.5%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

Goodman Group has gone from strength to strength as it upgraded FY24 earnings guidance and unveiled its data centre development pipeline. The Group’s secured data centre powerbank increased from 3.7GW to 4GW with a build out value of $50-$60bn, providing strong earnings visibility over the medium term.  The inclusion into the FTSE EPRA NAREIT Index also contributed to a 22% return YTD.

Retail REITs, particularly large retail malls, reported strong operational metrics with average re-leasing spreads of +3.9% (strongest in a decade), close to full occupancy and strong double digit sales growth.  This translated to multi-year low occupancy cost (rent/sales) of 16% versus long term average of 17%-19%, supporting further opportunity to drive rental growth.

With Covid, inflation and interest rate headwinds behind us, we expect FY24 to be the trough for earnings and for the A-REIT sector to deliver strong earnings growth going forward. We believe the recovery in the sector will be earnings led rather than based on valuations, as transaction volumes remain stagnant whilst cost of capital remains high.

So, are we close to the trough in asset values? REITs devalued their portfolios for the third consecutive period from the June 2022 peak in pricing.  Office assets were written down 14% over the past 18 months with cap rates increasing by an average of 70 basis points to 5.75%.  In comparison,  industrial asset values were down 2.2% with cap rates at 5.27% and retail assets down 14% from their peak with cap rates at 5.39%.  If we compare this to the listed market, the sector is currently trading at an average discount to NTA of 14% for passive REITs with some office REITs still trading at 30% to 40% discount to NTA.  The ability to close this valuation gap depends on several factors such as gearing levels, capital structures and specific asset class concerns impacting cashflows.

As valuations, particularly for office assets, remain uncertain our focus on cashflow and balance sheet strength provides the portfolio with greater earnings visibility and sustainable growth.  We remain cautious about the office sector given weak demand and increasing near term supply.  Our preference is for retail REITs and alternative assets such as data centres, healthcare, childcare and manufactured housing.

PROFILE

Platform Availability

  • BT Panorama
  • Hub24
  • Macquarie Wrap
  • Mason Stevens
  • Powerwrap
  • uXchange

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
21.66%
NUMBER OF STOCKS
14
BETA4
0.71
MAXIMUM DRAW DOWN
-31.4%

FEATURES

  • APIR CODE PCL8246AU
  • REDEMPTION PRICEA$ 1.2078
  • FEES * Management Fee: 0.70%
    Performance Fee: 15%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 19.55m
  • STRATEGY INCEPTION DATE 11 March 2020
  • BenchmarkS&P/ASX 300 A-REIT Total Return Index

Fund Managers

Amy Pham

Portfolio Manager

Jade Ong

Investment Specialist

Description

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.

EXPLORE OUR FUNDS

Harding Loevner International Fund
Harding Loevner International Fund
Axiom International Fund
Axiom International Fund
Axiom International Fund (Hedged)
Axiom International Fund (Hedged)
Australian Equities Fund
Australian Equities Fund
High Conviction Property Securities Fund
High Conviction Property Securities Fund
Global Small Companies Fund
Global Small Companies Fund
WHEB Sustainable Impact Fund
WHEB Sustainable Impact Fund
Emerging Companies Fund
Emerging Companies Fund
High Conviction Equities Fund
High Conviction Equities Fund
Pengana International Equities Limited (ASX: PIA)
Pengana International Equities Limited (ASX: PIA)
Private Equity Trust (ASX: PE1)
Private Equity Trust (ASX: PE1)
Alpha Israel Fund
Alpha Israel Fund
Pengana Diversified Private Credit Fund
Pengana Diversified Private Credit Fund

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.